South Africa’s economy is officially in a recession. A recession is defined as two consecutive quarters of economic decline. South Africa had a 2.2% contraction in the first quarter and a 0.7% contraction in the second quarter. These two contractions mean that there will be less money coming into the country than in the past. This causes companies to make less profit, employ fewer people and raise overall unemployment. The last time South Africa was in a recession was during the global financial crisis in 2009. It is believed that the main reason for the current recession is Jacob Zuma’s, the previous president, corruption. Due to the mismanagement and improper allocation of funds the agriculture, transport, trade, and fishing industries have faced strong declines. For example, a drop in production of field crops has lead to a 37% decline in the first quarter and 29% decline in the second quarter. Furthermore, a decrease in motor vehicle parts and accessories lead to the decline in transport. There are multiple views on how one can get South Africa out of the recession. Duma Gqubule, the founding director at the Center for Economic development and transformation, believes that the government should first implement an emergency cut in interest rates, of 200 rands, to stimulate the economy. Secondly, it must add a fiscal stimulus package. Similarly, Isaah Mhlanga, a macroeconomist for Rand Merchant Bank, argues the government must make South Africa as business friendly as possible so that they can increase the level of investment, improve economic growth, and raise general employment. In an attempt to curb the recession the current South African President, Cyril Ramaphosa has procured an R370 billion (24.7 billion USD) economic stimulus package from China. However generous this may seem, many critics argue that this is a form of "debt colonialism".
I found it really interesting how you used South Africa as an example of recession. By following this country, the specific examples and percentages you provide about what lead to this recession are very helpful. In explaining how this country can get out of its recession, I think it would be helpful to compare it to another country who has experienced the same thing. What have other countries done to lift their recession?
ReplyDeletePeter, great job on this post. South Africa is in a tenuous situation right now, with the recession and the water shortage in Cape Town. I was surprised to read about the cause of the recession. I didn't know that Zuma had such a large hand in the current recession. I knew he was involved with corruption, and I knew that he was spending funds on personal use, but to derail a country's economy? I think perhaps it's more related to his policies choices regarding the economy, as well as his dealings with foreign nations. Like it or not, in this globalized world one country's economy is affected by several other countries' continued relationships. I researched the inflation rate of South Africa, because when I read that a possible solution was cutting interest rates I wanted to know if inflation was a possibility. Of course the experts have already considered this and I'm sure that cutting interest rates will have the desired short term effect. The stimulus package from China makes a lot of sense as well, given the context. China has been pouring an incredible amount of credit into the African continent, both to establish good relations and, as you mentioned, to institute a sort of debt colonialism. In this case their funds are put to good use, to say the least, because South Africa needs to get out of this recession in order to resume growth. Anyway, great job on the post Peter, I enjoyed reading it.
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