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 a 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".
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I really like the format of this. Your initial specific analysis of what a recession is defined as helped to give necessary background. Your writing was specific as after identifying Jacob Zuma as the leading cause of the recession you identify how specifically the harms effected the economy. Ending with how South Africa could fix their economy gave important background as to how countries in similar condition can escape recession. The short note about China and debt colonialism at the end was very interesting and I think very true.
ReplyDeleteInteresting post Peter! The stimulus package from China reminds me of service groups and government loans to third world countries, it will be a great short term solution but will do nothing to help the country find a permanent solution. I can also see this loan creating more political problems in addition to financial problems down the road. You described it as "debt colonialism" which makes it seem like China now has a say in the South African government, something that could cause a lot of problems later on, because if South Africa doesn't do what China wants China will get mad because they helped South Africa during the recession but if South Africa does what China wants then they could be hurting themselves.
ReplyDeleteGreat post! Your last sentence about debt colonialism really fascinated me. It is likely that many people in South Africa are extremely wary of accepting help from world powers, especially because many people still remember the Apartheid. As a result of English colonialism centuries ago, the South African society was broken into a strict hierarchy. When this colonial period finally ended in the mid 1900s, this system of segregation continued, where a white minority fiercely dominated the black majority. The Apartheid lasted until 1994, so the majority of South Africans likely still remember the horrible inequality that existed, ultimately as a result of colonization. If South Africa was to accept the economic stimulus package, they fear they could potentially be subjected to a similar system. Whether or not this would actually happen, it is a very real fear in the minds of many.
ReplyDeleteThis was very well written and it explained the situation well, especially since this was something I'm so unfamiliar with. What I'm curious about is if you think this will end soon. The contraction in the first quarter was 2.2% while the next was only 0.7%, so it seems like the situation is improving. I also am not sure if the suggested actions were actually taken but, in my opinion, cutting interest rates would benefit because it would increase incomes and, because of that, demand for normal goods, which would stimulate the economy.
ReplyDeleteI enjoyed your post and had no clue as to how far in debt South Africa's economy is.The economic stimulus package reminds me of one that we have learned about previously, when the US bailed Mexico out of debt. The US did this because the two economies are intertwined. This leaves me wondering why China has decided to help and wondering what they will get out of it. Additionally, I liked how you included possible solutions that could help the crisis.
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