The Current Macro Environment Of South Africa Economics Essay

The Current Macro Environment Of South Africa Economics Essay Politically, the ANC has created 16 years of continuous rule and government stability but uncertainties surround their ability to manage union strikes and a steadily decreasing electorate vote. Economically, GDP is expected to show continuous growth despite a sharp drop in 2009. Business environment remains strong through FDIs although warning signs herald a weakening of the currency in the future. Socially, although economically viable to invest in this country when considering the low costs of entry, South Africas working population presents a lack of skilled labour required by our firm. Technologically, concentrated areas of RD, industry specific knowledge and improving transport infrastructure help to compensate the temporary shortcomings in energy supply. The legal system is generally supportive towards companies with strong regulation and employment laws. Environmentally, SA is an international leader in tackling global warming. It has great potential for producing renewable energy but environmental hazards and heavy reliance on coal for energy should be taken into concern. An extensive PESTLE framework will be used to highlight the major contributing factors that would affect such a strategic move. Political Government Stability The present government, the African National Congress (ANC), has shown relative stability, winning four consecutive elections since the fall of the apartheid in 1994. This has allowed continuous implementation of policies through sixteen years in power, the focus of which has been on improving social integration and employment generation. Source: Datamonitor, Aug 2009 Struggles under Political Unrest Despite strong governance indicators, SA still has much to develop as a democracy. The government is kept under pressure from the rising power of trade unions and an inability to control violent demonstrations. The ANC has also suffered a decreasing share of the electorate vote since first coming into power, receiving 65.9% in the recent 2009 election. Although a near two-thirds majority, commentators argue this is below the important threshold of 66% that allows the party to unilaterally alter the constitution. Implication: Pressure from trade unions may cause wariness in future business investment and a loss in consumer confidence. Economical Corporate Tax Rate There is a basic corporate tax rate of 30.2% of profit for all companies1 as of 2010. Interest Rates The South African Reserve Bank is independent and operates in much the same way as Western central banks, influencing interest rates and controlling liquidity through its interest rates on funds provided to private sector banks.2 Exchange Rates and Trading Unlike other African countries, SA prides itself as an open economy, benefiting from trade liberalization with many blocs3Â  . However, it has been posting a negative balance of payments since 2002. As of 2008, SAs total exports amounted to $96.1 billion, which was considerably higher than the total export value recorded at $83.0 billion in 2007. This has been exacerbated by the surge in inflation since monetary policies implemented in 2000. Recently, inflation has slowed to 6.89% year-on-year in June 2009 from 8.0% y/y in May 2009.4 Implication: An open economy will facilitate the expansion immensely, meaning less red-tape and cost savings. A negative trade balance can be advantageous as it will weaken the exchange rate, lowering costs for our firm. The lowered inflation will also help stabilise the economy. Foreign Direct Investments FDIs are highly valued in SA and the government has further encouraged them through the US ACU Trade, Investment and Development Cooperative Agreement signed in July 2008. This places special attention on customs cooperation, technical barriers to trade and investment promotion.5 Implication: Increases in FDIs will greatly aid entry into the country as these policies will help facilitate external investments such as ours. GDP Trends The GDP growth rate has been less than ideal with a sharp fall in 2009. However it is projected to bounce by 2011 with constant increase in GDP since. The economy is dominated by the services sector, which contributes 65.3% of its total GDP in 2008. 6 Implication: The increase in GDP shows that SAs economy is continually developing and could be a beneficial environment for setting up a company. Socio-cultural Unemployment The apartheid regime has resulted in social aspects wrought with conflicts. Despite high literacy rates and policies to improve this by the ANC, unemployment remains surprisingly high at 24.9%1. Implication: This highlights an underlying problem, which is the severe lack of skilled labor that does much in hindering business growth. High Crime Rate SA also presents a relatively high crime rate. A survey compiled by the UN Office on Drugs and Crime2 ranked South Africa second for assault and murder per capita, and first for rapes per capita. Implication: This results in a potential threat to the safety of both our physical and human capital. Effects of HIV There is also a growing impact of HIV on the supply of skills and productivity. The graph below shows the sources of indirect cost on a firm due to HIV.3 Lack of Skilled Labour More commonly, educated workers are deciding to move abroad, contributing to the rising brain drain and lack of skilled labour. Although there is a net emigration of -0.13 migrant(s)/1,000 population (2009 est.)4 This is due to the an increasing flow of unskilled labour from neighbouring countries in search of better economic opportunities and does not contribute to the necessary labour force required for the growth of the nation. Implication: This lack of skilled labour will require huge cost on the company in training workers. Technological Infrastructure SA has some of the best transport infrastructure in the world, placed in the top 20 countries for number of airports, length of rail and length of roads1. In the past four years $6.95bn was invested into improving infrastructure. In the next three years capital investment is planned to be $7.52bn to increase capacity for the 2010 World Cup.2 56% of funding in 2009 was used to expand current operations and the remainder was used to upgrade existing infrastructure. Figure 1: Transport Infrastructure Investment (2009)3 Figure 2: Planned Transport Infrastructure Investment (2010)4 Implication: Improving transportation provides potential employees locally, nationally or internationally with reliable and convenient means of transport to the companys location. Energy The energy situation has much to improve with state-owned firm, Eskom, struggling to meet the demand caused by the post-apartheid economic boom5. The industrial sector uses 68% of the supply but it is estimated that savings of up to 60% can be made with low-cost investment6. Alternative means of energy are currently being looked into and Nuclear Power plants have been proposed and could be in place by 2020 if approved.7 Implication: Electricity supply is currently inconsistent but demand side management and planned expansion in the future should solve any problems. Communications Current services are not up to UK standards but broadband is becoming widespread with wireless available in some locations. Fibre-optic cables were laid under the Atlantic Ocean in 2009 by Seacom with the intention of providing high capacity bandwidth linking communities in Southern and East Africa, Europe, and South Asia.7 Implication: International communications are well catered for and services in cities are comparable with UK standards. Research and Development RD with respect to science and technology has been a growing area since 2002 with the Innovation Hub created in Pretoria. It claims to be the leading knowledge-intensive business cluster in South Africa8 creating a community focusing on innovation and knowledge creation. Implication: Locating in an area within the Innovation Hub could provide us with a pool of potential employees with the correct skills, education and backgrounds. Legal Labour Laws SA has strong labour laws especially after the creation of the Labour Relations Act 1995, created to allow consultation between employees and employers to remove discrimination and ensure a diverse labour force. Employment regulations include: Compulsory by law to abide by Minimum Wage guidelines set out by government. These levels vary from sector to sector. The South African Labour Legislation encourages the freedom of collective bargaining. Implication: Structured legal system in place which contains laws to aid our entry into the country. Labour laws are similar to those in which we already operate so only small adjustments are needed to current practices. Intellectual Property Rights SA is currently not a member of the Madrid Union so filing for international trademarks is more complex than most countries. However, they intend to join within the next year. Copyright can only be registered for films, but arises automatically by law under the Berne Convention and applies to all countries that are signatories of it.1 Patents cost between $915 and $1300 initially, with an annual renewal fee of around $130 beginning in year three.2 Patent Co-operation Treaties (PCTs) are available which provides 30 months of international protection in 135 countries. Implication: PCTs allow any costs of patents to be deferred until the domestic countries in which to obtain the patent can be more carefully selected. This additional time also increases the chances of a successful patent application. Starting a Business The process for business setup is as follows: Source: DoingBusiness.org, 2009 Environmental Leader in Climate Change Environmental developments and climate change are issues close to SA. Having hosted the World Summit on Sustainable Development in 20021, the country also follows the Kyoto Protocol and featured prominently at the Copenhagen Conference in 2009. Incumbent President Jacob Zuma has pushed for plans to continue with CO2 reduction of 42% by 2025.2 Implication: Good international relationships with countries such as USA and UK, as well as a reputation in protecting global environments. The Department of Environmental Affairs has also implemented policies to subsidise firms who use renewable energy resources. With the local demand for environmental protection and reassurance of safety from environmental hazards, there are huge incentives for firm to improve energy usages efficiency1. Energy Reserves South Africa heavily relies on coal production for energy, coal providing 88% of total primary energy and 90 % of electricity generation. However, the nation has notable renewable energy potentials3. The country has an overflowing wind resource and the highest levels of solar radiation in the world. The expansion of renewable energy in South Africa is maintained and upheld by the White Paper on Renewable Energy (Nov 2003), which aims to generate 10,000 GWH of renewable energy for final energy consumption by 2013. Implication: The government has actively supported energy production development although some environmental hazards may be detrimental to a suitable working environment. Conclusion Through use of the PESTLE framework, we can conclude that the macro climate of South Africa is generally positive with much potential for expansion. The main areas of weakness found will undoubtedly require further investigations by management. However, breaking into the countrys technology sector can be a success given that the company is fully aware of the obstacles involved.

American Financial Crisis Essay -- Economics Economy

The US Financial System: A Crumbling Empire The financial system has been crucial to the role of free enterprise. â€Å"Financial markets have come to supply non-financial corporations with mechanisms for managing their risks and for comparing and evaluating diverse investment opportunities in a highly complex global economy† (Cindin, 2008). â€Å"However, despite the lifetimes it took to build our financial institutions, bad luck and careless risk management have jeopardized careers and mortgaged these institutions’ futures†(Wallace, 2008). The nation is currently attempting to deal with the biggest financial crisis since the Great Depression. It is now imperative that a way be found which will re-regulate finance without undermining finance’s needed innovative capacity. The origin of the financial crisis can be dated back to 2006. During that period in time, companies began buying trillions of dollars of complex financial products called ‘structured credit derivatives’. The value of these derivatives quickly escalated to over one-hundred trillion dollars due to the high demand from banks around the world. â€Å"These paper investments were supposedly backed by loans on houses, cars, businesses, and credit cards† (Francis, 2008). Nevertheless, several issues have erupted from the sale of these paper investments. The production and trading method for derivatives is unclear, and no one really knows what credit risk is transferred to whom. Basically, banks were fighting over assets with questionable values. Even though the sale of derivatives has disrupted our economy, it is not the primary reason for which the financial system is now in distress. The reckless selling of mortgage loans has lead to the eventual breakdown of our financial... ..., Jane & Francis, Theo. The Financial System Bailout: Deal or No Deal? (2008). Business Week. Retrieved November 2, 2008, from http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080925_596844.htm Solomon, Deborah & Crittenden, Michael & Paletta, Damian. US Bailout Plan Calms Markets, But Struggle Looms Over Details (2008). Wall Street Journal. Retrieved November 2, 2008, from http://online.wsj.com/article/SB122191819568460053.html?mod=googlenews_wsj Stewart, Heather. IMF Says US Crisis is Largest Financial Shock Since Great Depression (2008). Guardian News. Retrieved November 2, 2008, from http://www.guardian.co.uk/business/2008/apr/09/useconomy.subprimecrisis Wallace, Michael. Wall Street Talks: What the Bailout Means (2008). BusinessWeek. Retrieved November 2, 2008, from http://www.businessweek.com/investor/content/sep2008/pi20080922_128934.htm

Global Economy Essay

This paper sets out global scenario of state of affairs of different major national economies of the world. The emergence of a global economy indicates or presupposes interconnectedness of the different national and regional economies. The formal opening a global economy was started by formation of International monetary fund soon after the world war. Because of this, giving of surplus resources of the wealthy countries to the needy ones supplemented by free trade among nations became a reality thus fostering international brother hood and extenuating war possibilities. After all, wars were mostly for economic reasons though there were ideological excuses being argued for the wars so far held. After seeing that global economy is mainly to reduce regional imbalances, it has been concluded that because of some ideologies though may be real and inevitable due to natural laws, the present tempo of globalizing the economy should not be given up. Global Economy Global economy is what emerged as result of unified free markets of the world following the Bretton Woods Conference by which multilateral trading system characterized by banking regulation and dollarization of the monetary standards and Keynesian economics came into being. International Monetary Fund, International Reserve Bank and other international agreements of the Breton Woods Conference also paved way for growth of Global economy. The General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) also made Global economy an inevitable development. The world trade witnessed an increase of 15 percent each year during the period between 1953 and 1973 which resulted in betterment of individual national economies. Since there was a set back for the United States’ economy after the oil crisis in 1973, Bretton woods system and Keynesian policies lost their importance. After 1973, multinational business organizations started emerging all over the world thus making global economy an irreversible phenomenon. Subsequent revolutions in communications, emergence of computers and fiber-optic technology that facilitated instantaneous international transactions made global economy with practically no national boundaries keeping in view the cost-efficiency alone as the guideline. Globalization and Foreign Direct Investments made global economy as a concomitant feature. (Abrahams) Global Economy signaled transition from economic activity in agriculture to services. Because of this, GDP grew at a rapid rate for OECD and advanced counties. Before the advent of Global economy which gives power to market goods and services across nations, United States of America was controlling the entire economy of the world. Now the power of the U. S. A has been reduced to 25 % of what it was before the emergence of world economy. (economywatch) Hence Global economy is no longer driven by the U. S. though slow down of its economy will hurt some countries according to the economist Ed Yardeni of Yardeni Research, New York. Many countries from China to Persian Gulf States have strengthened their economies by paying off their external debts and built up their huge cash reserves to boldly absorb any future shocks to their economies as opined by Maria-Laura, Deutsche Bank, Frankfurt. The BRIC (Brazil, Russia, India and China) countries are busily engaged in acquiring consumer goods from Cell phones to Cars more than the U. S. as reported by Jim O’Neil of Goldman Sachs. This has been a blessing for Japan and South Korea that supply to these countries steel, heavy equipment and construction materials. In particular, China has been building steel mills and petrochemical plants reflecting in the order books of Seoul based Hyundai Heavy Industries. Europe is no exception. It supplies cars and machines tools to Asia and Middle East as observed by Daimler Chrysler’s Chief Executive. India which is not export oriented as China, however wants a stable global economy in general and a stable U. S. economy in particular as opined by the Chief Executive of Mahindra and Mahindra Ltd who manufacture cars and tractors in India with $ 4. 5 billion annual turnover. In a way all-round growth in global economy would be good for the U. S. also in due course because of its earnings that come from its overseas enterprises. In fact the recession in the Housing sector of the U. S. is being offset by the 29% of its current trend of corporate profits as against the 20% at the beginning of this decade. Hence America’s reduced direct role in the global economy need not be viewed with dismay. (Reed Staley 2007) G8 Summit 2007 The Summit Declaration of 7 June 2007 by G 8 countries has announced its agenda for Global Growth and stability. Para two of the declaration says that though global economy is in sound condition, readjustment of imbalances has not been fully achieved as it would take equally longer time for readjustment as it took for building up. As in Para 3 of the declaration, the strategy of G8 for readjustment of global imbalances has resulted in the U. S having stepped its drive for augmenting domestic savings to reduce its federal budget deficit, Canada and Europe having been witnessing growth in employment, domestic demand and budget surpluses besides structural reforms in Europe in particular. In Japan too, there has been ongoing structural reforms and consolidation of fiscal measures for a sustainable economic growth. As for Russia, it has for the last seven years achieving domestic consumption resulting in sound economic development due to its macroeconomic policies and fiscal management. The declaration further says in Para 4, that outside member countries in Asia have also set in motion flexible exchange rate systems and financial strengthening conducive to readjustment of global imbalances. Oil exporting countries have stepped their investment on oil production and have considerably increased their imports also. The declaration states that as cross-border investments are the key to the development of global economy, the members are committed to maximizing the said investments. The G8 will meet again in 2009 to review the progress it has made towards achieving these objectives. Leaders from the countries of Brazil, China, India, Mexico and South Africa who had attended the G8 summit at Heiligendamm, were taken into confidence by G8 member countries that global imbalances should be rectified by their joint efforts recognizing that individual efforts will not yield results. The new partnership between G8 and the above said countries have agreed on a ongoing dialogue on four issues namely 1)promotion and protection of innovations, 2) making available an open investment conditions towards improving the freedom in investments couples with social responsibility commitments, 3) adopting a common responsibility towards development of Africa, and 4) knowledge sharing in the areas of reduction of CO2 emissions, tackling the effects of climate change in line with conference talks at Gleneagles and St. Petersburg. (G8 Summit 2007) Advantages Global economy enables achieving large-scale economies with the industrial sector enjoying the advantages of obtaining labour, capital and technology at low cost. Besides it has brought about global peace and peaceful coexistence. (economywatch) Disadvantages Because of proliferation of transportation across the world, environmental problems such as increased carbon emissions, noise levels have arisen. Domestic labours lose their jobs due to comparative advantage reasons. (economywatch global economy) Global economic trends This economy largely revolves round advanced countries such as U. S. , U. K. , France, Germany, and Japan. In addition neo-rich countries and emerging economies like China, India, Brazil, Mexico and Argentina have also been causing ripples in the world economy. Recession in the U. S. economy is still continuing though it is being down played. During the period of 1970 to 2001 agricultural activities fell by 2% in advanced countries and by 11% in developing countries. Though 55% of the population is engaged in agriculture in developed countries, due to excessive labour and low productivity, contribution to total output is low. On the other hand in the case of China, a developing country where though 45 % of the population is engaged in agriculture, contribution to the total output i. e. GDP is 12 %. ( economywatch-global economy)

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