South Africa’s Economic Analysis Assignment Sample

• Subject Name : Economics

Innovation for Productivity and Inclusiveness

Listing the major sources of GDP of the nation of South Africa and sorting them in order of their contribution:

The major sources where the GDP of South Africa is derived is from the construction which computes to about 76%, manufacturing is 74.9%, mining 73.1%, transport which contributes to 67.9%, trade(wholesale, retail and motor trade) which computes the 67.6% and electricity, water and gas supply which contributes 36.7%. (South African markets, 2020). South African economy is mixed economy which derives the gross domestic product in 2019 which was around 0.15%; here are the major sources of purchasing power parity (GDP)(Statista, 2020);

-manufacturing contributing to 13.3% of the economy, this includes manufacturing of finished products like motor vehicle and wine products.

Construction-76.6%

Manufacturing -74.9%

Mining -73.1 %

Transport - 67.9%

Trade -67.6%

Electricity, water and gas supply- 36.7%

Personal services- 32.5%

Finance, real estate and business services- 28.9%

Agriculture, forestry and fishing- 15.1%

Government-0.6%

These are the sources of GDP in South Africa.

Therefore, the GDP 2020 for South Africa has gone down and is currently 51%.

Understanding the reason why the employment opportunities are not getting expanded even though with the high GDP of the country

GDP is generated both by aggregate demand and aggregate supply. When there is a supply shock, the aggregate supply decreases. Such a development increases prices while reducing real GDP which reduces the level of employment.

Since nominal GDP = (real GDP) (Price level), it is quite possible for nominal GDP to rise even if real GDP has fallen due to higher prices. For example if the original price = $2 and real GDP = $100, the nominal GDP = (2) (100) = $200.

Suppose now due to supply-side shock, real GDP declines to 95 while price rises to $2.20. The nominal GDP would now be (95) (2.20) = $209. Here we see an increase in nominal GDP but a decrease in employment (Trading Economics, 2020).

It is also possible that if the AD is absolutely price-inelastic, it will be a vertical line. When the new supply curve AS Intersects this vertical AD, real GDP and hence employment will not change. Nominal GDP, however, will increase. Consequently, it is quite possible for nominal GDP to rise without an improvement to unemployment. The National Development Plan (NDP) spreads out a few objectives for South Africa for 2030, including disposal of salary neediness, lessening imbalance, and decreasing joblessness to 6 percent. There is a considerable hole between these objectives and the current financial atmosphere in South Africa: The rate of family unit destitution remains at 57 percent and the joblessness rate at 27 percent. South Africa is likewise one of the most reliably inconsistent social orders on the planet, with a Gini coefficient of 0.69, which has not changed fundamentally throughout the most recent decade (Leshoro, 2013). Quickening of comprehensive development is along these lines is vital if South Africa is to acknowledge huge decreases in neediness, disparity and joblessness. 

Understanding the contribution of the precious metals in the exports of the South African economy

South Africa's main exports are corn, fruits, sugar, wool and precious metals and stones like gold, diamonds, metals and minerals. Exports contribute 29.91% of South Africa’s' GDP, with agricultural exports being the major contributor. Precious minerals like manganese, Ferro-chromium, gold and stones contribute a substantial part to exports as do services. Precious materials like these contribute about 17% to GDP (South African Market Insights, 2020).

Listing the Provincial contribution to the entire GDP of the country and sorting the List of the top two contributors

As per 2018 Data, top two provincial contributions to the South Africa's GDP are as follows:-

Gauteng was the main contributor with about 34.94% to South African FDP in 2018.KwaZulu-Natal province was second with 16.04%.

Western Cape was the third with 13.86%.Eastern Cape was fourth with 7.51% contribution. Mpumalanga was fifth with 7.24%.Limpopo was sixth with 7.18%.North West was seventh with 5.89% and Free State eighth with 5.14%.Northern Cape was last with the least contribution of 2.19%.

Each province had two major sectors that contributed to their GDP. Gauteng's, KwaZulu-Natal and Western Cape major sectors that contributed to their GDP were finance, real estate and business services with 24.8%, 16.9% and 28.3% respectively(South African Market Insights,2020). Eastern Cape major contributors were government services at 20.8%. In Mpumalanga, Limpopo and North West mining and quarrying were the major contributors with 23.1%, 25.4% and 27.6% respectively. Free States major contributors were trade and accommodation with 16.4%.In Northern Cape mining and quarrying majorly contributed with 26.5%.

Understanding the entire dynamics behind why the Poorest Provinces in the South African economy even though they are getting their GDP from quarrying and Minerals yet are not able to come out of the poverty cycle

However, there are the poorest provinces in South Africa which get their GDP from mined minerals and quarrying, but they still in poverty status. There are various reasons on why the poorest provinces are not able to come out of poverty cycle. At the level of the local population, mining and the imbalance in the distribution of income from mining revenues are overwhelmingly felt. This has generated social rifts between affected communities and both industry and governments, especially in the developing world (Leshoro, 2013). These rifts can lead to a disruption (situational scarcity) of the steady supply of metals. Lack of economic infrastructure in the poorest provinces results in no companies making foreign direct investments in such provinces. Economic infrastructure includes transport, electricity, water supply, etc. Another reason is poor education means less amount of human capital available in the poor provinces, and we know that human capital is the driver of long run economic growth. Limited government capacity as the government may not be efficient enough to generate revenue and make capital expenditure to boost the economic growth of the provinces is another major issue. High amounts of public debt on government puts burden of debt servicing on the government (Turok, 2013). Large part of government's income is spent on paying interests on loans that are taken and thus there is decline in important investments that are to be made by the government. The structure of the mining industry in South Africa is also a major problem in the poorest provinces. Although minerals are abundant in South Africa, there is little advanced technology to process the raw materials to form the finished product. Most minerals undergo some basic processing and then exported to foreign markets (South African Market Insights, 2020). The benefits accrued are less compared to what foreign markets will obtain from the finished product. This is another reason which makes these provinces to continue being poor since less benefits means slow development of the areas and little income to workers. According to Turok (2013), manufacturing in South Africa is subjected to high prices of raw materials for input. This increases the costs of production which makes it difficult for South African products to compete in both international and local markets. High prices for raw materials make it difficult for manufacturing to take place hence most are exported. The low growth rate in these provinces has also impacted the general economy with a low growth rate due to factors such as foreign investments. The private investments have slow investment growth and result in weak integration to the global chain value, which hinders the provinces from reaping economic opportunities emerging globally (World Bank, 2017). This has also impacted the living standards regarding peer economies. There is also a need for these provinces to build their comparative advantages to make them industrial, skilled provinces, which will enable them to develop both international and domestic markets through high innovations and productivity. These provinces have also been highly dependent on the price movements in their products. Economic growth is slow, job creation is slow, there is high unemployment and thus poorest Provinces are not able to come out of poverty cycle.

Comprehending “Beneficiation” and its implication on the economy of South Africa

In the mining sector or in the use of fossil fuels, beneficiation is any process that enhances the ore economic value by removing gangue minerals, resulting in higher grade production and a stream of pollution. Beneficiations are a process that improves or uphold, and it is the benefit (Jhinghan, 2016). This installment of raw materials often has a severe effect on the environment. The implication of this policy for south Africa especially now is when they faced a big problem, since COVID-19 has rapidly spread across the globe, reaching every continent, Africa is one of the country reached the virus, they had a thousand of infected by the said virus and thousands number of deaths in Africa.

Comprehending the reason why the South African economy is hell bent on the implementation of the policy of beneficiation

In particular, the beneficiation strategy is underpinned by a number of provisions within existing national policy and legislation, such as the South African Minerals and Mining Policy (1998), the Mineral Act, the Broad-Based Socio Economic Empowerment Charter, Precious Metals Act, Diamonds Amendment Act, energy security, Planning and compliance with environmental agreements. The South Africa implement this policy beset they need to improve their system or to have a good impact to their country especially when it comes to Gross domestic product. Thus, GDP needs to improve and need to be well known enable the South Africa can easily uplift their country (Department of Mineral Resources, 2011). They need to measure over specific time frames, such as a quarter or a year and the total value of goods and services produced in South Africa. The government of South Africa thinks that the implementation of beneficiation policy will help the economy to expand in various sectors and will enable the creation of jobs. This will lead to increase in the overall GDP growth and development in the economy.

References for South Africa’s Economic Analysis

Department of Mineral Resources. (2011). A BENEFICIATION STRATEGY FOR THE MINERALS INDUSTRY OF SOUTH AFRICA. Retrieved from: https://www.tralac.org/images/docs/6134/beneficiation-strategy-june-2011-final.pdf

Jhinghan, M. L. (2016). Microeconomic Theory. New Delhi: Vrinda Publications

Leshoro, T. L. (2013). Does Economic Growth Lead Employment in South Africa? Journal of Economics and Behavioral Studies, 5(6), 336-345.

South African Market Insights. (2020).Contribution of South Africa's provinces to South Africa's overall GDP for 2018. Retrieved from: https://www.southafricanmi.com/contribution-of-provinces-to-south-africa-gdp-9mar2020.html

Statista. (2020). South Africa: Distribution of gross domestic product (GDP) across economic sectors from 2009 to 2019. Retrieved from: https://www.statista.com/statistics/371233/south-africa-gdp-distribution-across-economic-sectors/#:~:text=In%202019%2C%20agriculture%20had%20contributed,the%20total%20value%20added%2C%20respectively.

Trading Economics. (2020). South Africa GDP. Retrieved from: https://tradingeconomics.com/south-africa/gdp

Turok, B. (2013).Problems in the mining industry in South Africa. GREAT Insights, 2(2), 26-32

World Bank. (2017). South Africa economic update: innovation for productivity and inclusiveness. Retrieved from: https://openknowledge.worldbank.org/handle/10986/28439

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