South Africa Economy – Term Paper

Question 2

The economy of South Africa is by far the most integrated amongst African countries in the global economy. The recent wave of strikes in South Africa is affecting economic growth. Critics of minimum wage warn that the situation is becoming critical and it might lead to unemployment. Employees marching and singing as well as dancing as a way of drawing attention to labor disputes has become a frequent sight in South Africa. For instance, in 2013 South African mineworkers brought the entire industry to a standstill when they downed tools demanding better wages and better living conditions. The wave threatened the economic growth in the sense that the strikes effectively led to the fall of world stock markets as well as the collapse of the major financial institutions. During the wave, the country experienced global economic crisis since unemployment during the great depression worsened with the non-availability of alternative job sources and a total dependency on primary sector industries. The wave of strikes induced job losses and changes in shares of part-time and full-time employment. Therefore, the impact of the wave of strikes in South Africa includes;

South African Economy

Rise in Unemployment

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The wave of strikes in South Africa has tempered with the social security of most workers who were left destitute after being retrenched. During the wave of such strikes, the employers were forced to comply to effect the statutory requirements relating with retrenchments. The corporations stopped financing the operations of the workers who were retrenchments (Ries, 2010, p.34). Most importantly, the strikes caused a drop in demand for commodities, lower production cycles of manufactured products and failure for companies to afford to pay employees. Such strikes made Corporations retrench workers as a legitimate business decision to compete in the labor markets regarding profitability. The South Africa society firmly believed the ideal of democracy. The democracy is increasingly exposed to the disciplinary effects of the international product, capital and labor markets.  The increasingly globalized economy ideally demands high levels of adaptability on the part of labor markets and its participants.

The rise of unemployment in South Africa due to the wave of strikes resulted in the fall in production which reduced demand for labor. Various industries such as mining, distribution, manufacturing, warehousing and Freight sectors were affected significantly by the strikes. Most companies during the time of recession experienced significant financial problems which resulted in retrenchment of employees causing the rise of unemployment. Some companies felt that it is no longer possible to finance operations that currently contribute to losses. The reduction process caused labor unrest and further lowered production volumes in most companies in South Africa.

Source: South Africa statistical records

Globalization and Jobs

Global Impact regarding Labor Market

The world economic and financial crisis during the wave of the strike in South Africa had grown far larger than first anticipated. The scope, depth as well as the duration of the attacks remained difficult to predict and impacted most labor market sectors in the country. Nearly all the industries in the country were mounting to job losses, unemployment and working poverty often increased dramatically. During the crisis, young people, women, as well as migrant, were the most vulnerable to the economic downturn, and they faced difficulties in integrating into the labor market. The fact of the matter is that the wave of the strike in South Africa affected migrant workers severely and sources suggested that an increase in the return of migrants to their countries of origin increased tremendously.  

Competing Interest

The government of South Africa has experienced challenges of the harmonizing business community represented by the employers and labor represented by employees since the wave of strikes. Substantially, the relationship between the two is one of power play and bargaining. The country has witnessed significant retrenchments during the wave of attacks causing the current economic crisis in the country. However, mainly, some of the sectors are now growing, but others continue to struggle, and some face the prospect of a double dip. The economy of South Africa has not been increasing at an expected rate given the fact that the wave of strikes lowered the economic growth and also declined the mining sector. The Gross Domestic Product of the country declined for two consecutive quarters during the great crisis. Therefore, the recent wave of strikes in South Africa affected the living standards of most people in the country causing an economic growth both local and internal markets (Marshall, 2011, p67).  

State-owned Enterprises

Question 3

A state-owned enterprise is a legal entity that ideally undertakes various activities based upon commercial on behalf of the government (Savona, Kirton, & Oldani, 2011, p.56).  Over the past decade, State-Owned Enterprises have been rising in influence in the global economy. Often State Owned Enterprises have become tools for some countries to position themselves for the future in the global economy better. It is evident that State Owned Enterprises are active internationally and thus increasing global competition for finance. The top eight countries with the highest State Owned Enterprises include United Arab Emirates, Russia, China, Malaysia, India, Brazil, Indonesia and Saudi Arabia collectively accounted for more than 20% of the world trade. Apparently, China alone is accounting for more than 10% of the world export in 2010. A weighted average was used to ensure compatibility and estimate which country have the highest state-owned enterprise as the table suggests;

Singapore is one of the developing countries regarded as inefficient regarding firms due to political objectives, corruption, and visible differences. State ownership has been used as a tool and one of the policy levers governments use to maintain jobs and sustain a network of firms to have a strategic value in the long term. In other words, the primary objectives of the government creating state-owned enterprises are generally focusing on jobs for its citizens and contributing business in the society in a wider range as shown by the growth of corporate social responsibility program. The states are aiming to be viable commercially and over and over again demanding trade-offs regarding financial performance between the short and longer terms. The table below gives illustrations how State Owned Enterprises and private firms vary regarding growth revenues in Singapore.

On the other hand, privatization in the past three decades has become and continues to be regarded as a significant element of economic reforms in developing countries. Many countries had engaged and had become geographically involved in the energy, telecommunication, and water sectors to emphasize on development. Privatization began to gain popularity in both developed and developing countries so that to participate in commercial activities. The shift from public to private has ideally increased efficiency in developing nations by boosting the efficiency and quality of the remaining government activities, shrinking the size of government as well as reducing taxes. The new faith in privatization has spread and has become the global economic phenomenon (Sen, 2011, p.78). Developing countries have been quick to adopt privatization program to reduce the size and operating cost of the public sector. Privatization is likely to be at the top of the economic agenda of the newly liberated countries in Eastern Europe. The countries include Poland, Hungary and Czechoslovakia are turning to the private sector to balance their budgets while maintaining at least tolerable levels of services. Moreover, privatization can reduce the size of governments in the overall economic efficiency. Private sectors operate in a transparent and universal manner with a uniform optimistic perspective. Privatization will work best when private managers find it in their interests to serve the public interest.

State Owned Enterprises Advantages Disadvantages

Corporate governance is more detached in the operations of privatized companies to improve overall success regarding investment performance. Despite the challenges in trade and investment, private firms in developing countries have improved the social and economic conditions of people by facilitating economic development. Managers in private companies promote sound corporate governance by supporting the formation of high experienced as well as different boards to guide and complement management leadership. The boards provide effective oversight and supervision of the Directorate. To add to that, private firms are capable of providing sufficient investment for technical modernization of the large national industries thus providing mass employment as compared to state-owned enterprises (Wiley 2010, p.46).

For instance, in Israel, an impressive array of cities as well as local governments has made effective and efficient use of privatization to increase competition and reduce expenditures. The case of Cairo town in the year 1989 clearly demonstrates on how privatization has helped in the case where city towering crews could not keep up with abandoned vehicles that littered the streets. The private sector paid the city operators $ 25 per car. Cairo government found that competition from the private sector could create incentives in an efficient manner. It is evident that developing countries have low per capita income, weak regulatory capacity and embryonic financial markets. Therefore, the table below clearly illustrates how privatized enterprises in Israel have increased efficiency.

Therefore, some of the factors that enable privatized enterprises to have efficiency in developing nations include the following;

Greater Efficiency

The greater emphasize of private companies on profit, and the use of their human, financial as well as technological resources more efficiently has increased their output. Privatization has fostered efficiency and investments thus stimulating new growth and employment. Efficiency improves as a result of profitability. In developing countries, the newly privatized companies enhance their performance to yield greater benefits as attributed to the prevailing market structure.

More Investment

Private companies emphasize on increasing their capital investment because they have greater access to more incentives to invest and equity markets. Privatization is an incentive which increases investment and improves efficiency. Firms operating in developing countries maximize profit since they transfer both control rights and cash flow rights to the managers thus showing greater interest in profit and efficiency than in pleasing the government with higher outputs. Additionally, private ownership leads to reduced leverage. The removal of the public debt guarantees will increase the cost of borrowing and gain access to public equity markets.


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Tran, (2012). Economic crisis management: Policy, practice, outcomes, and prospects. Cheltenham: E. Elgar.

Pempel, (2010). The politics of the Asian economic crisis. Ithaca [N.Y.: Cornell University Press.

Wiley (2010). The little book of economics: How the economy works in the real world. Hoboken: John Wiley & Sons.

Sen,  (2011). On ethics and economics. Oxford, UK: B. Blackwell.

Marshall, (2011). Principles of economics. London: Macmillan.

Chossudovsky, & Marshall, (2010). The global economic crisis: The Great Depression of the XXI century. Montreal: Global Research.

Ries,  (2010). Asian storm: The economic crisis examined. Boston [u.a.: Tuttle.