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Economics Assignment: Causes Of Economic Growth In South Africa


Task: Instructions for economics assignment: You will investigate a real and current issue within the field of macroeconomics and must demonstrate that you can structure a study on a macroeconomics subject, identify information needs, draw from the body of existing knowledge on a particular subject, compare theory with practice, construct reasoned arguments supported by evidence, and make logical conclusions, all within a context of an individual written report, and strict deadlines

Topic: For this assessment, you are required to critically discuss the view that the achievement of higher economic growth rates should be the priority of developing economies by applying it in a country’s economy of your choice.


The multidimensional problem of poverty goes way beyond economic and can include various other factors such as political, cultural and social issues. Hence, as mentioned in this economics assignment the solution to the problem of the economy cannot be exclusively based on economic policies but demands a comprehensive list of measures that are well-coordinated. Economic growth is one of the major factors which influences poverty hence the stability of macroeconomic is imperative for sustainable and high rates of growth. The stability of macroeconomics must be the key component for any strategy of poverty reduction. The stability in macroeconomics exists when essential economic relationships are in harmony and balance for instance, between output and domestic demand, expenditure and fiscal revenues, investment and savings and balance of payments. However, there is no need for these relationships to necessarily be an incomplete balance as imbalances such as current account surplus or deficits and fiscal are seamlessly compatible with the economic stability provided it can be financed in a manner that is sustainable. Economic growth can be described as the overall improvement or increase in the inflation-adjusted value in the market of services and goods formed by an economy over a certain time period. There are various factors that affect the economic growth in an economy such as capital, human capital, political institutions, structural changes, new products and entrepreneurs.

Reducing poverty in various developing countries has been one of the biggest longstanding concerns of development economics. The country of South Africa is the biggest unequal society on the entire globe with more than 50% of its people living in poverty and deficiency(Plagerson, 2021). Regardless of several notable gains in the reduction of poverty post-apartheid the levels of poverty stayed unfailingly highest among black South African, women, people living in rural areas and people with disabilities. The country of South Africa has been subjected to a lack in the creation of jobs which is also one of the critical components in the country. The efforts of the government have been minimal in restructuring the economy of the country after apartheid which has resulted in very little creation of jobs. The objective of this report is to provide a literature review on economic policies and causes of economic growth in the country of South Africa along with providing critical analysis on the basis of several theories and to provide a brief summary of all the major learnings from the topic.

Literature Review
According to Stone (2017), growth in the economy of the country matters for the stabilization of fiscal as well as raising the standards of living. Speedy growth in the gross domestic product (GDP) strengthens the fiscal conditions and enlarges the overall dimensions of the economy. There are two major causes of growth in the economy which includes growth in productivity of the workforce in the given economy or growth in the size of the overall workforce. The progression in productivity permits people to achieve a higher living standard without working for more hours. The market value of services and goods are measured by GDP in the country while also capturing the activity of the market in order to ensure economic welfare. Well-conceived policies of public investment, regulatory and tax can complement the growth of the labour force and private investment work towards potentially expanding the GDP. They can also provide benefits for the public which is not captured necessarily by GDP such as safety, health and fairness protections. A poorly conceived policy on the other hand slow the growth rate and harm the national economic welfare. The GDP of an economy represents the maximum level of sustainability of the country’s economy.

Madgavkar, Seong and Woetzel (2019) states, how the administrations in emerging economies tried several political programmes in order to accelerate growth, alleviate poverty, stimulate development and achieve various other objectives to mixed success. The policies of macroeconomics can be the first tool that can be considered by a country to accelerate its economic growth. The global economy is constantly restructured by ever-changing patterns of trade, sophisticated automation and ever-changing demographics which requires competitive companies and innovative governments to keep up with the change and move forward. Countries that became outperformers focused on improving the productivity of their government as well as creating a business environment that is highly competitive so that companies are spurred with productivity. The governments in economies that are outperforming are inclined to be open to experimentations with new methods to regulations and markets by utilizing experimental programs in order to check new ideas in various settings, modifying them if essential and ascending up those policies which work(Tejvan Pettinger, 2017). Several governments have also established their own units of delivery as well as labs of delivery to test these new approaches and deliver services. The country of China for instance uses distinct economic areas to test their policies before broadly presenting them. According to Chutel (2017), one of the utmost lasting heritages of apartheid is the immense poverty that was writhed by South Africa's major black populace. A grant to the system and social spending on health and housing were designed specifically to boost the black South Africans out of their poverty. The population of black South Africans still endure being affected badly by the ever-rising deficiency with more than half of the population being considered below the line of poverty.


Figure: 1 South Africans below the line of poverty
Source: (Chutel, 2017)

There are various factors that pushed the country of South Africa way back. The country has fallen prey to a sluggish rate of growth due to extra merchandisecompelled economies and has been unable to improve on the 3.3% growth in the year 2011 which was the uppermost GDP peak since the 2008 global financial crisis. One of the biggest faults has been the country's inability to implement and apply its own strategies. In the year 2012, the country propelled a "National Development Plan" but the lack of political motivation made the plan adrift. It is imperative for the country to implement and apply its own policies in order to mitigate poverty.

Addae-Korankye(2014) states poverty has multifaceted and multiple causes which can stem from lack of knowledge, information about prices in the market for goods they deal in, availability of proper public services, issues that are health-related and lack of rights. Poverty in South Africa is exacerbated by the poor people's lack of capacity to influence social processes, resource allocations and choices of public policies. The population has low capacity owing to poor life quality, poor health, lack of proper education, entrepreneurial abilities and vocational skills. The women in the society are in a disadvantaged position and are exposed to various risks due to lack of social, financial and physical security. There is also a significantly low degree of consumption due to no access to social assets, land, capital and market opportunities. The country is also exposed to shocks owing to lesser use of technology which can be helpful in mitigating the effects of floods, drought, crop pests, armyworms, crop diseases as well as environmental degradation. The immense lack of stability in the macroeconomic of the country erodes the resources of the poor population through variables such as inflation. Poverty in South Africa is driven by poor governance and corruption as well as poor utilisation of land, unending political conflicts, and deprived facilities of health, diseases and poor infrastructure. Gradín and Rodríguez Míguez(2011) states segregation due to race in South Africa has left a legacy of massive differences in poverty faced by different ethnic groups. There is a massive difference in the level of income distinguished due to race. The distribution of resources is highly unequal among the population and this stark inequality directs to the unsuccessful implementations of policies by the government in terms of mitigating racial division in terms of deprivation and poverty by population groups. It has been stated by Gqubule(2021) the proposal of budget-neutral in South Africa will work towards retaining the detrimental austerity policies of the country. One of the first steps of transforming the entire economy is to supplement various means of social provisioning through public services that are universal such as free healthcare and education, mass housing and transport and subsidized public electricity. The country can also look into matters of wage which was set too low and way below what the entire population would agree establishes a living wage. The country needs its specific economic bill of rights which provides a job guarantee and basic income.

According to Rogan (2015), the country of South Africa is subjected to a ‘triple challenge’ which is that of poverty, inequality and unemployment. The country is subjected to a persistent and high level of unemployment which has led to an extremely low degree of economic growth. Public and private employers have a great level of responsibility to ensure a minimum level of providing decent wages to their labours. At the same time, there is a great level of social responsibility towards workers that are vulnerable to represent them at a larger level.

Trisi and Saenz(2021) uncover how policymakers can work towards making substantial progress in order to reduce the gaps in the disparities in the race in poverty and access opportunities to expand the scope of effective and efficient policies such as food assistance, tax credits and housing vouchers. The programs of economic security are highly effective in reducing poverty in all ethnic and racial groups. There is a strong disparity of income on the basis of race and ethnicity which can be mitigated through proper government assistance. The ethnic and racial disparity in poverty reflects the historical as well as the ongoing discrimination which has restricted opportunities in major ways comprising in the vicinities of education, housing and occupation.

Analysis and discussions
In the current competitive world, achieving higher economic growth rates has been one of the primary concerns for the entire globe, wherein most of the developing countries have been facing various issues during the course of their achievement. Prioritization of real economic growth has been more feasible for developing countries, such as South Africa, along with a broader range of policy alternatives. Furthermore, prioritizing the achievement of higher economic growth rates can also be facilitated by designing the larger strategic framework that accelerates the developments of the economy, institutions, governance, norms, and behaviours as well. Hence, it has been identified that financial stability cannot be sustained in absence of a lack of social improvements, wherein poverty minimization and equity enhancement cannot be sustained without financial stability. However, the governments of the emerging economies have been consistently trying to accelerate social and economic growth, while alleviating poverty through various agendas (Madgavkar, Seong, and Woetzel 2019). However, South Africa has been identified to suffer immensely suffered by poverty, wherein the majority of the Black Africans are said to be living in poverty. The issues of poverty, unemployment, and inequality have been the primary macroeconomic challenges faced by South Africa, and therefore in order to confront these challenges, it is crucial for the nation to achieve as well as sustain a higher and stronger rate of the economy while creating employment as well (Faulkner, Loewald and Makrelov, 2013). In aid to achieve this, it is essential for more people in South Africa to work, because the increase in the proportion of the people employed will eventually have a significant impact on poverty as well as distribution of the income. Here, this evince can be significantly linked with the microeconomic theory of unemployment, proposed by John Maynard Keynesian. According to the unemployment theory of Keynesian, under the classical model, unemployment is most of the time attributed to the higher and rigid real wages, wherein the societies are extremely resistant to the wages cut, and therefore reducing wages is likely to pose a threat to the overall economy. It is because cutting wages minimizes speeding, and therefore it may result in a downwards spiral (Lumenlearning, 2020). In South Africa, the employment growth has been dramatically slowed, wherein the main focus is given on the wages bargaining, rather than the nominal wages, and as an outcome, it has had a major impact on the real incomes, while causing higher inflation. In the African continent, South Africa is considered to be one of the largest economies, but despite being strong for a certain period, the average annual growth rate, in concern to the GDP o the nation has been below average and relatively poor. The nation has been struggling to raise the annual growth rate in order to make faster growth towards MDG goals while addressing the chronic issues and challenges of poverty and unemployment in the economy. As per the update of Worldbank (2018), the evolution and nature of inequality in South Africa are the highest in the globe, wherein the slow growth has been creating a mismatch between the supply and demand of labour, which eventually makes fiscal redistribution grossly insufficient in order to address the inequality in the country.

The current economic trajectory of South Africa is unsustainable, wherein the economic growth rate has been stagnated, rising unemployment and poverty crisis, with the higher rate of inequality. The government of South Africa has been consistently implementing various policies, and a series of reforms with the aim to boost the social as well as economic growth of the nation for the short-term while creating conditions for sustainable growth for the long-term period as well (Gov. za, 2020). Therefore, in order to sustain and maintain the competitive position of the achievement of higher position across the globe, it is crucial for South Africa to prioritize the achievement of a higher economic growth rate so that the identified macroeconomic issue faced by the nation can be effectively mitigated. As per the Keynes theory of employment, interest, and money, cyclic instability, in terms of output and employment are likely to change the distribution of income. Therefore, this will eventually impact the decisions of the entrepreneurs, depending upon the subjective factor-like expectations, convections, and investment, as well as the economic system (Arestis, Filho, and Bittes, 2018). Keynes’ monetary theory also states that money is the starting point for the process of production, wherein it is also considered to be the desired ending point of the production as well. In the contemporary era, the economic system is led by demand, wherein investments are the primary variables that determine its trajectory. Hence, the economy of South Africa is highly dependent on mining, wherein in some sectors, the actual value of the output has been declining that heavily affecting the industrialization of the nation, because the falling share of the industrial output will impact the employment as well, which will eventually have an adverse impact on the economic wealth of the country. The economic development of South Africa needs to be progressed in order to overcome the economic and social issues of the nation. However the rate of unemployment in South Africa has stubbornly remained around 25% of the labour force, but the enormous disparity in jobless rates has been hidden, which can trace the rate of inequality within the country. Higher economic growth is likely to provide higher tax revenues that enable the government of South Africa to spend more on the public services, for the welfare of the public such as creating employment, providing quality education, proper healthcare services, etc. As an outcome, it will enhance the literacy rates, employment rates, while ensuring a better understanding of the political and civic issues. Therefore, it is crucial for South Africa that it needs to achieve a higher economic rate while considering it as a key priority for the welfare of the nation. The achievement of higher economic growth rates is likely to benefit the nation in various ways while helping the nation to overcome macroeconomic issues efficiently and effectively.

In conclusion, the report has worked towards unravelling the current issue of poverty faced within the field of macroeconomics in the chosen country of South Africa. The developing country of South Africa has for the longest time been subjected to a slower economic growth rate owing to several factors but poverty in general. The implementation of policies that will work towards increasing the economy of the country is highly essential. The unemployment theory of Keynesian states that the major source of unemployment in an economy is due to the lack of expenditures which decreases the aggregate demand. It is also necessary for the country to remove barriers and provide equal access to services and resources which can empower the population living in poverty as they can be involved in the development and implementation of programs to decrease and eradicate poverty. It is highly imperative to build better infrastructure in depressed areas which can work towards providing an economic stimulus that can create new jobs. Education is one of the biggest toolsets to potentially mitigate the issue of poverty and enable a workforce of highly skilled people. Diversification of the economy is another major way to increase the overall GDP of the economy and can be implemented correctly only in the presence of the right infrastructure and highly skilled workers. Besides infrastructural development, the issue of poverty can also be mitigated through the development of a human resource that requires higher investment in facilities such as technical training institutes, schools and colleges to promote literacy and vocational colleges which imports skills to the population. The country lacks in promoting empowerment for women which can attribute to the cycle of poverty, women empowerment is one of the biggest tools that can drastically open new options and opportunities for them. Women can be empowered through training and microfinance loans as well as saving groups which can positively impact the entire country. Hence, there are various options that can be implemented to improve the overall economy of the country. The report works towards discussing some of the strategies that can be implemented by government bodies as well as corporations that can work towards mitigating poverty in the economy and uplifting economic growth. Providing a raise in the minimum wage as well as supporting equity of pay are some of the few ways which can positively impact the economy of South Africa.

Addae-Korankye, A. (2014). Causes of Poverty in Africa: A Review of Literature. American International Journal of Social Science, [online] 3(7). Available at: [Accessed 12 Jan. 2022].
Arestis, P., Filho, F. and Bittes, T. (2018). Keynesian macroeconomic policy: Theoretical analysis and empirical evidence. Panoeconomicus, [online] 65(1), pp.1–20. Available at: [Accessed 12 Jan. 2022].

Chutel, L. (2017). Poverty in South Africa: More than half of South Africans live below the poverty line. [online] Quartz Africa. Available at: [Accessed 12 Jan. 2022].

Faulkner, D., Loewald, C. and Makrelov, K. (2013). Achieving higher growth and employment: Policy options for South Africa Achieving higher growth and employment: Policy options for South Africa. [online] Available at: [Accessed 12 Jan. 2022]. (2020). Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa. [online] Available at: [Accessed 12 Jan. 2022].

Gqubule, D. (2021). This is how South Africa can eliminate poverty in three years. [online] Available at: [Accessed 12 Jan. 2022].

Gradín, C. and Rodríguez Míguez, E. (2011). Race, Poverty, and Deprivation in South Africa. [online] Available at: [Accessed 12 Jan. 2022].

Lumenlearning (2020). Major Theories in Macroeconomics | Boundless Economics. [online] Available at: [Accessed 12 Jan. 2022]. Madgavkar, A., Seong, J. and Woetzel, J. (2019). How governments can help boost and sustain growth in emerging economies | McKinsey. [online] Available at: [Accessed 12 Jan. 2022].

Plagerson, S. (2021). South African policies go some way to tackling poverty and inequality. But more is needed. Economics assignment[online] The Conversation. Available at: [Accessed 12 Jan. 2022].

Rogan, M. (2015). How can South Africa reduce working poverty? [online] World Economic Forum. Available at: [Accessed 12 Jan. 2022].

Stone, C. (2017). Economic Growth: Causes, Benefits, and Current Limits. [online] Center on Budget and Policy Priorities. Available at: [Accessed 12 Jan. 2022].

Tejvan Pettinger (2017). Policies to reduce poverty | Economics Help. [online] Available at: [Accessed 12 Jan. 2022].
Trisi, D. and Saenz, M. (2021). Economic Security Programs Reduce Overall Poverty, Racial and Ethnic Inequities. [online] Center on Budget and Policy Priorities. Available at: [Accessed 12 Jan. 2022].
Worldbank (2018). SOUTH AFRICA ECONOMIC UPDATE. [online] Available at: [Accessed 12 Jan. 2022].


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