South Africa’s Response to Global Financial Crisis Essay

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I would prefer South Africa economy to other country’s economy as my choice. South Africa was hit by a global economic crisis of 2008 which saw most of its businesses run at a loss. Majority of the economic activities contemplated shutdown decisions due to the prevalence of their businesses running at a loss. South Africa cannot be blamed as a nation as many may think, since the economic crisis of 2008 was global or rather worldwide. An assumption of the main cause of the witnessed economic crisis may be attributed to greed by people.

Desire to the achieve objective that duly fulfils the needs of an individual while being disadvantageous to the majority of individuals led to the crisis. Mortgages which were the times booming businesses were used by enterprises to exploit the individuals who could not afford purchasing the premises. They took an initiative of lending the mortgages to them. The lending was to pay in installments which were to be paid according to the terms and conditions lay down by the participants. The mortgagers did the lending since they had nothing to lose at all. They saw this as a greatest opportunity of charging high interest rates to its consumers.

Furthermore, those who default payments were kicked out of the premises and the property given to other interested party. This lending activity increased the level of incomes to the lenders, investors and creditors. Despite the increase in the amount of money, majority of the people were subjected to suffering. This is because they were forced to tolerate the high rates of mortgage payments. The consumers had to forego some of their needs so as to prioritize the basic need of shelter. The unfortunate few who were kicked out were subjected to too much suffering since they were forced to start their lives from the scratch. Not even a single cent was refunded to them in accordance to the terms and conditions laid down by the lenders (Mankiw, 2008).

South Africa was faced by a financial crisis that impacted negatively on its population. They had a shortage of capital which could be used to carry out day to day activities. In addition, the residence was faced by another crisis of hunger that saw majority lose their precious lives. The hunger was as a result of capital inadequacy, whereby people could not purchase food from the markets due to high market prices. Also, its cause may be articulated to climate changes. Due to climate change, the agricultural sector was altered with. Low produce was witnessed hence led to food shortage. Due to high demands, the unfortunate few were subjected to hunger.

With the financial crisis being a threat to the nation of South Africa, the World Bank had to respond to the crisis through South African central bank. They adopted measures such as raising domestic liquidity measures, alleviating foreign exchange measures and creation of food banks to curb hunger within the country (Arieff, 2010).

Alleviation of domestic money value was aimed at reducing the domestic requirement ratio so as to reduce instances of capital shortages. The central bank of South Africa arranged a systematic liquidity model within which to ease the prevailing market conditions. This arrangement was aimed at increasing the sales or rather the auctions, decrease chances of monopoly markets and furthermore prioritize the growth and market survival. South African government actively took part in implementing the measures laid down by the central bank, in response to the crisis. For instance, it took an initiative of varying the tax payments depending on individual’s earnings.

The government also provided sufficient security to the finances deposited in banks. The government also responded actively to the crisis by alleviating the foreign exchange measures. The measures incorporated vital reforms in foreign sector and its involvement in diverse investments. The liquidity of foreign exchange was reconciled to match the requirements that could benefit South African citizens. The rate of repurchasing the dollar was relaxed so as to allow the consumers to access its benefits with much ease. The limits that were higher than achievable by the citizens were wiped out as a measure of responding to the global crisis. In addition, the finances that were deposited by the government in foreign accounts were channeled back and re-deposited in domestic bank accounts. The country’s central bank went to an extend of lowering the tax rates on foreign exchange so as to facilitate transfer of deposits from overseas to the domestic accounts. The act of reducing the tax rates enhanced the achievement of trade credits that would be beneficial to the nation as a whole. Through such adjustments of liquidity, the central bank of south Africa managed the money systems and was in a better position to achieve stability if the field of finance (Dwivedi, 2005).

Creation of food banks was also another measure of responding to hunger that was adversely faced by South Africans. A large food bank was established in Cape Town that was used to store food donated by charities and well wishers. This was a central place where foodstuffs were accumulated and later distributed to the needy. Establishment of such reserves positively influenced the crisis of hunger that was faced during the global economic crisis. All the above mentioned measures of responding to economic crisis except that of food reserves. This is because some of the leaders were overwhelmed by greed and they ended up grabbing the donated goods for their own selfish gains. Currently, the South African government is trying as much as possible to stump out corruption which is a social evil. To sum up, it is clear that the timely measures put in place by the government were positive and capable of sustaining the South African economy as witnessed today. The economy has been stable and is rank among the top in the African continent (Osmanovic & Afrika-Kunde, 2002).

References

Arieff, A. (2010). Global Economic Crisis: Impact on Sub-Saharan Africa and Global Policy Responses: Chicago: DIANE Publishing.

Dwivedi, N. D. (2005) Macroeconomics: Theory and Policy: Washington D.C: Tata McGraw-Hill.

Mankiw, G. N. (2008). Principles of Economics: New York: Cengage Learning.

Osmanovic, A. & Afrika-Kunde, I. (2002) Transforming South Africa, Hamburg African Studies: Hamburg: GIGA.

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