discuss in detail export promotion essay

Economic Essays Grade 12

Grade 12 Economic Essays for the Next Three-Year Cycle (2021-2023)

Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow)

Discuss in detail 'The new economic paradigm'/Explain the 'smoothing of cycles (Business Cycles)

Discuss in detail the features underpinning forecasting (Business Cycles)

Discuss in detail the main objectives of the public sector in the economy (Public Sector)

Discuss in detail the reason(s) for public sector failure (link them to typical problems experienced through public sector provisioning) (Public Sector)

Discuss in detail the reasons for international trade (Foreign Exchange Markets)

Discuss in detail export promotion (Protectionism and FreeTrade)

Discuss in detail the arguments in favour of protectionism (Protectionism and Free Trade)

Discuss in detail the demand-side approach in promoting growth and development in South Africa (Growth and development)

Discuss in detail the following South African growth and development policies and strategic initiatives (Growth and development)

Discuss in detail South Africa's initiaties (endeavours) in regional development (Industrial Development Policies)

Discuss in detail the following economic indicators (Economic and Social Performance Indicators

Discuss in detail the following social indicators (Economic and Social Performance Indicators)

Discuss in detail the various equilibrium positions with the aid of graphs-PERFECT MARKET (Perfect Market)

Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)

Examine the oligopoly in detail (Imperfect Market)

Compare and contrast any TWO types of market structures

Discuss in detail how the following factors lead to the misallocation of resources in the market (Market Failures)

Discuss in detail state intervention as a consequence of market failures, with the aid of relevant graphs (Market Failures)

Discuss in detail the consequences of inflation (Inflation)

Discuss in detail the measures to combat demand-pull and/or cost-push inflation (Inflation)

Examine in detail the effects of tourism (Tourism)

Examine in detail the benefits of tourism (Tourism)

Discuss in detail how the government can ensure sustainable development (Environmental Sustainability)

Discuss in detail the following problems and the international measures taken to ensure sustainable development (Environmental Sustainability)

ESSAYS FOR THE NEXT THREE-YEAR CYCLE (2021-2023)

Macroeconomics- paper1.

Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow) INTRODUCTION The economy of a country is regarded as an open economy because of the presence of households, producers, government, foreign sector and financial sector as active participants in the economy. Markets link the participants in the economy 🗸🗸 [Max 2]

BODY: MAIN PART PRODUCT / GOODS/ OUTPUT MARKET🗸

These are the markets for consumer goods and services🗸🗸
Goods are defined as tangible items, like food, clothes, cars, etc. that satisfies some human wants or needs🗸🗸
Buying and selling of goods that are produced in markets e.g. 🗸🗸
Capital Goods market for trading of buildings and machinery🗸🗸
Consumer goods market for trading of durable consumer goods, semi-durable consumer goods and non-durable consumer goods. 🗸🗸
Services are defined as non-tangible actions and include wholesale and retail, transport and financial markets. 🗸🗸

FACTOR / RESOURCE/ INPUT MARKETS🗸

Households sell factors of production on the markets: rent for natural resources, wages for labour interest for capital and profit for entrepreneurship🗸🗸
The factor market includes the labour, property and financial markets. 🗸🗸
The market where services of factors of production are traded e.g. labour is hired and capital is borrowed – these services earn wages, interest, rent and profits🗸🗸

FINANCIAL MARKETS🗸

They are not directly involved in the production of good and services, but act as a link between households , the business sector and other participants with surplus finds🗸🗸
E.g. banks, insurance companies and pension funds🗸

MONEY MARKETS🗸

In the money markets short term loans, and very short term funds are saved and borrowed by consumers and business enterprises 🗸🗸
Products sold in the market are bank debentures, treasury bills and government bonds 🗸🗸
The simplest form exists when parties make demand and short-term deposits and borrow on short term 🗸🗸
The SARB is the key institution in the money market🗸🗸

CAPITAL MARKETS🗸

In the capital markets long term funds are borrowed and saved by consumers and the business sector🗸🗸
The Johannesburg Security Exchange (JSE) is a key institution in the capital 🗸🗸
Products sold in this market are mortgage bonds and shares🗸🗸

FOREIGN EXCHANGE MARKETS🗸

On the foreign exchange markets businesses buy/ sell foreign currency to pay for imported goods and services🗸🗸
These transactions occur in banks and consists of electronic money transfers from one account to another🗸🗸
The leading centres/ most important foreign exchange markets are in London, New York and Tokyo 🗸🗸
e.g. traveller’s cheques to travel abroad🗸
Flows of private and public goods and services are real flows and they are accompanied by counter flows of expenditure and taxes on the product market🗸🗸
Factor services are real flows and they are accompanied by counter flows of income on the factor market🗸🗸
Imports and exports are real flows and are accompanied by counter flows of expenditure and revenue on the foreign exchange market🗸🗸[Max 26]
A change in investment of R 10m will result in a change in income of R 20m🗸🗸
An increase in investment causes the expenditure function to shift upwards from C1 to C2 so that C1 is parallel to C2🗸🗸
The effect of the increase in investment is that the total expenditure will increase from R 20m to R 30m🗸🗸
The increase in the value of output (Y) is greater than the increase in the expenditure (E) 🗸🗸 (Explanation must comply with the figures supplied in the graphical presentation) [Max 4] [Max 10]

CONCLUSION The circular flow ensures continued interdependence and coordination of the economic activities in the economy / markets are critically important institutions in our economic system, because they regulate the supply and demand and safeguard price stability and general business confidence. 🗸🗸 [Any other relevant conclusion] [Max 2]

INTRODUCTION The new economic paradigm in terms of the smoothing of business cycles discourages monetary policy makers from using monetary and fiscal policies to fine tune the economy but rather encourages achieving stability through sound long term decisions relating to demand and supply in the economy/smoothing out the painful part of economic down-fall that is part of the market economy🗸🗸 (Accept other relevant definition/description of smoothing/new economic paradigm). [Max 2]

BODY: MAIN PART The new economic paradigm is embedded in the demand and supply side policies. 🗸🗸

Demand-side policies

It focuses on aggregate demand in the economy🗸🗸
When households, firms and the government spend more, demand in the economy increases. 🗸🗸
This makes the economy grow but lead to inflation.🗸🗸
Aggregate demand increases more quickly than aggregate supply and this causes price increases. 🗸🗸
If the supply does not react to the increase in demand, prices will increase. 🗸🗸
This will lead to inflation (a sustained and considerable in the general price level) 🗸🗸

Unemployment:

Demand-side policies are effective in stimulating economic growth. 🗸🗸
Economic growth can lead to an increase in demand for labour. 🗸🗸
As a result more people will be employed and unemployment will increase. 🗸🗸
As unemployment decreases inflation is likely to increase. 🗸🗸
This relationship between unemployment and inflation is illustrated in the Phillips curve. 🗸🗸
The PC curve shows the initial situation. A is the point of intersection of the PC curve with the x- axis. It shows the natural rate of unemployment, for instance 14%🗸🗸
At point A inflation rate is zero. 🗸🗸
If unemployment falls to C for instance, 8%, inflation caused by wage increases is at 6%.🗸🗸
If unemployment increases from C to B to A, inflation falls from 6% to 2% to 0%.🗸🗸

Supply-side policies Reduction of costs 🗸

Infrastructural services: reasonable charge and efficient transport, communication, water
services and energy supply. 🗸🗸
Administrative costs: these costs include inspection, reports on applications
of various laws, regulations and by-laws, tax returns and returns providing statistical
information.
It adds to costs and businesses carry a heavy burden 🗸🗸
Cash incentives: it includes subsidies for businesses to locate in neglected areas where unemployment is high and compensation to exporters for certain costs they
incurred in development of export markets. 🗸🗸

Improving the efficiency of inputs 🗸

Tax rates: low tax rates can serve as an incentive to workers. It will improve the productivity and output. 🗸🗸
Capital consumption: replacing capital goods regularly creates opportunities for businesses to keep up with technological development and better outputs🗸🗸
Human resource development: to improve the quality of manpower by improving health care, education and training. 🗸🗸
Free advisory service: these promote opportunities to export. 🗸🗸

Improving the efficiency of markets 🗸

Deregulation: removal of laws, regulations and by-laws and other forms of government controls makes the market free. 🗸🗸
Competition: encourages the establishment of new businesses 🗸🗸
Levelling the play field: private businesses cannot compete with public enterprises 🗸🗸 Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact. Learners should be awarded 1 mark per heading or sub-heading to a maximum of 8 marks. (8 x 1) (8) [Max 26]

Explanation: The above graph shows:

Aggregate demand (AD) and aggregate supply (AS) are in equilibrium at point C. 🗸🗸
If aggregate demand is stimulated so that it moves to AD1 and aggregate supply responds promptly and relocates at AS1; a larger real output becomes available without any price increases. 🗸🗸
Supply is often sticky and fixed in the short term. 🗸🗸
Therefore, if aggregate demand increases to AD1 and aggregate supply does not respond, intersection is at point F. Real production increases but so does the price, in other words, with more inflation. 🗸🗸
The aggregate demand locates at any position to the left of AS1 inflation prevails. 🗸🗸
The solution is to create conditions that ensure supply is more flexible. 🗸🗸
If the cost of increasing production is completely flexible, a great real output can be supplied at any given price level. 🗸🗸 [Max 10]

CONCLUSION It is clear from the discussion above that it is critically important to manage the aggregate supply and demand to ensure stability in the economy. 🗸🗸 [Accept any relevant higher order conclusion] [Max 2]

INTRODUCTION Accurate prediction is not possible in Economics. The best the economists can do is to try and forecast what might happen. There are a number of techniques available to help economists to forecast business cycles, e.g. economic indicators 🗸🗸 OR Successive periods of contraction and expansion of economic activities 🗸🗸 [Accept any other relevant introduction] [Max 2]

BODY: MAIN PART Business cycle indicators Leading economic indicators 🗸

These are indicators that change before the economy changes / coincide with the reference turning point 🗸🗸
They give consumers, business leaders and policy makers a glimpse (advance warnings) of where the economy might be heading. 🗸🗸
Peak before a peak in aggregate economic activity is reached.
Most important type of indicator in helping economists to predict what the economy will be like in the future 🗸🗸
When these indicators rise, the level of economic activities will also rise in a few months' time/an upswing 🗸🗸
E.g. job advertising space/inventory/sales ratio🗸

Coincident economic indicators🗸

They move at the same time as the economy / if the turning point of a specific time series variable coincides with the reference turning point🗸🗸
It indicates the actual state of the economy🗸🗸
E.g. value of retail sales. 🗸
If the business cycle reaches a peak and then begins to decline, the value of retail sales will reach a peak and then begin to decline at same time🗸🗸

Lagging economic indicators🗸

They do not change direction until after the business cycle has changed its direction🗸🗸
They serve to confirm the behaviour of co-incident indicators🗸🗸
E.g. the value of wholesalers' sales of machinery🗸
If the business cycle reaches a peak and begins to decline, we are able to predict the value of new machinery sold🗸🗸

Composite indicator🗸

It is a summary of the various indicators of the same type into a single value🗸🗸
Their values are consolidated into a single value , if this is done we find a value of a composite leading , coincident and lagging indicator🗸🗸 Accept ONE example from the table below:
This is the time that it takes for a business cycle to move through one complete cycle (measured from peak to peak) 🗸🗸
It is useful to know the length because the length tends to remain relatively constant over time.🗸🗸
If a business cycle has the length of 10 years it can be predicted that 10 years will pass between successive peaks or troughs in the economy. 🗸🗸
Longer cycles show strength. 🗸🗸
Cycles can overshoot. 🗸🗸

Ways to measure lengths:

Crisis to crisis 🗸🗸
Historical records 🗸🗸
Consensus on businesses experience 🗸🗸

Amplitude 🗸

It is the difference between the total output between a peak and a trough. 🗸🗸
It measures the distance of the oscillation of a variable from the trend line / It is the intensity (height) of the upswing and downswing (contraction and expansion) in economic activity 🗸🗸
A large amplitude during an upswing indicates strong underlying forces – which result in longer cycles 🗸🗸
The larger the amplitude the more extreme the changes that may occur / extent of change 🗸🗸
E.g. During the upswing inflation may increase from 5% to 10%. (100% increase) 🗸🗸
A trend is the movement of the economy in a general direction. 🗸🗸
It usually has a positive slope because the production capacity of the economy increases over time 🗸🗸
Also known as the long term growth potential of the economy. 🗸🗸
The diagram above illustrates an economy which is growing – thus an upward trend (positive slope) 🗸🗸
Trends are useful because they indicate the general direction in which the economy is moving – it indicates the rate of increase or decrease in the level of output🗸🗸

Extrapolation 🗸

Forecasters use past data e.g. trends and by assuming that this trend will continue, they make predictions about the future🗸🗸
Means to estimate something unknown from facts or information that are known 🗸🗸
if it becomes clear that the business cycle has passed through a trough and has entered a boom phase, forecasters might predict that the economy will grow in the months that follow 🗸🗸
It is also used to make economic predictions in other settings e.g. prediction of future share prices🗸🗸

Moving average 🗸

It is a statistical analytical tool that is used to analyse the changes that occur in a series of data over a certain period of time / repeatedly calculating a series of different average values along a time series to produce a smooth curve 🗸🗸
The moving average could be calculated for the past three months in order to smooth out any minor fluctuations 🗸🗸
It is calculated to iron out (minimize) small fluctuations and reveal long-term trends in the business cycle🗸🗸 Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact. Learners should be awarded 1 mark per 8 headings and examples. [8 x 1=8] [Max 26]

BODY: ADDITIONAL PART

An expansionary monetary policy is implemented when the economy is in recession in order to stimulate economic activities. 🗸🗸
Interest rates can be reduced to encourage spending. 🗸🗸
Households and firms can borrow more and spend more. 🗸🗸
The increased spending increases the level of economic activity. 🗸🗸
Investment will increase and more factors of production will be employed. 🗸🗸
Higher levels of production, income and expenditure will be achieved. 🗸🗸
If the supply of goods and services does not increase in line with an increase in demand, inflation will increase. 🗸🗸
Inflation can be curbed by reducing money supply and availability of credit. 🗸🗸
To dampen demand at the peak the government will be able to reduce the money supply by increasing interest rates. 🗸🗸
Selling government bonds and securities (open market transactions) and reduce the supply of money in circulation. 🗸🗸
Increase the cash reserve requirements to manipulate money creation activities of banks. 🗸🗸
Persuade banks to decrease lending (moral suasion) 🗸🗸
To devaluate the exchange rate (exchange rate policy) 🗸🗸 [Max 10]

CONCLUSION It remain clear that business cycles must be clearly monitored through the indicators available, policy makers must act quickly by using monetary and fiscal instruments in order to prevent instability in the economy. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

INTRODUCTION: The government provides goods and services that are under supplied by the market and therefore plays a major role in regulating economic activity and guiding and shaping the economy. 🗸🗸 [Max 2]

BODY: MAIN PART Objectives:

Economic growth 🗸

Refer to an increase in the production of goods and services 🗸🗸
Measured in terms of Real GDP 🗸🗸
For economic growth to occur, the economic growth rate must be higher than Population growth 🗸🗸
Growth and development in a country benefit its citizens because it often leads to a higher standard of living 🗸🗸

Full employment 🗸

It is when all the people who want to work, who are looking for a job must be able to get a job 🗸🗸
High levels of employment is the most important economic objective of the government 🗸🗸
The unemployment rate increased over the past few years 🗸🗸
Informal sector activities must be promoted because it is an area where employment increase 🗸🗸

Exchange rate stability 🗸

The economy must be manage effectively and effective Fiscal and monetary policy must be used to keep the exchange rate relatively stable 🗸🗸
Depreciation and Appreciation of the currency create uncertainties for producers and traders and should be limited. These uncertainties must be limited 🗸🗸
The SARB changed the Exchange rate from a Managed floating to a free floating exchange rate 🗸🗸

Price stability 🗸

Stable price causes better results in terms of job creation and economic growth 🗸🗸
The SARB inflation target is 3% - 6% and they are successful in keeping inflation within this target 🗸🗸
Interest Rates, based on the Repo Rate are the main instruments used in the stabilisation policy 🗸🗸
The stable budget deficit also has a stabilizing effect on the inflation rate 🗸🗸

Economic equity 🗸

Redistribution of income and wealth is essential 🗸🗸
South Africa uses a progressive income tax system – taxation on profits, taxation on wealth, capital gains tax and taxation on spending, are used to finance free services 🗸🗸
Free social services are basic education; primary health and to finance basic economic services 🗸🗸
E.g. Cash Grant to the poor, e.g. child grants and cash grants to vulnerable people, e.g. disability grants 🗸
Progressive taxation means that the higher income earners pay higher/more taxation 🗸🗸 [Max 26]
Learner responses can be positive or negative.
Follow the argument and see if the learner can produce enough evidence to support his/her answer.

Economic Growth:

SA targets 4–5% economic growth. Previously SA had a 5% growth rate 🗸🗸
In recent years the growth rate decreased steadily (presently below 3%) 🗸🗸

Full Employment:

Compared to foreign countries unemployment is very high. (Expanded – over 30%) 🗸🗸
Efforts by SA government to reduce these figures includes the GEAR strategy, focus on small business enterprises, Public Works Programme 🗸🗸

Exchange rate stability:

SA now operates on a free floating exchange rate system in line with international benchmarks 🗸🗸
Unfortunately our currency has lost its value, with a general trend of depreciation over the last few years 🗸🗸

Price stability:

For the past few years South Africa has managed to remain within the 3–6% target 🗸🗸
The current increase in the repo rate has put constraints on the inflation rate 🗸🗸

Economic equity:

Economic equity has improved (BEE, affirmative action, gender equity) and led to an improvement in economic equity 🗸🗸 [Any 5 x 2] [Max 10]

CONCLUSION: While some successes have been achieved by government, the fulfilling of some of the objectives are compromised by factors like lack of accountability, corruption, budgeting, nepotism and incompetence. 🗸🗸 [Any relevant conclusion] [Max 2]

INTRODUCTION The government responds to market failures by establishing and maintaining state owned enterprises to provide public goods and services 🗸🗸 [Any other relevant introduction] [Max 2]

BODY: MAIN PART

It is required to give an explanation of one's decisions, actions and expenditures over a period of time 🗸🗸
There are mechanisms for evaluating government's economic and financial performance 🗸🗸
That the desired quantities and quality of goods and services for which taxes are raised are delivered 🗸🗸
That monopolies, corruption, nepotism, incompetence and apathy does not occur 🗸🗸
Two important elements of accountability is participation and transparency🗸🗸
Ministerial responsibilities, i.e. the ministers of government departments are responsible for decisions and actions and expenditures 🗸🗸
Parliamentary questioning arises and members of the government departments have to respond 🗸🗸
The national treasury is responsible for treasury control 🗸🗸
The auditor-general reports annually in writing on each government department🗸🗸
Public goods are efficiently provided if Pareto efficiency is achieved 🗸🗸
That is if resources are allocated in such a way that no one can be made better off without making someone else worse off 🗸🗸
Bureaucracy the official rules and procedures. 🗸🗸/insensitivity to the needs of their clients 🗸🗸
Incompetence- the lack of skill or ability to do a task successfully🗸🗸/May have improper qualifications/or an attitude of apathy 🗸🗸
Corruption- the exploitation of a person's position for private gain /taking bribes, committing fraud, nepotism 🗸🗸
State-owned enterprises do not operate according to the forces of supply and demand 🗸🗸
It becomes thus very difficult for state-owned enterprises to assess needs and they are thus prone to under- or over-supplying public goods and services 🗸🗸
The census and other household surveys as well as local government structures provide this type of information 🗸🗸
Since resources are scarce, government must then decide which needs and whose needs are to be satisfied 🗸🗸
In the private sector houses are built according to the price that people are able and willing to pay 🗸🗸
In the public sector housing is regarded as a social responsibility and authorities supply them according to the needs of people 🗸🗸
In a market economy prices are determined by supply and demand 🗸🗸
The objectives of firms are to maximise their profits and they usually set prices to achieve this objective 🗸🗸
Government does not pursue the profit maximisation objective 🗸🗸
Government takes into account certain social, economic, political and environmental conditions as well as public opinion 🗸🗸
Free-of-charge services- this is met from taxes 🗸🗸 and applies to most community goods and collective goods 🗸🗸 (e.g.) defence, police whereby charges and toll fees are levied 🗸
User-charges 🗸 option to charge depends on technical reasons 🗸🗸 (e.g.) cost of providing a double lane road could be recovered by toll charges 🗸 Economic reasons 🗸 such as services like water and electricity 🗸 that have a zero price 🗸 political reasons 🗸 where income distribution is significantly unequal, administrative rationing according to need takes place 🗸🗸 (e.g.) public health and education 🗸
Direct and indirect subsidies direct subsidies are used to cover part of the costs 🗸🗸 (e.g.) urban bus service 🗸 and an indirect subsidy is used to write off accumulated losses or deficits 🗸🗸
Standing charges -called availability charges 🗸🗸 (e.g.) water and electricity 🗸 standing charges goes to meet fixed costs and the price per unit consumed covers variable costs 🗸🗸
Price discrimination - different users have different elastic ties of demand for a good 🗸🗸 (e.g.) commercial and manufacturing businesses pay higher rates than households and they pay on a sliding scale🗸🗸
State-owned enterprises that either render a service or when an existing enterprise is nationalised 🗸🗸
They focus on making a profit and maximizing cost at the expense of the needs of some groups 🗸🗸 (e.g.) Iscor 🗸 SABC, 🗸SAA, Spoornet 🗸
refers to the process whereby state-owned enterprises and state-owned assets are handed over or sold to private individuals 🗸🗸
cost of maintaining and managing state-owned enterprises are high which can lead to higher taxes and larger public debt 🗸🗸
State-owned enterprises are not run as efficiently as private enterprises 🗸🗸
Nationalisation is the process whereby the state takes control and ownership of privately owned assets and private enterprises 🗸🗸
It includes contracting of services, public-private partnerships, increasing competitiveness🗸🗸 [Max 26]

ADDITIONAL PART Possible problems in your community or elsewhere

Lack of drinking water due to burst pipes 🗸🗸
Lack of electricity due to lack of infrastructure (load shedding) 🗸🗸
Lack of schooling – no buildings available – lack of maintenance 🗸🗸
Lack of health services due to lack of staff, infrastructure, strikes 🗸🗸
Lack of adequate housing (RDP) 🗸🗸 [Max 10 marks - List of examples max 5 marks] [Accept any other relevant answer]

CONCLUSION If the above problems are not dealt with timeously by government, government will continue to fail its people in terms of service delivery, seeing many protests occurring regularly 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION International trade can be defined as the exchange of goods and services between countries globally. 🗸🗸 These trade agreements are negotiated by protocols and agreement due to the uneven distribution of natural resources globally. 🗸🗸

BODY-MAIN PART The main reasons for international trade.

Demand reasons The size of the population impacts demand.

If there is an increase in population growth, it causes an increase in demand, as more people’s needs must be satisfied. 🗸🗸
Local suppliers may not be able to satisfy this demand. 🗸🗸

The population’s income levels effect demand.

Changes in income cause a change in the demand for goods and services. 🗸🗸 • An increase in the per capita income of people in more disposable income that can be spent on local goods and services, some of which may then have to be imported. 🗸🗸

An increase in the wealth of the population leads to greater demand for goods.

People have access to loans and can spend more on luxury goods, many of which are produced in other countries. 🗸🗸

Preferences and tastes can play a part in the determining of prices,

E.g. customers in Australia have a preference for a specific product which they do not produce and need to import and it will have a higher value than in other countries. 🗸🗸

The difference in consumption patterns is determined

By the level of economic development in the country, e.g. a poorly developed country will have a high demand for basic goods and services but a lower demand for luxury goods. 🗸🗸

Supply reasons Natural resources are not evenly distributed

Across all countries of the world. 🗸🗸
They vary from country to country and can only be exploited in places where these resources exist. 🗸🗸

Climatic conditions

Make it possible for some countries to produce certain goods at a lower price than other countries, e.g. Brazil is the biggest producer of coffee. 🗸🗸

Labour resources

Differ in quantity, quality and cost between countries. 🗸🗸
Some countries have highly skilled, well-paid workers with high productivity levels, e.g. Switzerland. 🗸🗸

Technological resources

Are available in some countries that enable them to produce certain goods and services at a low unit cost, e.g. Japan. 🗸🗸

Specialisation in the production

Certain goods and services allows some countries to produce them at a lower cost than others, e.g. Japan produces electronic goods and sells these at a lower price. 🗸🗸

Capital allows developed countries

Enjoy an advantage over underdeveloped countries. 🗸🗸
Due to a lack of capital, some countries cannot produce all the goods they require themselves. 🗸🗸

ADDITIONAL PART

Buying and selling goods and services from other countries: 🗸🗸
The purchase of goods and services from abroad that leads to an outflow of currency from SA- Imports (M). 🗸🗸
The of goods and services to buyers from other countries leading to an inflow of currency to SA – Exports (X) 🗸🗸
Different factor endowments mean some countries can produce goods and services more efficiently than others- specialisation is therefore possible: 🗸🗸

Absolute Advantage:

Where one country can produce goods with fewer resources than other. 🗸🗸

Comparative Advantage:

Where one country can produce goods at a lower opportunity cost it sacrifices less resources in production. 🗸🗸

CONCLUSION International trade is important of countries to survive economically, as barriers to trade would disadvantage all countries, due to their interdependency globally. 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

ECONOMIC PURSUITS-PAPER 1

Discuss in detail export promotion (Protectionism and Free Trade)

INTRODUCTION Export promotion refers to measures taken by governments increase production of goods and services that can be exported. The government provides incentives to encourage production 🗸🗸 [Max 2]

BODY: MAIN PART REASONS:

Export promotion measures lower cost of production which makes it easier to compete on the international market 🗸🗸
Achieve significant export-led economic growth🗸🗸
Export enlarges production capacity of country because more and larger manufacturing industries are established. 🗸🗸
The first step to export-led economic growth is to implement policies that encourage the establishment of industries to produce goods and services for export markets🗸🗸

METHODS: Exports are promoted through: Incentives🗸

Export incentives include information on export markets, research with regard to new markets, concessions on transport charges, export credit and export credit guarantees and publicity commending successful exporters🗸🗸
This will encourage manufacturers to export an increased volume of their production🗸🗸
Trade missions help to market SA products abroad🗸🗸and supply SA companies with information about potential markets 🗸🗸

Direct Subsidies🗸

Described as direct because it involves government expenditure. 🗸🗸
Include cash payments to exporters, refunds on import tariffs and employment subsidies.
The aim is to increase the competitiveness of exporting company🗸🗸 reduce cost of production🗸🗸and explore and establish overseas markets🗸🗸

Indirect subsidies

Regarded as indirect because it results in the government receiving less revenue🗸🗸 e.g. general tax rebates,
Tax concessions on profits earned from exports or on capital invested to produce export goods, refunding
Of certain taxes e.g. custom duties on imported goods used in the manufacturing process🗸🗸
Allows companies to lower their prices and enables them to compete in international markets🗸🗸
Challenge for governments to design incentives and subsidies in such a way that prices of export goods can't be viewed as dumping prices🗸🗸

Trade neutrality 🗸

Can be achieved if incentives in favour of export production are introduced
Up to point that neutralises the impact of protectionist measures in place🗸🗸
E.g. subsidies equal to magnitude of import duties can be paid🗸

Export processing zones (EPZs) 🗸

Is free-trade enclave within a protected area –
Is fenced and controlled industrial park that falls outside
Domestic customs area, and usually located near harbour or airport 🗸🗸 NOTE : For the response with regard to the effectiveness of export promotion methods, a maximum of 5 marks can be allocated.
No limitations on size and scale since world market is very large🗸🗸
Cost and efficiency of production based on this and organised along lines of comparative advantage🗸🗸
Increased domestic production will expand exports to permit more imports and may result in backward linkage effects that stimulate domestic production in related industries🗸🗸
Exchange rates are realistic and there is no need for exchange control and quantitative restrictions🗸🗸
Value can be added to natural resources of the country 🗸🗸
Creates employment opportunities 🗸🗸
Increase in exports has positive effect on balance of payments 🗸🗸
Increase in production leads to lower domestic prices, which benefit local consumers🗸🗸

DISADVANTAGES

Real cost of production 🗸 subsidies and incentives reduce total cost of production which must be met from sales🗸🗸 real cost is thus concealed by subsidies🗸🗸products cannot compete in open market 🗸🗸
Lack of competition 🗸 businesses charge prices that are so low that they force competitors out of the market 🗸🗸
Increased tariffs and quotas 🗸can be against spirit of provisions of WTO🗸🗸overseas competitors retaliate with tariffs and quotas🗸🗸 goods are sold domestically below their real cost of production (export subsidies and dumping) 🗸🗸
Protection of labour-intensive industries 🗸 developed countries maintain high levels of effective protection for their industries that produce labour-intensive goods in which developing countries already have or can achieve comparative advantage 🗸🗸
Withdrawal of incentives often leads to closure of effected companies. 🗸🗸
Incentives often lead to inefficiencies in the production process, since companies don't have to do their best to compete🗸🗸
Can be seen as dumping 🗸🗸 [Max 26]

BODY: ADDITIONAL PART How successful is South Africa in protecting the local textile industry against foreign competition?

Not successful: 🗸 Many domestic textile manufacturers closed down due to unfair international competition 🗸🗸 Many wholesalers make use of suppliers from abroad 🗸🗸 e.g. Woolworths/Walmart🗸
Dumping still occurs – European manufacturers still dump clothing in Africa out of season at prices below cost 🗸🗸 Job losses due to a lack of protection in this industry 🗸🗸 [Accept any motivation relating to success indicators] [Max 10]

CONCLUSION South Africa's international trade policy facilitates globalisation thereby impacting positively on the balance of payment. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

INTRODUCTION Protectionism refers to a deliberate policy on the part of the government to erect trade barriers, such as tariffs and quotas, in order to protect domestic industries against international competition. 🗸🗸 [Accept any other relevant definition] [Max 2]

BODY-MAIN PART Raising revenue for the government

Import tariffs raise revenue for the government. 🗸🗸
In smaller countries the tax base is often small due to low incomes of individuals and businesses. 🗸🗸
Low incomes do not provide much in the form of income taxes and therefore custom duties on imports is a significant source of income or revenue. 🗸🗸

Protecting the whole industrial base

Maintaining domestic employment. 🗸🗸
Countries with high unemployment are continuously pressured to stimulate employment creation and therefore resort to protectionism in order to stimulate industrialisation. 🗸🗸
It is thought that using protectionism the country’s citizens would purchase more domestic products and raise domestic employment. 🗸🗸
These measures on domestic employment creation at the expense of other countries, led to such measures as “beggar-my-neighbour” policies. 🗸🗸
Applying import policies is likely to reduce other countries ability to buy country’s exports and may provoke retaliation. 🗸🗸

Protecting workers

It is argued that imports from other countries with relatively low wages represent unfair competition and threaten the standard of living of the more highly paid workers of the local industries. 🗸🗸
Local industries would therefore be unable to compete because of higher wages pushing up the price levels of goods. 🗸🗸
Protection is thus necessary to prevent local wage levels from falling or even to prevent local businesses from closing down due to becoming unprofitable. 🗸🗸
Competition from low-wage countries may also reflect the fact that those countries have a comparative advantage in low-skilled labour-intensive industries. 🗸🗸

Diversifying the industrial base

Overtime countries need to develop diversified industries to prevent overspecialisation. 🗸🗸
A country relying too heavily on the export of one or a few products is very vulnerable. 🗸🗸
If a developing country’s employment and income is dependent on only one or two industries, there is the risk that world fluctuations in prices and demand and supply-side problems could results in significant fluctuations in domestic economic activity. 🗸🗸
Import restrictions may be imposed on a range of products in order to ensure that a number of domestic industries develop. 🗸🗸

Develop strategic industries

Some industries such as the iron-ore and steel, agriculture, (basic foodstuffs, such as maize), energy (fuels) and electronics (communication) among others, are regarded as strategic industries. 🗸🗸
Developing countries may feel that they need to develop these industries in order to become self-sufficient . 🗸🗸

Protecting specific industries Dumping

Foreign industries may engage in dumping because government subsidies permit them to sell at very low prices or because they are seeking to raise profits through price discrimination. 🗸🗸
The reason for selling products at lower prices may be to dispose of accumulate stocks Of the goods and as a result consumers in the importing country stand to benefit however,
Their long term objective may be to drive out domestic producers and gain control of the market and consumers
Are likely to lose out in the reduction in choice and higher prices that the exporters will be able to charge. 🗸🗸

Infant industries

Usually newly established and find it difficult to survive due to their average costs being higher than that of their well-established foreign competitors. 🗸🗸
However, if they are given protection in their early years they may be able to grow and Thereby take advantage lower their average costs and become competitive and at this point protection can be removed. 🗸🗸

Declining industries/sunset industries

Structural changes in the demand and supply of a good may severely hit an industry such industries should be permitted to go out of business gradually declining industries
Are likely to be industries that no longer have a comparative advantage and however, if they go out of business quickly there may be a sudden and large increase in unemployment. 🗸🗸
Protection may enable an industry to decline gradually thereby allowing time for resources including labour to move to other industries. 🗸🗸
Protecting domestic standards domestic regulations of food safety human rights and environmental standards have been increasingly acting as trade restrictions. 🗸🗸 [Accept any other relevant fact] [Max 26]

ADDITIONAL PART South Africa promotes exports through subsidies

Direct Subsidies

Strict screening measures should be put in place when companies apply for financial assistance. Government expenditure can provide direct financial support to domestic producers for their exports e.g. 🗸🗸
Cash grants offered to South African exhibitors to exhibit their products at exhibitions overseas. To explore new markets. 🗸🗸
Foreign trade missions to explore new markets imposition of tariffs on imports. 🗸🗸
Funds for the formation of formal export councils. 🗸🗸
Subsidies for training or employing personnel. 🗸🗸
Funds for the export market research. 🗸🗸
Product registration and foreign patent registrations. 🗸🗸
Government can refund companies certain taxes to promote exports.
These types of indirect subsidies are:
General tax rebates (Part of the cost of production can be subtracted from the tax that has been paid) 🗸🗸
Tax concessions on profits earned from exports or on capital invested to produce export goods. 🗸🗸
Refunds on import tariffs in the manufacturing process of exported goods companies often use custom duties are paid on these goods and the government refunds them. 🗸🗸 [Max 10]

CONCLUSION Most countries agree that protectionism is harmful to the economy if not well managed. Protectionism is needed especially where industries are young and need expansion or development. 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION Economic growth is responsible for the overall growth of the economy, in order to enhance the well being of the economy as a whole. Whereas economic development would focus on the individual well being of the citizens of a country. [Any other relevant higher order conclusion] [Max 2]

BODY-MAIN PART Growth and Development A demand-side approach includes discretionary changes in monetary and fiscal policies with the aim of changing the level of aggregate demand. 🗸🗸

Monetary policy

Is driven by the South African Reserve Bank (SARB). 🗸🗸
It aims to stabilise prices by managing inflation. 🗸🗸

Fiscal policy

Is driven by the Department of Finance. 🗸🗸
It aims to facilitate government, political and economic objectives. 🗸🗸
A demand-side approach to economic growth and development does not only depend on fiscal and monetary policy. 🗸🗸
It is dependent on all components of aggregate demand, that is, C, I, X and G. 🗸🗸

South African approach

The South African approach uses both monetary and fiscal measures to influence aggregate demand in the economy. 🗸🗸
The South African Reserve Bank (SARB) as the central bank in South Africa formulates the monetary policy. 🗸🗸
They use the following instruments:

Interest rate changes

It is used to influence credit creation by making credit more expensive or cheaper. 🗸🗸
The exchange rate is stabilised by encouraging inflow or outflows. 🗸🗸

Open market transactions

To restrict credit the SARB sells securities. When banks buy these securities money flows from banks to the SARB. 🗸🗸
The banks have less money to lend and cannot extend as much credit as before. 🗸🗸
To encourage credit creation the SARB buys securities. Money flows into the banking system.🗸🗸

Moral suasion

The SARB consults with banks to act in a responsible manner based on the prevailing economic conditions. 🗸🗸

Cash Reserve Requirements

Banks are required to hold a certain minimum cash reserve in the central bank. 🗸🗸
Banks have a limited amount to give out as credit. 🗸🗸
South Africa’s fiscal policy is put into practice through the budgetary process. 🗸🗸
The main purpose of fiscal policy is to stimulate macroeconomic growth and employment, and ensure redistribution of wealth. 🗸🗸
The following instruments are used:

Progressive personal income tax

Higher income earners are taxed at higher tax rates. 🗸🗸
These taxes are used to finance social development. 🗸🗸
The poor benefit more than those with higher incomes. 🗸🗸

Wealth taxes

Properties are levied (taxed) according to their market values. 🗸🗸
Transfer duties are paid when properties are bought. 🗸🗸
Securities (shares and bonds) are taxed when traded. 🗸🗸
Capital gains tax is levied on gains on the sale of capital goods (e.g. properties, shares). 🗸🗸
Estate duties are paid on the estates of the deceased. 🗸🗸
These taxes are used to finance development expenditures which benefit the poor more often. 🗸🗸

Cash benefits

Old age pensions, disability grants, child support and unemployment insurance are cash grants. These are also known as social security payments. 🗸🗸
Benefits in kind (natura benefits) 🗸🗸
These include the provision of healthcare, education, school meals, protection etc. 🗸🗸
When user fees are charged, poor or low income earners pay less or nothing. 🗸🗸
Limited quantities of free electricity and water are provided. 🗸🗸

Other redistribution

Public works programmes, e.g. the Strategic Integrated Projects (SIP) provides employment subsidies and other cash and financial benefits such as training, financing and export incentives.🗸🗸

Land restitution and land redistribution

Land restitution is the return of land to those that have lost it due to discriminatory laws in the past. 🗸🗸
Land redistribution focuses on land for residential (town) and production (farm) for previously disadvantaged groups. 🗸🗸
The money for these programmes is provided in the main budget. 🗸🗸

Subsidies on properties

It helps people to acquire ownership of fixed residential properties. 🗸🗸
E.g. government’s housing subsidy scheme provides funding to all people earning less than R3 500 per month🗸🗸

CONCLUSION The demand-side approach focuses on the expansion of the demand for goods and services produced in the economy. 🗸🗸 OR To ensure economic growth, there should be an adequate and growing demand for goods and services produced in the economy. 🗸🗸

[Any other relevant higher order conclusion] [Max 2]

INTRODUCTION Different growth and development strategies have been implemented in South Africa since 1994, each aimed at addressing particular needs at the time of introduction. 🗸🗸 [Any other relevant introduction] [Max 2]

BODY-MAIN PART The Reconstruction and Development Programme (RDP)

The RDP was an integrated, coherent socio-economic policy framework that was implemented directly after our first democratic elections in 1994. 🗸🗸
It seeked to mobilise all our people and our country’s resources toward the final eradication of apartheid and the building of a democratic, non-racial and non-sexist future. 🗸🗸

The RDP was based on six principles.

an integrated and sustainable programme. 🗸🗸
a people-driven process focusing on the needs of the population. 🗸🗸
peace and security for all, aimed at a non-violent society that respects all human rights. 🗸🗸
nation-building, focusing on the needs of all members of society. 🗸🗸
linking reconstruction and development. 🗸🗸
The RDP consisted of many proposals, strategies and policy programmes.
All of these could, however be grouped into five major policy programmes that were linked to each other.

The five key programmes were:

meeting basic needs. 🗸🗸
developing our human resources. 🗸🗸
building the economy. 🗸🗸
democratising the state and society. 🗸🗸
implementing the RDP. 🗸🗸

The Growth, Employment and Redistribution Programme (GEAR)

The GEAR built upon the strategic vision set out in the RDP, i.e. 🗸🗸
The importance of all the objectives of the RDP was reaffirmed but it recognized the implementation and macroeconomic problems that the government had been experiencing in implementing the RDP. 🗸🗸
The RDP placed much more emphasis on disciplined economic policy. 🗸🗸
While still recognizing that there were very serious needs that had to be addressed. 🗸🗸

The Accelerated and Shared Growth Initiative for South Africa Programme (AsgiSA).

AsgiSA resulted from government’s commitment to halve unemployment and poverty by 2014. 🗸🗸
The Joint Initiative on Priority Skills Acquisition (Jipsa) was established to address the scarce and critical skills needed to meet AsgiSA’s objectives. 🗸🗸

AsgiSA identified six important factors that prevented growth:

the relative volatility of the currency. 🗸🗸
the cost, efficiency and capacity of the national logistics system. 🗸🗸
shortages of suitably skilled labour, and the spatial distortions of apartheid affecting low-skilled labour costs. 🗸🗸
barriers to entry, limits to competition and limited new investment opportunities. 🗸🗸
the regulatory environment and the burden on small and medium enterprises (SME’s). 🗸🗸
AsgiSA was not intended to be a government programme. 🗸🗸
But rather a national initiative supported by all the key groups in the economy. 🗸🗸
Namely business, labour, entrepreneurs and government and semi-government departments and institutions. 🗸🗸

Joint Initiative on Priority Skills Acquisitions (JIPSA)

It is the skills development arm of ASGISA. Focus is on skills development, especially through the SETAS. 🗸🗸

Expanded Public Works Programme (EPWP)

It is a nationwide government intervention to create employment using labour-intensive methods, and to give people skills they can use to find jobs when their work in the EPWP is done. 🗸🗸

The New Growth Path (NGP)

The New Growth Path (NGP) was released in November 2011. 🗸🗸
This plan is designed to serve as a framework for economic policy, and to be the driver of the country’s job strategy. 🗸🗸

The New Growth Path therefore proposes certain strategies to ensure adequate demand:

Deepening the domestic and regional market by growing employment. 🗸🗸
Increasing incomes and undertaking other measures to equity and income distribution. 🗸🗸
Widening the market for South African goods and services through a stronger focus on exports to the region and other rapidly growing economies. 🗸🗸
On a macroeconomic level the NGP entails accommodating or looser monetary policy combined with stricter fiscal policy to limit inflationary pressures and enhance competitiveness. 🗸🗸
Government spending will be prioritised with the objective of long-term sustainable employment opportunities. 🗸🗸

The microeconomic measures to control inflationary pressures include the following:

A competition policy to supervise monopoly pricing on products and services. 🗸🗸
A review of administered prices to ensure that they do not increase above inflation without compelling reasons. 🗸🗸
Interventions in the case of rapidly rising prices of essential products and services such as private🗸🗸
Healthcare and basic food items. 🗸🗸
Active industrial policy. 🗸🗸
Rural development policy. 🗸🗸
Competition policy. 🗸🗸
Stepping up education and skills development. 🗸🗸
Enterprise development: promoting small business and entrepreneurship; eliminating unnecessary red tape. 🗸🗸
Broad-based Black Economic Empowerment (BBBEE). 🗸🗸
Labour practices. 🗸🗸
Technology policy. 🗸🗸
Developmental trade policies. 🗸🗸
Policies for African development. 🗸🗸
The different growth and development strategies that have been implemented in South Africa since 1994. 🗸🗸
Have all contributed to making our country more prosperous and to address problems created by inequalities of the past. 🗸🗸
However, problems such as a low level of education, unemployment and unequal distribution of income persist. 🗸🗸
The current NGP is a comprehensive policy that is focused on addressing all of these problems. [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION South Africa’s overall objective of Industrial Development Policy is to ensure international competitiveness in its nine provinces. OR Regional development is aimed at increasing the economic livelihood of specific areas or regions. OR Regional development attempts to limit the negative effects of economic activities in only a few areas. OR It attempts to promote the advantages of a more even regional development by using labour and other natural resources and infrastructure in neglected areas. [Accept any relevant introduction] [Max 2]

BODY-MAIN PART SPATIAL DEVELOPMENT INITIATIVES

SDI Programme attracts infrastructure and business investments to underdeveloped areas to create employment. 🗸🗸
Department of Trade and Industry is driving force behind industrial and spatial development. 🗸🗸
DTI plans together with central, provincial and local government, IDC, parastatals and research institutions. 🗸🗸
Industrial Development Policy Programme (Spatial Development) has 2 focus points spatial development initiative (SDI) and financial incentives. 🗸🗸
SDI refers to government’s initiative and economic development potential of certain specific spatial locations in SA. 🗸🗸

Key Objectives:

Stimulate economic activity in selected strategic locations. 🗸🗸
Generate economic growth and foster sustainable industrial development. 🗸🗸
Develop projects of infrastructure in certain areas and finance them through lending and private sector investment. 🗸🗸
Establish private-public partnerships (PPP’s). 🗸🗸

In areas with high poverty and unemployment, SDI focuses on:

High level support in areas where socio-economic conditions require concentrated government assistance. 🗸🗸
Where inherent economic potential exists. 🗸🗸
The approach is towards international competitiveness, regional cooperation and a more diversified ownership base. 🗸🗸

Some of the main focus points of the SDI Programme are:

Lubombo Corridor (agro-tourism, education, craft, commercial and agricultural sectors); 🗸🗸
KwaZulu-Natal (Ports of Durban and Richards Bay); 🗸🗸
West Coast SDI (fishing and industrial ports); 🗸🗸
Coast-2-Coast Corridor with agro-tourism. 🗸🗸
It also makes it possible for private sector businesses to take advantage of the economic potential of underdeveloped areas in private-public partnerships (PPP’s) 🗸🗸
In PPP a private business may provide the capital to build the factory and to buy raw materials and employ labour, while the government provides the capital for the infrastructure such as roads and water and electricity. 🗸🗸
The business benefits from profits and the government benefits from taxes, levies and employment opportunities. 🗸🗸

There are TWO types of PPP’s which are compensated differently: Unitary payments:

Private sector builds and runs a project (it performs the function on behalf of the public sector); the payment provides an acceptable return on the total investment (building cost, maintenance, operational expenses). 🗸🗸
Private sector constructs the project and then is given the right to change a toll fee (e.g. public road); 🗸🗸
The toll covers costs of construction, maintenance, operation. 🗸🗸
The above options can be combined: E.g. hospital (cost of building is an annual payment and a user fee is also charged). 🗸🗸
A track of land that forms a passageway allowing access from one area to another and particular advantages to mining, manufacturing and other businesses. 🗸🗸
Domestic Corridor: e.g. Lubombo, West Coast, Fish River. 🗸🗸
Corridors beyond the South African Borders (SADC) e.g. Maputo Development Corridor Mozambique. 🗸🗸
Reasons in support of South Africa’s regional integration in Southern Africa: have political and stable neighbours have important export markets and a future source of water and energy supplies integration may be a precondition for support from foreign investors, donors and multilateral institutions. 🗸🗸
A robust regional transport system and a solid infrastructure base hold the key to attracting investment into the SADC region – improving competitiveness and promoting trade. 🗸🗸

Advantages from Corridor development:

Greater levels of economic efficiency and productivity compact urban form corridor urban form. 🗸🗸
Corridor developments will often occur due to private investment. 🗸🗸
Intergration of land use and transport planning will lead to generally efficient integration. 🗸🗸
Efficient urbanisation leads to efficient use of land and promotion of an efficient transport system. 🗸🗸

INDUSTRIAL DEVELOPMENT ZONES (IDZ’s)

Geographically designed, purpose-built industrial sites providing services tailored for export- orientated industries. 🗸🗸
Physically enclosed and linked to an international port or airport. 🗸🗸
Specifically designed to attract new investment in export-driven industries. 🗸🗸
Falls outside domestic customs zones and able to import items free of customs and trade restrictions, add value and then export their goods. 🗸🗸
Development and management done by private sector. 🗸🗸
Government IDZ policy designed to boost exports and jobs. 🗸🗸
IDZ’s aim to encourage economic growth –attract foreign investment in industrial development – facilitate international competitiveness regarding manufacturing. 🗸🗸 [Max 26]

ADDITIONAL PART FINANCIAL INCENTIVES Small and Medium Enterprise Development Programme (SMEDP) • This incentive has provided a tax-free cash grant for investment in industries in

South Africa. 🗸🗸
E.g. manufacturing, agricultural, processing, aquaculture and tourism. 🗸🗸

Critical Infrastructure Fund Programme (CIF)

A tax-free cash grant incentive for projects has improved critical infrastructure in South Africa. 🗸🗸
E.g. for installation, construction of infrastructure, payment of employees, materials directly consumed during installation. 🗸🗸

Duty Free Incentives (for businesses operating in the IDZ’s)

This has encouraged export-orientated manufacturing to increase their competitiveness 🗸🗸
And helped to promote foreign and local direct investment. 🗸🗸

Foreign Investment Grant (FIG)

This has assisted foreign investors to invest in new manufacturing businesses in SA. 🗸🗸
Benefited in terms of the cost of relocating new machinery and equipment from abroad. 🗸🗸

Strategic Investment Projects (SIP)

This has attracted investment from local and foreign entrepreneurs in manufacturing, computer, research and engineering sectors. 🗸🗸

Skills Support Programme (SIP)

This cash grant for skills development has encouraged greater investment 🗸🗸
In training in general and stimulated the development of new advanced skills. 🗸🗸

Black Businesses Supplier Development Programme (BBSDP)

This 80 % cash grant has provided black-owned enterprises with access to 🗸🗸
Training which has improved management of their enterprises. 🗸🗸

Special Economic Zones (SEZ)

It is an extention to the current financial incetives to further promoted regional development. 🗸🗸
The major incentive is a tax reduction of 15 % for businesses settling in this area. 🗸🗸
This does not mean that existing businesses in the IDZ can relocate to take advantage of this incentive. 🗸🗸
If a current business in the IDZ wants to expand they are allowed. 🗸🗸 [Max 10]

CONCLUSION From the above discussion it is clear that different initiatives form part of South Africa’s Regional Industrial Development Programme. [Max 2]

INTRODUCTION Economic indicators are used to evaluate the economic performance of an economic unit. This unit can be a company, an industry, a country or a region. Macro-economic indicators, measures the economic performance of a country as a whole. 🗸🗸

BODY-MAIN PART Such indicators can provide an indication of:

Changes taking place in a country. 🗸🗸
How a country compares to other countries. 🗸🗸

Inflation Rate

This is the general increase in the price level of goods and services in the economy over a certain period in time. E.g. one year. 🗸🗸
This is therefore an indicator of the health of the economy and it is monitored in two ways that is at the production wholesale level producer price level (PPI) and at the retail or consumer level consumer price index (CPI) 🗸🗸

The Consumer Price Index (CPI)

Shows the price increases of a representative (weighted) basket of goods and services that consumers buy. 🗸🗸
It is abbreviated as CPI this cover all the urban areas. 🗸🗸
It is an overall index and weights are obtained from expenditures of different income categories of households. 🗸🗸
It is the most comprehensive indicator measuring consumer inflation in the country. 🗸🗸
It shows changes in the general purchasing power of the rand and it is used for inflation targeting 🗸🗸
Is compiled by Stats SA and measures the change in the price level of a basket of consumer goods and services. 🗸🗸
The goods and services included in the basket are chosen to represent the goods and services purchased by an average household. 🗸🗸
This basket is adjusted from time to time as consumption patterns change. 🗸🗸
The inflation rate is the percentage change in the CPI from the previous year and can be calculated as follows:
Change in CPI x 100 🗸🗸 CPI

The Production Price Index (PPI)

Used to measure the price of goods that are produced domestically when they leave the factory year. 🗸🗸
The goods that are imported when they enter the country (at a port) and both of these are before consumers become involved. 🗸🗸
PPI consists of three baskets that are domestically manufactured outputs, e.g. changes in the PPI can be made monthly or quarterly or yearly. 🗸🗸
While changes in the imported products and exported commodities are given separately in the same report. 🗸🗸
PPI includes capital and intermediate goods but not services. 🗸🗸
It is based on a completely different type of a basket of items in the CPI. 🗸🗸
It measures the cost of production rather than the cost of living. 🗸🗸
It is used to predict consumer goods inflation (CPI) 🗸🗸
Which is also estimated and published on a monthly basis by Stats SA, is similar to the CPI, 🗸🗸
Except that it also includes the prices of raw materials and intermediary goods 🗸🗸 (i.e. goods that will be finished in the production process), excludes VAT and excludes services. 🗸🗸
Manufactured goods included in the PPI are priced when they leave the factory, not when they are sold to consumers. 🗸🗸
Unlike the CPI, the PPI therefore cannot be related directly to consumers’ living standards. 🗸🗸
The PPI is nevertheless very useful in the analysis of inflation because it measures the cost of production. 🗸🗸
A significant change in the rate of increase in the PPI is usually an indication that the rate of increase in the CPI will also change a few months later. 🗸🗸

The GDP Deflator Is a ratio that indicates the relationship of the GDP at nominal prices to the GDP at real prices. GDP deflator = Normal GDP x 100 🗸🗸 Real GDP

Nominal GDP

Is the value of total gross domestic product measured at current prices. 🗸🗸
While the real GDP is the value of total gross domestic product measured at constant prices.🗸🗸
So, the GDP deflator includes changes in the prices of exports but not of imports. 🗸🗸
In a small open economy, like that of South Africa where both, imports and exports are significant in relation to the total size of the economy. 🗸🗸
The exclusion of import prices is an important shortcoming. 🗸🗸

Unemployment rate

In terms of economic development, employment is a very important indicator. 🗸🗸
Employment is, however, not very easy to measure as so many people are employed in the informal sector which is not recorded. 🗸🗸
The concept of underemployment is also important. 🗸🗸
This is when someone is employed in a position that requires less skill than their ability. 🗸🗸
For example when a qualified accountant works as a delivery person because he or she cannot find employment as an accountant. 🗸🗸
Someone may also be employed on a part-time basis but would prefer to work full time. 🗸🗸
A labour force survey is published quarterly by Stats SA. 🗸🗸
This publication contains information and statistics concerning a variety of issues related to the labour market, including the official unemployment rate. 🗸🗸
It is a comprehensive survey and provides information on changes in employment in different provinces and industries. 🗸🗸
Employment in the informal sector, and even reasons for changes in employment figures. 🗸🗸
The unemployment rate is a percentage of the total labour force. 🗸🗸
The total labour force includes all employed people and unemployed people who are looking for work. 🗸🗸
The unemployment rate is a lagging indicator, which means that it will only change a few periods after the trend in the economy has changed. 🗸🗸
For example if the economy starts growing at a faster pace. 🗸🗸
The unemployment rate will only react to the growth after two or three quarters. 🗸🗸

Interest rates

Interest rates are important indicators of future economic activity, as the interest rate level is usually an important determinant when economic decisions are being taken. 🗸🗸
Both the general interest rate level and the structure of interest rates are important indicators.🗸🗸
There are many interest rates in the economy. 🗸🗸
Some are short term rates, such as the repo rate, which is the interest rates at which South Africa banks borrow from the Reserve Bank to finance their liquidity deficit. 🗸🗸
The difference between the short term interest rates and long term interest rates: 🗸🗸
Is called the interest rate spread and the term structure of interest rates provides an indication of the interest rates levels on loans or investments of different maturities. 🗸🗸
Usually we can expect the interest rates level in a developing country to be higher than the interest rate in a developed economy. 🗸🗸
This is due to the higher risk attached to the developing economy. 🗸🗸
Factors such as political and economic uncertainty cause this higher risk. 🗸🗸
Developing economies also need to attract foreign investment to their country to finance growth. 🗸🗸
Investors’ funds will move towards the highest yield and thereof. 🗸🗸
Developing countries cannot allow interest rates in their countries to become too low. 🗸🗸

Money Supply

The increase in the M3 money supply is an important economic indicator. 🗸🗸
If M, the money supply increases, this means that either (P) prices or Y (output) has to respond to the increase in M. 🗸🗸
Therefore, an increase in the money supply is an important indicator showing that output will increase. 🗸🗸
Whether this will translate to an increase in real production or the price level will depend on factors like production within the economy. 🗸🗸
In addition to economic growth the employment of people of working age (15 -64 years) is a majot economic objective. 🗸🗸
We need to know more than this; we need to know who the people are that need to be employed. 🗸🗸
The numbers are determined, not only by age, but also by people’s willingness to work. 🗸🗸

The Economically Active Population (EAP)

The EAP is also known as the labour force. 🗸🗸
It consists of people between the age of 15 and 64 who are willing to work for income in cash or in kind and includes: 🗸🗸
Workers in the formal sector- workers in the informal sector. 🗸🗸
Employers any one 🗸🗸
Self employed persons. 🗸🗸

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Unemployed Persons

The 2021 estimate of the South African population was million people. 🗸🗸
The EAP numbered million ( % of the population). 🗸🗸

The Employment Rate

The number of employed persons expressed as a percentage of the EAP gives the employment rate. 🗸🗸
The employment rate can also be converted into an index. 🗸🗸
The SA employment rate was % in 2011. 🗸🗸
This is low, compared to rates in developed and even some developing countries such as Argentina and Pakistan. 🗸🗸
In SA the growth in the economy is not accompanied by the similar growth in employment numbers. 🗸🗸

Employment indicators are used for:

To calculate trends in employment in different sectors or industries. 🗸🗸
This indicates structural changes in the economy. 🗸🗸
To calculate productivity. 🗸🗸
To show the success of the economy in utilizing its full potential. 🗸🗸

Unemployment Rate

Statistics SA (SSA) obtains its labour data each year from Quarterly Labour Surveys (QLFS). 🗸🗸
It uses the standard definition of the International Labour Office (ILO) to calculate unemployment. 🗸🗸
The strict definition of unemployment is used to calculate the unemployment rate. 🗸🗸
Did not work during the seven days prior to the interview. 🗸🗸
Want to work and are available to start work within a week of the week of the interview. 🗸🗸
Have taken active steps to look for work or to start some form of self-employment in four week prior to the interview. 🗸🗸
In SA the official unemployment rate was % in 2021. 🗸🗸
In developed countries, change in the unemployment rate trigger responses. 🗸🗸
From governments to fine-tune the economy. 🗸🗸
Increases require more funds for unemployment insurance (UIF) drawings. 🗸🗸
In developing countries, unemployment is the most important cause of poverty. 🗸🗸 [Accept current statistical data] [Max 16]
To give a policy direction in the country. 🗸🗸
To develop mechanism to caution the most affected sectors of the economy promptly
e.g.during the 2019-2020 recession/pandemic some companies required a bail out from the government. 🗸🗸
Develop some economic stabilisers to defuse the huge impact that may result from the unexpected economic downturn. 🗸🗸
Open some other alternative markets for their goods and services. 🗸🗸
To do research and advice the business community before the actual moment hits. 🗸🗸
It can be used to stimulate thinking and growth in a number of sectors in the Economy. 🗸🗸 [Accept any relevant consideration] [Max 10]

CONCLUSION Countries cannot survive and grow their economies if they do not pay attention to economic indicators for their planning processes. [Accept any relevant consideration] [Max 2]

INTRODUCTION Social indicators also called human development indicators as they promote improvement in the standard of living. 🗸🗸 [Any other relevant definition] [Max 2]

BODY-MAIN PART Demographics

This is the description of the physical population and its composition.
To get this a census is done regularly to obtain this information. 🗸🗸

Human development Index (HDI)

This is a measure of people’s ability to live long and healthy lives, to communicate, 🗸🗸
To participate in the community and to have sufficient income to experience a decent lifestyle. 🗸🗸

Human poverty index (HPI)

It measures life expectancy is measured by the percentage of newborns not expected to survive to age 40. 🗸🗸
Lack of education is measured by the percentage of adults who are ill- educated. 🗸🗸

Health and nutrition

Life expectancy birth. 🗸🗸
Infant mortality rate. 🗸🗸

Nutrition indicators

Daily calorie intake per person. 🗸🗸
The number of children who go hungry. 🗸🗸
These measures are important to government as they are supplying healthcare and sometime have to include legislation such as adding vitamin A to basic foodstuffs such as bread. 🗸🗸
The standard of living of people is directly connected to their education. 🗸🗸
Educated people are employable and can earn an income and provide for their own wants and needs. 🗸🗸

Two important measures are:

Secondary enrolment percemtage-how many children that start Grade 1 get to Grade 8 and finish Grade 12. 🗸🗸
Adult literacy- People over the age of 15 that can read and write. 🗸🗸
A large percentage of the annual budget is allocated to education. 🗸🗸
Because of our constitution certain basic services must be supplied by the government. 🗸🗸
These services have a direct effect on people’s living standards. 🗸🗸
Electricity 🗸🗸
Refuse disposal🗸🗸
Water supply🗸🗸
Sanitation🗸🗸

Housing and urbanisation

Urbanisation the process by which an increasing proportion of a country’s population is concentrated in its urban areas as a result of natural increase and migration from rural areas. 🗸🗸
This measures is important as more people come to live in urban areas the greater the demand for housing, services, education, health care etc. 🗸🗸
Housing the percentage of the population living in a permanent dwelling or house. 🗸🗸
The government issue housing subsidies to help poor people to own a house South African citizens or permanent residents earning R3 500 or less a month could apply for this subsidy. 🗸🗸

International comparisons

Figures collected by the World Bank, International Monetary Fund (IMF) and United Nations provide the best data for comparison purpose. 🗸🗸

Other measures used:

Purchasing power parity (PPP) The number of units of one country’s currency that give the holder the same purchasing power as one unit of another country’s currency. 🗸🗸
The Big Mac Index, The index is based on the price of the Big Mac around the world as compared to its price in the United States. 🗸🗸 [Max 40]

CONCLUSION From the above discussion it is clear that social indicators play a significant role in South Africa. It is, therefore, of the utmost importance that we should study their uses in depth. [Max 2]

MICROECONOMICS-PAPER 2

INTRODUCTION A perfect market is a market structure which has a large number of buyers and sellers. OR The market price is determined by the industry (demand and supply curves). OR This means that individual businesses are price takers, i.e. they are not able to influence prices. OR Perfect competition is an imaginary situation, whereas monopolistic competition is a reality. 🗸🗸 [Accept any other relevant introduction] [Max 2]

BODY-MAIN PART

The indicating of the equilibrium positions on the perfect market structure is of utmost importance because from this point where MC = MR
The dotted lines will be drawn to show economic profit or economics loss.
Where the dotted lines intersect the AC and AR curves either normal profit or economic profit or economic loss will be indicated and shadowed.

Mark allocation for graph:

Position / shape of MC curve = 1 mark
MR curve = 1 mark
Position / shape of AC curve = 2 marks
Equilibrium point = 1 mark
Indication of price / quantity = 1 mark
Shading of economic loss = 2 marks MAX MARKS = (8)

Allocate marks on the graph according to the rubric provided and if facts are duplicated again in writing, do not allocate marks. Max of 8 marks.

Equilibrium is at E 1 i.e. where MC = MR
At this point Q 1 goods are produced at a price of P 1
The averages cost for Q 1 units is point R on the AC curve
Price / AR is greater than AC ( TR > TC)
Therefore economic profit is represented by the area P 1 SRE 1
Equilibrium is at E 1 i.e. where MC = MR
At equilibrium (point E 1 ) average cost is equal to price
The AC curve is tangent to the demand curve which means that P/AR = AC (TR = TC)
The business makes normal profit which is the minimum earnings required to prevent the entrepreneur from leaving the industry.
Equilibrium is at E1, i.e. where MC = MR
At this point Q1 goods are produced at a price of P1
At equilibrium (point E1) price/AR is less than average cost/the AC curve is lies above the demand curve which means that P/AR < AC (TR < TC)
The business makes an economic loss A maximum of 24 marks will be allocated for graph illustration and analysis: 8 marks max per graph illustration - (Max 26 marks)

ADDITIONAL PART CONDITIONS For a market to successfully operate under perfect competition, the following conditions should prevail at the same time:

No firm can influence the market price (price takers) due to a large number of buyers and sellers
Products are identical (homogeneous)
There are no barriers of entry, meaning that there is freedom of entry and exit
Buyers and sellers act independently - no collusion between sellers
No government interference to influence the market – the market is unregulated
Free movement between markets - all factors of production are completely mobile
Both buyers and sellers have full knowledge of all the prevailing market conditions (perfect information)
If any of the above conditions are not met, the market is regarded as an imperfect market Any 5 x 2 = [Max 10 marks]

CONCLUSION Freedom of entry and exit into the perfect market alter the supply of goods on the market. This will result in changes in price which influences the profit or loss of a business. If price falls to a level where it is equal to the AVC then the firm will shut-down. [Max 2] Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)

INTRODUCTION A firm is regarded as a monopolist when it owns or controls the total supply of a scarce factor of production. Monopoly is a market structure where only one seller operates. 🗸🗸

BODY: MAIN PART The characteristics of a monopoly

Number of firms

The monopoly consists out of one single firm. 🗸🗸
The monopoly is also the industry. 🗸🗸
Example: Eskom or De Beers – diamond-selling 🗸🗸 [Accept any other relevant example]

Nature of product

The product is unique with no close substitute. 🗸🗸
Example: Diamonds are unique. 🗸🗸

Market entry

Refers to how easy or difficult it is for businesses to enter or to leave the market 🗸🗸
Is entirely/completely blocked. 🗸🗸
Economies of scale 🗸🗸
Limited size of the market 🗸🗸
Exclusive ownership of raw materials 🗸🗸
Licensing 🗸🗸
Sole rights 🗸🗸
Import restrictions 🗸🗸

They decide on their production level

The monopolist cannot set the level of output and the price independently of each other. 🗸🗸
If a monopolist wants to charge a higher price, it has to sell fewer units of goods. 🗸🗸 Alternatively, a reduction in price will result in a higher output sold. 🗸🗸
A monopolist is confronted with a normal market demand curve 🗸🗸
The demand curve slopes downwards from left to right 🗸🗸
Any point on the monopolist’s demand curve (D) is an indication of the quantity of the product that can be sold and the price at which it will trade. 🗸🗸

They are exposed to market forces

Consumers have limited budgets and a monopoly can therefore not demand excessive prices for its product. 🗸🗸
The monopolist’s product has to compete for the consumer’s favour and money with all other products available in the economy. 🗸🗸

They face substitutes

There are few products that have no close substitutes. 🗸🗸
For example, cell phones can compete with telephone services. 🗸🗸

They may enjoy favourable circumstances

Sometimes an entrepreneur may enjoy favourable circumstances in a certain geographical area. 🗸🗸
For example, there may be only one supplier of milk in a particular town. 🗸🗸

They may exploit consumers

Because a monopolist is the only supplier of a product, there is always the possibility of consumer exploitation. 🗸🗸
However, most governments continually take steps to guard against such practices. 🗸🗸

Market Information

All information on market conditions is available to both buyers and sellers. 🗸🗸
This means that there are no uncertainties. 🗸🗸

Control over price

In the case of a monopoly there are considerable price control, but limited by market demand and the goal of profit maximisation. 🗸🗸

Long-run economic profit Can be positive

Because new entries are blocked and short-run economic profit therefore cannot be reduced by new competing firms entering the industry 🗸🗸
The monopoly can thus continue to earn economic profit as long as the demand for its product remains intact 🗸🗸

Heading = 1 mark AC = 1 mark DD/AR = 1 mark MC = 1 mark Profit maximisation point =1 mark Labelling of the axis = 1 mark Labelling on the axis = 1 mark

Long run equilibrium of a perfect competitor

CONCLUSION A monopoly does not always make economic profit in the short run; it can also make economic loss in the short run if the total cost exceeds total revenue. 🗸🗸

INTRODUCTION

The oligopoly is a type of imperfect market in which only a few large producers dominate the market. 🗸🗸 [Accept any other relevant and correct response]

MAIN PART Nature of product

The product may be homogeneous in a pure oligopoly. 🗸🗸
If the product is differentiated, it is known as a differentiated oligopoly. 🗸🗸

Market information

There is incomplete information on the product and the prices. 🗸🗸
Market entry is not easy, it is limited in the sense that huge capital outlay might be necessary. 🗸🗸
Oligopolists have considerable control over price, it can influence price, but not as much as the monopolist. 🗸🗸
Oligopolies can frequently change their prices in order to increase their market share and this result in price wars. 🗸🗸

Mutual dependence

The decision of one firm will influence and be influenced by the decisions of the other competitors. 🗸🗸
Mutual dependence (interdependence) exists amongst these businesses.
A change in the price or change in the market share by one firm is reflected in the sales of the others. 🗸🗸

Non-price competition

Non - price competition can be through advertising, packaging, after-sales services. 🗸🗸
Since price competition can result in destructive price wars, oligopolies prefer to compete on a different basis. 🗸🗸
Participants observe one another carefully- when one oligopolist launches an advertising campaign, its competitors soon follow suite. 🗸🗸
If oligopolies operate as a cartel, firms have an absolute cost advantage over the rest of the other competitors in the industry. 🗸🗸
Collusion is a strategy used by firms to eliminate competition amongst each other. 🗸🗸
It can be in a form of overt collusion where firms can work together to form a cartel and tacit collusion where a dominating business controls the price. 🗸🗸

Limited competition

There are only a few suppliers manufacturing the same product. 🗸🗸

Economic profit

Oligopolies can make an economic profit over the long term. 🗸🗸
Abnormal profits may result to joint decision-making in an oligopoly. 🗸🗸

Demand curve

Slope from left down to the right. 🗸🗸
It is known as the kinked demand since it contains the upper relatively elastic slope and the lower relatively inelastic slope. 🗸🗸 [Accept any other relevant and correct response] [Max. 26]

ADDITIONAL PART Oligopolist may increase their market share using non-price competition strategies by:

branding their product to create an impression that its product is for a particular age group or income group. 🗸🗸
aggressive advertising which inform customers about the business or product it provides.🗸🗸
Using appealing packaging to bring out important features of their product.
improving their customer service in order to ensure that they return to their businesses.🗸🗸
providing relevant and precise information, which is crucial to the customers, since there are competitors in the market, customers will patronize the businesses that provides relevant information. 🗸🗸
extending shopping hours to the convenience of customers.
Offering loyalty rewards to customers which will encourage their return to spend accumulated rewards. 🗸🗸 [Accept any other relevant response] [Max.10]
In South Africa, oligopolists have been found to be illegally manipulating prices to their benefit, yet to the detriment of consumers and have been penalized for such action. 🗸🗸 [Accept any other relevant response]

Compare and contrast any TWO types of market structures (perfect to imperfect/imperfect to imperfect) in detail in terms of the following. - Number of businesses - Nature of product - Entrance - Control over prices - Information - Examples - Demand curve - Economic profit/loss - Decision-making - Collusion - Productive/Technical efficiency - Allocative efficiency (Perfect Market and Imperfect Market)

‘’Market structures are classified under Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly’’ Compare all FOUR market structures in a tabular form. NB: Learners should write in full sentences even if the comparison is done in a tabular format). (Marks depend on the combination of market structures to be examined)

PLEASE NOTE: THE ABOVE TABLE SHOULD BE VERBALLY WRITTEN AS PER ESSAY INSTRUCTION

INTRODUCTION Market failure is when the forces of supply and demand fail to allocate resources efficiently / when markets fail to allocate goods and services efficiently. 🗸🗸 [Accept any other correct introduction] [Max 2]

BODY: MAIN PART

1. Missing Markets

Markets are often incomplete in the sense that they cannot meet the demand for certain goods. 🗸🗸
Public goods:
They are not provided by the price mechanism because producers cannot withhold the goods from non-payment and there is often no way of measuring how much a person consumes. 🗸🗸

Public goods have the following features: Non-rivalry:

The consumption by one person does not reduce the consumption of another person e.g. a lighthouse. 🗸🗸

Non-excludability:

Consumption cannot be confined to those who have paid, so there are free riders e.g. radio and TV in South Africa. 🗸🗸

Merit goods

These are goods/services that are deemed necessary or beneficial to the society, e.g. education, health care etc. 🗸🗸
These goods are highly desirable for general welfare but not highly rated by the market, therefore provide inadequate output/supply. 🗸🗸
If people had to pay market prices for them relatively too little would be consumed – the market will fail. 🗸🗸
The reason for undersupply of merit goods is that the market only takes the private costs and benefits into account and not the social costs and benefits. 🗸🗸

Demerit goods

These are goods/services that are regarded as bad or harmful for consumption hence we should use less of these e.g. alcohol, cigarettes, etc. 🗸🗸
Demerit goods lead to a lot of social costs, therefore, the government charges sin tax / excise duties to discourage the consumption of such goods. 🗸🗸
While the market is willing to supply demerit goods, it tends to oversupply demerit goods. 🗸🗸
Some consumers may be unaware of the true cost of consuming them. 🗸🗸

2 Lack of information

Technical and allocative efficiency require that both producers and consumers have complete and accurate information about the costs and benefits of the goods and services produced and consumed in the market. Producers and consumers make production and consumption decisions based on the information they have. 🗸🗸
When information is incomplete or inaccurate, it leads to wrong decisions about what to produce, how to produce and for whom to produce, and a waste of resources occurs. 🗸🗸
Producers might not know all the different technologies and production techniques that are available and the different resources that can best be used to produce goods/services more efficiently. 🗸🗸
Consumers might not know that the price of a product is lower from some other suppliers or about the harmful effects of a product since they might just base their decisions to consume on the information from a misleading suppliers. 🗸🗸

3. Immobility of factors of production

Markets do not respond to changes in consumer demand if resources cannot be easily reallocated or due to a lack of information🗸🗸
Labour takes time to move to into new occupations and geographically to meet the changes in consumer demand. 🗸🗸
Physical capital e.g. equipment, buildings, land and raw materials can only move from one place to another at a high cost, but cannot be moved to fit a change in demand. 🗸🗸
Technological applications change production methods e.g. use of robots rather than physical labour. It takes time for most industries to adapt. 🗸🗸
With greater technological change there is an increasing need for workers to become flexible, to update skills, change employment, occupations and work patterns. 🗸🗸 [Max 26]
Motivate why government has implemented a national minimum wage in the labour market. 🗸🗸
Pressure was put on the South African government to introduce labour laws which require employers to pay minimum wages. 🗸🗸
The application of minimum wage laws is needed to improve a redistribution of income. 🗸🗸

The main objectives were:

To redress inequality (Gap between wealthy and poor) 🗸🗸
To improve the standard of living. 🗸🗸
Government tried to protect domestic workers and farm workers — thus preventing exploitation. 🗸🗸 [Max 10] [Accept any other correct relevant response]

CONCLUSION Governments intervene in the market when market forces cannot achieve the desired output. [Max 2] [Accept any other relevant conclusion]

INTRODUCTION The purpose of government intervention is to ensure that the right quantity of resources is allocated to the production of output so that society as a whole [Accept any other relevant introduction] [Max 2] maximizes its benefits. 🗸🗸

Sometimes government will set the price of a good or service at a maximum level that is below the market price 🗸🗸
The government intervene and passes a law that suppliers may not charge more than the maximum price 🗸🗸
The immediate effect is that quantity supply will drop 🗸🗸
The original market equilibrium price and quantity is P and Q respectively 🗸🗸
The price set by the government is P1, at this price the demand will increase to Q1 and the supply will decrease to Q2 🗸🗸
The difference between Q1 and Q2 is the shortfall that will be created on the market 🗸🗸
The shortage caused by the price ceiling creates a problem of how to allocate the good since the demand has increased 🗸🗸
Black markets start to develop [Mark allocation: Graph 6 and discussion max. 10 marks]
The appropriate way to intervene in the market by government is by levying taxes as a method to recover external cost 🗸🗸
The original market equilibrium at e, with P as the equilibrium price and Q as the equilibrium quantity 🗸🗸
The tax increase will shift the supply curve to the left 🗸🗸
New equilibrium at E1 🗸🗸
A tax would raise the price from P to P1 🗸🗸
The production will decrease from Q to Q1 🗸🗸 [Mark allocation: Graph total 6 marks and discussion max 10 marks]
Explain the supply of undesirable goods in South Africa and how the government can deal with it. 🗸🗸
Items such as cigarettes, alcohol and non-prescription drugs are examples of demerit or undesirable goods. 🗸🗸
These goods are often over supplied in the market, due to the fact that the external cost is not added to the market price. 🗸🗸
Some consumers may be unaware of the true cost of consuming them, their negative externalities. 🗸🗸
Government can ban their consumption or reduce it by means of taxation. 🗸🗸
Taxation on these products will increase the market price and hopefully the demand for these products will drop. 🗸🗸 [10 marks] [Accept any other correct relevant response]

CONCLUSION The intervention of government ensures that inefficiencies is eliminated and that the market is operating effectively 🗸🗸 [Accept any other relevant conclusion] [Max 2]

CONTEMPORARY ECONOMIC ISSUES-PAPER 2

This is a constant and significant increase in the general price level of goods and services in the country over a certain period of time, e.g. a year. 🗸🗸 [Max 2] [Accept any relevant introduction]

BODY-MAIN PART Creditors and Debtors

Whereas borrowers (debtors) benefit from price increases, lenders (creditors) suffer due to price increases. 🗸🗸
This is because borrowers receive money with a relatively high purchasing power and they repay their loans with money with low purchasing power, unless interest rates are sufficient to prevent this occurrence. 🗸🗸

Salary and Wage Earners

Price increases affect people whose incomes are relatively fixed (in other words, people whose incomes remains constant or do not increase at the same rate as prices do. 🗸🗸
This group includes retired people, pensioners and the poor. 🗸🗸
As prices increase, their almost fixed incomes purchase less and less. 🗸🗸
However there are individuals and entrepreneurs whose incomes often increase at a rate that is higher than the inflation rate and they do not suffer but gain from inflation. 🗸🗸
Globalization results in increased employment opportunities in the economy due to increased productivity, the need to produce more goods both for local and international markets rises in globalised economies. 🗸🗸
The demand for increased skilled labour becomes a need as a result, this demand for labour benefits the local labour market in increased employment opportunities and growth. 🗸🗸

Investors and Savers

Different types of investments are affected by inflation: Assets with fixed nominal values. 🗸🗸
These assets have a fixed nominal value and give a return if they are held until maturity. 🗸🗸
When they are paid, because their nominal values remain constant, the purchasing power of the nominal values decreases as prices increase (that is, their real value decreases). 🗸🗸

Assets with Flexible Market Values

The holders of shares and fixed property usually gain by price increases because the nominal values of these assets tend to increase at least proportionately to the rate of inflation (that is, their market values are flexible). 🗸🗸
Often the prices of these assets increase more rapidly than increases in the general price level.🗸🗸
In this case, inflation creates wealth to the advantage of those holding such assets. 🗸🗸
South Africa has a progressive personal income tax system. 🗸🗸
This means that marginal and average tax rates increase in harmony with the income level. 🗸🗸
The higher level an individual’s income, the greater the percentage of income he or she has to pay tax. 🗸🗸
With inflation, taxpayers’ nominal income (wages and salaries) rise even when their real income remain unchanged. 🗸🗸

Taxes are levied on nominal income and not on real income.

Therefore if the income tax schedule remains unchanged inflation increases the average rate of personal income tax. 🗸🗸
Individuals will have to pay higher taxes even if they are actually no better off than before. 🗸🗸
This phenomenon known as bracket creep, lads to a redistribution of income from taxpayers to the government. 🗸🗸
Bracket deep results from a combination of inflation and progressive income tax. 🗸🗸
It has the same effect as an increase in the tax rate. 🗸🗸

Industrial Peace

Wage bargaining is often accompanied by strikes and mass action. 🗸🗸
These actions can sometimes spill over into violence, which affects society at large. 🗸🗸
In extreme situations in the presence of exceptionally high inflation together with a government that is determined not to yield to wage increase demands (which can push inflation to even higher levels), widespread civil unrest follows. 🗸🗸

Inflation has a negative effect on economic growth

Inflation leads to increased uncertainty in the economy. 🗸🗸
This uncertainty discourages savings and investments especially in the long term. 🗸🗸
Which are necessary for economic growth –result reduced economic growth. 🗸🗸

Inflation affects the real money value and savings

Because inflation reduces the real value of money, it affects the real value of money saved in particular. 🗸🗸
This means that inflation, the rand buys fewer goods and services than before. 🗸🗸
It also means that the real money value saved is worth less at the end of the savings period than when the money was saved. 🗸🗸
e.g. if a consumer receives 5 % interest on his/her savings account while the inflation rate is 8%, then the real rate of interest on the consumer’s savings is -3%.🗸🗸

Inflation has an adverse effect on a country’s balance of payments (BOP).

If a country’s rate of inflation is higher than that of its trading partners the prices of exported goods increase while the prices of imported goods decrease. 🗸🗸
This leads to loss of competitiveness in the export market, which in turn leads to decreased exports. 🗸🗸

This has a negative effect on the country’s balance of payments (BOP).

The loss of export competiveness can also increase unemployment inflation affects the redistribution of income in a country. 🗸🗸

The effects of inflation are uneven.

While it does not clearly benefit anyone and certainly harms most, it also harms some less than others. 🗸🗸
Inflation also tends to redistribute income from low-income groups to higher income groups. 🗸🗸
This is because people in the low income groups do not have assets than can rise in value faster than the rate of inflation to help them overcome the effects of inflation. 🗸🗸
Powerful groups such as trade unions large companies and the wealthy people, are able to increase their share of national income at the expense of disadvantaged people such as pensioners the unemployed and the welfare recipients. 🗸🗸

Inflation has social and political costs

When inflation continually causes rising prices it makes people unhappy and can disturb relations between employers and the employees and between customers and traders or service providers. 🗸🗸
People in lower-income brackets feel severe effects of increases in the price of essential items such as bread, maize meal rental and transport costs. 🗸🗸
This can lead to social unrest and political unrest. 🗸🗸

Inflation feeds on itself and causes further inflation

This is called the inflation spiral. 🗸🗸 e.g. higher wage demands cause producers to increase their prices to maintain their profits.
This happens again and again pushing prices further every time. 🗸🗸
If the government does not keep this wage price spiral in check, inflation may get out of control and become hyperinflation. 🗸🗸 [Max 26]

ADDITIONAL PART Debate the merits (benefits) of administered prices by the government

These are prices regulated by the government e.g. home owner’s costs on water/household fuel (paraffin and electricity) medical care (public hospitals) communication (telephone calls, telephone rentals and installations/postage cell communications /transport (petrol). 🗸🗸
Most of the administered prices are adjusted once a year which brings price stability. 🗸🗸
Regulated prices are restricted as to the extent to which prices may vary, depending on the government’s objectives. 🗸🗸
Administered prices provide additional revenue to national treasury. 🗸🗸
It appears that some of these prices remain extremely robust over the short term. 🗸🗸 [Accept any other relevant response] [Max 10]
If inflation is not controlled by the proper and effective instruments, it can have challenging problems to the economy in general. 🗸🗸

INTRODUCTION COST PUSH Inflation is a sustained and significant increase in general price level over a period of time and a simultaneous decrease in the purchasing power of money. Accept any other relevant introduction. 🗸🗸 [Max 2]

BODY: MAIN PART Causes of cost-push inflation

Increase in Wages:

In South Africa, increase in wages constitute more than 50% of Gross Value Added at basic prices 🗸🗸
If the increase in wages is not accompanied by an increase in production, the cost of production will rise 🗸🗸
Producers will increase the prices of their products to offset the high cost of production strikes and stay-aways / labour union activities 🗸🗸

Key inputs/ increase in prices of imported capital goods

When the prices of key inputs that are imported increase, domestic cost of production 🗸🗸
increases especially in the manufacturing sector 🗸🗸
Supply shocks e.g. sudden increase of oil causes a knock-off effect 🗸🗸

Exchange rate depreciation

A decrease in the value of the rand will result in an increase in prices of imports 🗸🗸

Profit margins

When firms increase profit margins, the prices that consumers pay also increase 🗸🗸
Sometimes firms use their market power to push up prices 🗸🗸

Productivity

Less productive factors of production will lead to increased cost per unit 🗸🗸
Strikes and stay-aways often reduce production output and can result in price increases 🗸🗸

Natural disasters

Natural disasters such as drought, flood and global warming can impact on the cost of production 🗸🗸
This is often the case in relation to food prices 🗸🗸
An increase in interest rates results businesses paying more money for capital loaned firms recover these costs by increasing the prices of their products 🗸🗸

Increase in taxation

Increase in direct tax like company income tax may lead to businesses increasing their prices to offset the extra burden 🗸🗸
Increase in indirect tax such as custom duty will lead to increase in costs of supplying a particular product, therefore the price will increase 🗸🗸
Administered prices increase e.g. fuel prices
Shoplifting and losses caused by employees are added to the prices of products 🗸🗸 [Accept any other relevant fact. Maximum 8 marks for headings] [Max. 26]

DEMAND PULL INFLATION Total spending on domestic goods and services in the economy consists of the spending by households, firms, the government and the foreign sector.

Total spending = C + I + G + (X-M). 🗸🗸

Causes of demand inflation Increase in consumption [C] – consumers expenditure will increase mainly for three reasons:

a. If consumers save less & spend more🗸🗸
b. Decrease in personal income tax. 🗸🗸
c. A greater availability of consumer credit, because of decrease in interest rate. 🗸🗸

Investment [I] –When business invest this increase demand for labour, cement, sand and bricks. 🗸🗸

Supply cannot keep up with the increase in demand and this will increase prices. 🗸🗸
Lower interest rates may result in an improvement in the sentiment and profit expectations of businesses. 🗸🗸
Businesses invest more and this may lead to an increase in the demand of goods and services that are part of the investment (for example, a new building requires cement bricks and labour).🗸🗸
If aggregate demand increases at a faster rate than aggregate supply, price increases will follow.🗸🗸

Government Spending [G] – Three main reasons.

a. New capital projects🗸🗸
b. Consumption expenditure on education, health, and protection. 🗸🗸
c. Social expenditure on public work programme to create jobs and increase in social allowances. 🗸🗸

Export earnings [X]

a. When economy of trading country improve. 🗸🗸
b. When global economy expands. 🗸🗸

Access to credit

There is greater availability of consumer credit (by means of credit cards) of the availability of cheaper credit as a result of decreases in lending rates. As new credit is extended the credit multiplier kicks in and more credit is created. 🗸🗸

Consumption spending

Most governments will at times increase expenditures on education, health, protection and safety (for example, military equipment such as bomber jets and submarines). 🗸🗸

Social spending

Governments sometimes feel they have to do something substantive about unemployment and poverty. 🗸🗸
They borrow money and spend it on public works programmes or raise the level of social grants year after year at a higher rate than the inflation rate. 🗸🗸
Such expenditures invariably lead to inflation because they add to aggregate demand without adding anything to aggregate supply. 🗸🗸

Commodities demand

The world’s demand for commodities expands and contracts like business cycles do. During an expansionary period, foreign demand increases and this leads to greater volumes of exports. The income earned from these exports adds to aggregate demand and prices increase. 🗸🗸

BODY: ADDITIONAL PART YES / NO

Inflation targeting is when a particular percentage is set as an acceptable level for an increase in general price levels 🗸🗸
The SARB's inflation target is a range of 3% and 6% 🗸🗸
The aim of inflation targeting policy is to achieve and maintain price stability 🗸🗸
The implementation of the inflation target is easy to understand – expressed in numbers which makes it very clear and transparent 🗸🗸
It reduces uncertainty and promotes sound planning in the public and private sectors 🗸🗸
It provides an explicit yardstick that serves to discipline monetary policy and improves the accountability of the central banks 🗸🗸
The SARB make use of monetary policy, specifically the repo rate to keep the inflation within the target range 🗸🗸
The government make use of fiscal policy regarding public sector revenue and expenditure 🗸🗸

Positive effects

Where demand is higher than supply an increase in interest rates help to bring the demand down 🗸🗸
The policy can helps businesses to make economic plans without worrying about the effects of high inflation 🗸🗸
South Africa's price level has been fairly stable since the introduction of the inflation targeting policy in 2000 🗸🗸

Negative effects

Inflation targeting can cause a reduction in economic growth 🗸🗸
This is because the raising of interest rates, result in a decrease in total spending which is needed for production to increase 🗸🗸
Decreased economic growth can increase unemployment 🗸🗸
South Africa has been experiencing an increase in unemployment since the implementation of the policy in 2000 🗸🗸
Inflation targeting is difficult to implement when the cause of inflation is supply shocks 🗸🗸 [Max. 10]
A summary of what has been discussed without repeating facts already mentioned in the body. 🗸🗸
An opinion or valued judgement on the facts discussed. 🗸🗸
Additional support information to strengthen the discussion. 🗸🗸
A contradictory viewpoint with motivation. 🗸🗸
Recommendations. 🗸🗸
E.g. Inflation can be a threat to the normal functioning of the economy; therefore, measures like monetary and fiscal are vital to keep the phenomenon under control. 🗸🗸
This is the activities of people travelling to and staying in places outside their usual environment for a period not longer than one consecutive year for leisure, business and other purposes and not related to a remunerative activity from within the place visited 🗸🗸 [Max 2]

BODY - MAIN PART Gross domestic product (GDP)

Tourism impacts mostly on the services industry than on agriculture or manufacturing although there are upstream effects when agriculture provides foodstuffs to restaurants and manufacturing provides vehicles for transport 🗸🗸

Direct contribution on GDP

Statistics South Africa (SSA) shows that in 2020 inbound tourists contributed R69 billion and domestic tourists R billion, amounting to R billion - about % of South Africa's GDP 🗸🗸

Indirect contribution on GDP

If the indirect contribution is added, tourism add about % to GDP 🗸🗸
The WTTC estimated that tourism contributed % to the GDP of the world economy in 2020🗸🗸
In developing economies the service sector is responsible for around % of GDP, while it is responsible for more than % of GDP in developed economies 🗸🗸
South Africa is similar to that of developed economies and services contributed more than % of GDP in 2020. 🗸🗸
Tourism has a major effect on employment and this amounted to million workers in 2020🗸🗸
Tourism is the world’s largest generator of jobs 🗸🗸
Tourism is labour intensive 🗸🗸
More jobs can be created with every unit of capital invested in tourism than elsewhere
Tourism employs many skills 🗸🗸
It ranges from accountants and hairdressers to tour guides and trackers, 🗸🗸
the tourism industry draws upon numerous skills 🗸🗸
Tourism can provide immediate employment 🗸🗸
If one quarter of tourists’ accommodation establishment in South Africa starts to offer live entertainment to quests, thousands of entertainers could be employed within days 🗸🗸
Tourism provides entrepreneurship opportunities 🗸🗸
The tourism industry accommodates informal sector enterprises, from craft and fruit vendors to pavement vendors, chair rentals 🗸🗸
Tourism is widely recognized as one of the fastest and more effective redistribution mechanisms in development 🗸🗸
It brings development to the poor in rural areas 🗸🗸
Tourism provides an alternative to urbanisation, permitting women and youth to continue a rural family lifestyle while giving them business opportunities 🗸🗸
E.g. to start and operate small-scale tourism businesses around community asserts (forests, parks and rivers) 🗸🗸

Externalities

The rapidly expanding tourism industry could have both positive and negative impacts that extend well into the future 🗸🗸
While tourism attracts large amount of revenue, it can also cause undue environmental damage that can harm the very foundation on which it depends 🗸🗸
All other economic resources, tourism uses resources and produces wastes and also creates environmental costs (pollution) and benefits in the process 🗸🗸
Rapid growth in tourism aiming at short-term benefits usually results in more negative effects and these includes the degeneration of traditions and cultural values and environmental damage to sites and setting 🗸🗸

Environment Tourism activities create environmental stress:

Permanent environmental restructuring which includes major infrastructure 🗸🗸
Waste product generation such as biological and non-biological waste that damages fish production 🗸🗸
Direct environmental stress caused by tourist activities, e.g. the destruction of vegetation and dunes 🗸🗸
Effects on population dynamics such as migration and increased urban densities 🗸🗸
Transport infrastructure, e.g. roads, airports 🗸🗸
Communication and infrastructure including telephone lines, electronic signal stations and radio, TVs’ 🗸🗸
Energy infrastructure such electricity and liquid fuel 🗸🗸
Basic service infrastructure such as clean water and sewerage systems 🗸🗸 [Max. 26]

ADDITIONAL PART How can Indigenous Knowledge Systems be used to promote tourism in South Africa?

More cultural villages can be improved to facilitate and promote tourism e.g. Shangana in Mpumalanga, Basotho in the Free State and Simunye Zulu Lodge in Kwazulu-Natal. 🗸🗸
Where guides explain and demonstrate storytelling and indigenous knowledge practices. 🗸🗸
Advertising campaigns domestically and internationally by travel agencies, hotels and B & B, lodges and SA Tourism can focus on promoting these heritage sites in brochures and fliers, social media. 🗸🗸
These actions will make tourists more aware of these attractions 🗸🗸
Encourage tourists to experience different cultures and townships - experience life at home with a household and eat at a shebeen or township restaurant 🗸🗸
World Heritage Sites of South Africa can be promoted for their cultural significance e.g. the Fossil Hominid Sites of Sterkfontein, Mapungubwe Cultural Landscape, Richtersveld Cultural and Botanical Landscape, Vredefort Dome and Robben Island 🗸🗸
Environmental World Heritage Sites of South Africa selected for their natural importance namely the Cape Floral Region Protected Areas, Isimangaliso Wetlands Park as well as uKhahlamba/Drakensberg Park which has been selected for its mixed significance 🗸🗸
Arts and culture festivals e.g. the National Arts Festival, the Hermanus Festival, Awesome Africa Music Festival and Macufe African Cultural Festival should more widely be advertised to encourage tourists to attend 🗸🗸
According to the World Health Organisation, a large majority of the African population make use of traditional medicines for health, social-cultural and economic reasons and forms part of the unique experience tourists experience when visiting local villages 🗸🗸
In South Africa tourists are made more aware of the important role traditional medicine plays in poverty reduction and employment creation 🗸🗸
Relaxation of restrictive tourist visa laws to facilitate easier entry into South Africa 🗸🗸 [Accept any other relevant answers] [Max. 10]
South Africa attracted over million tourists in 2020 /For every 8.1 additional tourist to South Africa, one new job is created/one per cent increase in tourism adds R million annually to the SA economy. 🗸🗸 [Accept any other relevant higher order conclusion] [Max. 2]
Tourism is the activities of people travelling to and staying in places outside their usual environment for no more than one consecutive year for leisure, business or other purposes PP 🗸🗸 [Accept any other correct relevant response] [Max 2]

MAIN PART Business sector

Tourism stimulates business in areas such as accommodation and entertainment 🗸🗸
The construction industry, in private-public partnership with the government to provide the infrastructure, manufacturing sector and recreation sector all benefits from increased demand due to tourism 🗸🗸
The previously disadvantaged communities get entrepreneurial opportunities through the black economic empowerment schemes 🗸🗸
A large number of people get business opportunities in the informal sector e.g. selling of artefacts 🗸🗸
Local retailers may have an increase in sales (and profits) because of increased demand from tourists 🗸🗸
Private businesses and government work in partnership to provide the infrastructure needed for tourism 🗸🗸
This increases the market share of and income of the these businesses 🗸🗸
Allow existing businesses to improve the quality and variety of their products PP 🗸🗸
Allow natural monopolies e.g. Table Mountain Cableway to achieve abnormal profits PP 🗸🗸
The public sector also provides a range of financial incentives for private sector tourism investment (grants, subsidies, loans, tax rebates) PP 🗸🗸 [Max 10]

Infrastructure development

Adequate and well-maintained infrastructure is essential for tourist destinations PP. 🗸🗸
Locals share this infrastructure with tourists 🗸🗸
Government often prioritises economic infrastructure such as ports and beaches 🗸🗸
In addition to physical and basic infrastructure, social infrastructure is also important for the growth of tourism🗸🗸
Most of the SDIs and development corridors also have tourism as an important focus PP 🗸🗸 [Max 8]
Members of households earn income from the tourism sector as tour operators, travel agents etc. 🗸🗸
Many households are indirectly involved in tourism as employees e.g. in hotels, transport sector. 🗸🗸
Entrepreneurs from households that operate as curio producers or musicians can earn income from tourism . 🗸🗸
A large number of households acquire skills in the tourism industry. 🗸🗸
School curriculum and learnership offer opportunities to acquire these skills . 🗸🗸
Encourages rural development because many tourist attractions are located in rural areas PP 🗸🗸 [Accept any other correct relevant response] [Max. 26]

ADDITIONAL PART Tourism can be successfully marketed in less popular destinations by:

advertising the firms' attractions in a variety of media including social media and internet which may reach both local and international potential tourists. 🗸🗸
focusing on a clear message that concentrates on the strength of the attraction/ uniqueness of the destination. 🗸🗸
using the indigenous knowledge systems of that particular area where possible PP. 🗸🗸
describing the service offered in the best possible way to catch the interest of the likely tourist PP E.g. the use of slogans. 🗸🗸
charging a price that is competitive and money well spent for the service offered. 🗸🗸
helping the tourist to view the entire service as value for money – deliver a worldclass visitor experience 🗸🗸
highlighting other places of interest in the vicinity of the attraction as part of a package 🗸🗸
focusing on proudly South African products/services / Sho’t Left campaign PP 🗸🗸
help disadvantaged South Africans to benefit from tourist attractions in the less popular destinations PP 🗸🗸 [Accept any other correct relevant response] [Max. 10]

CONCLUSION A weaker exchange rate has been a major contributing factor to South Africa's tourism industry growth over many years. 🗸🗸 [Accept any correct relevant response] [Max 2]

INTRODUCTION Environmental sustainability can be defined as development that meets the need of the present without compromising the ability of future generations to meet their own needs. 🗸🗸

BODY: MAIN PART Public sector intervention Because it is difficult to enforce measures to ensure sustainability the government has to intervene. 🗸🗸

Environmental taxes Environmental taxes (green taxes) can be added to the cost of goods and services for the negative impact they have on the environment. 🗸🗸 The government uses the income generated through these taxes to protect the environment. 🗸🗸 Taxes can be imposed on petrol, paper, emission gases etc. 🗸🗸 In 2003 the government has legislated the use of biodegradable plastic bags which consumers had to pay for🗸🗸 The hope is that they will use fewer bags and ensure a litter free environment. 🗸🗸

Charging for dumping of waste A monthly fee as part of municipal accounts is charged for collection of waste, sewage and garbage. 🗸🗸 Households already pay for the collection of rubbish. 🗸🗸 The factory owner might clean up his waste if it cost him to dump it. 🗸🗸 Industries might also pay for emitting gases that can be harmful to people and the environment. 🗸🗸 Subsidies Subsidies can be awarded to businesses that are willing to reduce pollution and waste. 🗸🗸 Waste can also be reduced by using new techniques or equipment such as solar energy. 🗸🗸 Emission gases from factories can be reduced using new technology. 🗸🗸

Granting property rights Normally owners of properties tend to be more protective over their resources than users who are only interested in the profits the resources offer. 🗸🗸 For this reason the government might grant property rights over a specific area. 🗸🗸 Property rights empowers owners to negotiate contracts with businesses who wish to exploit the area’s resources. 🗸🗸

Marketable permits A government can decide on the maximum desired level of pollution in an area. 🗸🗸 It then distribute pollution rights (marketable permits) to factories within that area. 🗸🗸 This means that each factory can pollute to a certain limit. 🗸🗸 It means that marketable permits are licenses that polluters can buy or sell to meet the control levels set by government. 🗸🗸

Education Incorporating topics into the curriculum of school fosters awareness. 🗸🗸 The public is gradually been made aware of this rising problem. 🗸🗸 Plastic, bottles and cartons can be recycled or made biodegradable. 🗸🗸

Public sector control If the government’s intervention does not attain the desired results, then it has to intervene more directly by setting and enforcing limits. 🗸🗸

Environmental Impact Assessment In SA every projected construction, mining or similar development has to undergo an assessment by qualified environmental professionals. 🗸🗸 To prove that it will not cause unwarranted environmental damage and that the damage can be repaired after construction. 🗸🗸 The cost if built into the project. 🗸🗸

Command and Control Regulations that are set and enforce environmental limits or standards. 🗸🗸 Quantity: e.g. set the limit to the amount of fish to catch, or limit the season catching certain species of fish. 🗸🗸 Quality: e.g. drinking water quality is carefully monitored and controlled. 🗸🗸 Air quality in workplace is subject to minimum standards. 🗸🗸 Social effect: e.g. noxious fumes from factories, dumping of medical waste near settlements, and noise pollution. 🗸🗸

Voluntary agreements Agreements between government and businesses voluntarily to address negative environmental impacts of industries. 🗸🗸 Businesses voluntary agree to decrease the emissions of pollutants. 🗸🗸 Most prefer negotiations so that they can tailor their specific needs and include it into their planning🗸🗸 Agreements can be formal, which is legally binding contract or informal. 🗸🗸 [Max 26]

ADDITIONAL PART Government does not exercise effective control over the continuous dumping of waste because of a lack of coordination between departments. 🗸🗸 The fines imposed on industries that dump waste are too lenient and they continue polluting the environment. 🗸🗸

The minimum standards set for hazardous gas and fuel emissions are not enforced or adjusted. 🗸🗸 The recycling of waste materials are not widely encouraged and promoted and landfill sites are overflowing. 🗸🗸 Government has various laws that is not really effectively implemented. 🗸🗸 Poor service delivery also adds to the problem in certain areas. 🗸🗸 [Accept any other relevant answer] [Max 10]

CONCLUSION Each and every individual, business and government needs to stand together to save our planet. [Accept any other relevant conclusion] [Max 2] Discuss in detail the following problems and the international measures taken to ensure sustainable development (Environmental Sustainability)

INTRODUCTION Environment refers to the physical surroundings and physical conditions that affect people’s lives. 🗸🗸 The ever-increasing pressure on our environment originates from increasing population numbers and excessive consumption🗸🗸 Our air, land, and water are under constant assault from the ever-growing ravages of man-made pollution generated chiefly by industrialized societies. 🗸🗸 [Accept any appropriate introduction] [Max 2]

BODY-MAIN PART Conservation

Conservation is necessary because human actions cause pollution and over-utilisation of resources. 🗸🗸
Conservation is a strategy aimed at achieving the sustainable use and management of natural resources. 🗸🗸
Conservation seeks a creative continuity of the environment while ensuring that change is sympathetic to the quality of life for both present and future generations. 🗸🗸
Certain aspects of conservation need to be taken into account.
Firstly, there is an opportunity cost. 🗸🗸
Secondly, externalities are often present. 🗸🗸
Lastly, self-interest has a short term horizon – meaning that decisions cannot be left entirely to market forces. 🗸🗸
Over utilization of resources causes a reduction in supply, increase in prices, contradiction of demand and a search for substitutes. 🗸🗸
This necessitates conservation of both renewable and non-renewable resources. 🗸🗸
Conservation has to be concerned with limiting what is harvested in order to maintain a stable stock at least at the minimum level. 🗸🗸
Government can use permits and quotas as two possible direct control methods in order to maintain the stock of resources at the minimum level. 🗸🗸

Preservation

Preservation involves any strategy undertaken to safeguard the environment, maintain its current condition and keep it as habitable as possible for people and animals. 🗸🗸
Heritage sites, indigenous forests, specifies of animals etc. that have special cultural or environmental significance, are often targeted preservation. 🗸🗸
Preservation is not likely to work as a private enterprise because the benefit to society is much bigger than the income of the producer. 🗸🗸
It may be possible to use cost-benefit analysis to calculate the social benefits of preservation of the environment.
The weaknesses in market solutions require the government to intervene in order to preserve environment assets. 🗸🗸
Government could do any of the following:
Buy or expropriate – Environmental assets are simply closed for human use. 🗸🗸
Subsidise-A subsidy would increase net benefits to the owner and raise the property’s present value. 🗸🗸
Controls – The government can compel the owner to apply control measures like restricting the quantities exploited or number of visitors allowed per day. 🗸🗸 [26 Max]

ADDITIONAL PART Stockholm Conference (1972)

The Stockholm Conference was the first major large scale international meeting on the environment convened with the support of the United Nations. 🗸🗸
The meeting agreed upon a declaration containing 26 principles concerning the environment and development, an action plan with 109 recommendations and a resolution. 🗸🗸
The meeting directly impacted on the environmental policies of many countries. 🗸🗸

Rio de Janeiro Earth Summit (1992)

This meeting acknowledged the importance of cooperation in addressing environmental concerns that threaten sustainability. 🗸🗸
The conference helped to make countries around the world aware of the dangers of unsustainable development. 🗸🗸
Unfortunately the principles outlined and accepted at the summit were not binding and subsequently many countries did not confirm to them. 🗸🗸

Rio + 5 (1997)

This conference noted that globalization made some countries poorer – 🗸🗸
In particular African countries and the least developed countries showed a low level of growth or even declined. 🗸🗸

Kyoto Protocol for Climate Change (1997)

Countries committed themselves to reducing their total emissions of greenhouse by 5 %.🗸🗸
Unfortunately, China was excluded from this agreement and the USA withdrew. 🗸🗸

World Summit on Sustainable Development (2002)

The objective of this summit held in Johannesburg was to conserve natural resources in a world that is growing in population. 🗸🗸
The meeting focused on issues like poverty eradication, water and sanitation, energy, health agriculture and biodiversity. 🗸🗸

COP 17 (2011)

The main goal of the conference held in Durban was to establish a treaty to limit carbon emissions and plan strategies to keep global temperature rise to less than 2 degree Celsius in the 21st Century. 🗸🗸
Although the framework for this treaty was established it was not finalised. 🗸🗸
The solution to our environmental problems will depend on our ability to make sound economic decisions that take account of the natural environment and to change our individual behaviour and attitudes. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

Your Article Library

The meaning and definition of export promotion.

discuss in detail export promotion essay

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This article provides information about the meaning and definition of Export Promotion:

Export promotion has been defined as “those public policy measures which actually or potentially enhance exporting activity at the company, industry, or national level”. Although many forces determine the international flow of goods and services, export promotion is one of the principal opportunities that governments have to influence the volume and types of goods and services exported from their areas of jurisdiction.

Image Courtesy : blogs.adobe.com/techcomm/files/2012/10/02-diagram-of-gestures1.jpg

Government of India, like in almost all other nations, has been endeavouring to develop exports. Export development is important to the firm and to the economy as a whole. Government measures aim, normally, at an over all improvement of the export performance of the nation for the general benefit of the economy. Such measures help exporting firms in several ways.

Export Promotion strategy promotes only the industries that have potential for developing and competing with foreign rivals. Since the goal is to trade abroad, there becomes competition, which in turn remedies the returns to scale. The main goal of the export promotion is to prepare the “potential” industries for competition with the foreign rivals. So the industries at their childhood must be protected for a while.

Exporters, facing the increasing competition, have to improve their technologies, their quality continuously in order to compete with their rivals. They have to make research and development studies.

Comparative advantage theory implies that a country must specialize in the production that uses the mostly possessed factors of production. By this way the structure of the overall industry is in harmony with the country structure. If the country has advantage in human capital then the EP strategy may be a remedy to the unemployment problem.

The indirect effect of the EP strategy appears in the export values of the countries. The increase in exports raises the foreign exchange inflow. However, there may be an increase in import expenditures due to the increasing income of the country, which in turn worsens the country’s trade balance.

12 Arguments to justify the Need for Export Promotion in India
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Import Substitution and Export Promotion’ Comparison Essay

Introduction.

The decision on whether to employ import substitution or export promotion to enhance economic growth has been tough especially in developing countries. The two alternatives are both competitive in their own sense. Therefore, the decision on which strategy is to be used is usually dependent on a country’s objectives. Import substitution involves replacing of a country’s imports with goods and services that are produced domestically (Sawyer and Sprinkle, 2009). This strategy leads decrease in a country’s dependence on imports. Economists have associated import substitution with development of nascent domestic industries. Export promotion on the on the other hand entails the use of incentive programs to promote a country’s export while encouraging firms and industries to participate in export related activities (Sawyer and Sprinkle, 2009).

Comparing and contrasting economic development based on import substitution and export promotion

Both import promotion and export substitution have been used to encourage economic development in various countries. Import substitution has been used to reduce foreign dependency and to encourage development of infant industries (Sawyer and Sprinkle, 2009). Industrialization in a country leads to creation of employment thus curbing the problem of unemployment. Import substitution reduces the vulnerability of a country towards drastic changes in the international trade scene. Moreover, import substitution increases the variety goods and services available for consumers choose. By use of this strategy, a country is able to reduce the expenditure of foreign reserves on imports. The foreign currency saved can therefore be used for other development projects. Various policies are used to encourage import substitution such policies include:

Government subsidies in certain economic sectors
Trade protectionism
Increased taxation to fund the process of developing internal industries.

The use of import substitution strategy was once adopted by the Latin American countries to reduce external dependence and to increase employment opportunities in these countries (Mehdi, 2005).

However, the use of import substitution as a means of encouraging development has been widely criticized. This because most of the substitution is usually capital intensive and therefore contributes very little towards reducing some of the economic challenges facing a country. For protection purposes, capital is usually drawn from areas of competitive advantage to areas of high profits. This in turn leads to reduced growth in areas of competitive advantage. Eventually these economic areas collapse. Protectionism also leads to lower competition among industries this leads to lower standards and poor consumer goods and services. The use of import substitution strategy was abandoned by the Latin nations when they realized that it slowed down the rate of economic development in the countries (Mehdi, 2005).

Export promotion has also been used to encourage economic development. Like import substitution strategy, this strategy also emphasizes on industrial development. Development of industries in this strategy is encouraged for the purpose of increasing export trade in a country (Sawyer and Sprinkle, 2009). By using export promotion strategy, production capacity of countries increases, this in turn leads to development of larger and more efficient industries to carter for the needs of consumers within both the country and those outside the country. Unlike in the import promotion, development of industries in this strategy is through exposure to international trade and not due to the government protectionism. In developing countries, the export of labor-intensive commodities is considered as a good strategy in economic development (Mehdi, 2005).

Most industries in these countries can therefore be developed by substituting capital with labor and thus reducing the general cost of production. A reduction in cost of production will lead to cheaper goods that will encourage exports. Export promotion like import substitution has great influence in a country‘s foreign exchange reserves. But unlike in the import substitution where the existing reserve is saved, in export promotion the foreign exchange reserve increase due to increase in the amount of international trade being undertaken. A successful export promotion strategy creates employment just as import substitution does. Moreover, it increases the availability of consumer goods and services within and outside a country’s borders. Therefore, a good export promotion program encourages economic development. Various methods are employed to ensure export promotion is successful. These strategies include the use of incentives, establishing of export protection zones (EPZs) and the use of subsidies.

Like import substitution, export promotion is not without criticism. Economists argue that by encouraging export activities a country is exposed to the international market competition. The competition provided by the international industries may affect the nascent industries that are exposed and without protection. This leads to a loss in the future comparative advantage of the infant industries. Such a loss may lead to poor economic development in the future (Mehdi, 2005). Therefore, the use of export promotion leads to exposure of a country’s economy to exogenous forces that may lead to crises and economic instability. A good example of such a crisis is the global recession that occurred between 2007 and 2010. This global economic recession was caused by over-dependence on export trade and it affected many economies in the world.

The use of either import substitution or export promotion to facilitate the economic development of a country has its merits and demerits. While import substitution provides protection to nascent industries, export promotion exposes these infant industries to competition. Both methods can be used to encourage industrial development thus encouraging economic development.

Mehdi, S. (2005). Trade Policy at the Crossroads: The Recent Experience of DevelopingCountries. London: Macmillan.

Sawyer, W. and Sprikle, R. (2009). International Economics. Upper Saddle River, NJ: Pearson Prentince Hall.

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Bibliography

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Import Substitution and Export Promotion | Economics

In this article we will discuss about import substitution and export promotion.

Most economists and policymakers view LDCs as consisting of large “traditional” and “modern” sectors. Hence development has come to be seen as a process of contracting the traditional sector and its growth-retarding institutions in favour of a growing modern industrial sector.

Less developed countries (LDCs) have adopted two alternative strategies for achieving industrialisation— viz., inward-looking strategy and outward-looking strategy.

An inward-looking strategy is an attempt to withdraw, at least in the short run, from full participation in the world economy. This strategy emphasises import substitution, i.e., the production of goods at home that would otherwise be imported.

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This can economise on scarce foreign exchange and ultimately generate new manufactured exports without difficulties associated with the exports of primary products if economies of scale are important in import substituting industries and if the infant industry argument applies. The strategy uses tariffs, import-quotas and subsidies to promote and protect import-substitute industries.

In contrast, an outward-looking strategy emphasises participation in international trade by encouraging the allocation of resources in export-oriented industries without price distortions. It does not use policy measures to shift production arbitrarily between serving the home market and foreign markets.

In other words, it is an application of production according to comparative advantage; the current expression is that, the LDCs should ‘get prices right’. This strategy focuses on export-promotion, whereby policy measure such as export subsidies, encouragement of skill formation in the labour force and the use of more advanced technology, and tax concessions generate more exports, particularly labour intensive manufactured exports in accordance with the principle of comparative advantage.

Now these two strategies may be compared and evaluated:

Import Substitution Strategy :

For various reasons, many LDCs have ignored primary-exports-led growth strategies in favour of import substitution (IS) development strategies. These policies seek to promote rapid industrialisation and, therefore, development by erecting high barriers to foreign goods in order to encourage domestic production. A package of policies, called import substitution (IS), consists of a broad range of control, restriction and prohibitions such as import quotas and high tariffs on imports.

The trade restrictions are intended to “protect” domestic industries so that they can gain comparative advantage and substitute domestic goods for formerly imported goods. IS policies are largely based on the belief that economic growth can be accelerated by actively directing economic activity away from traditional agriculture and resource-based sectors of the economy towards manufacturing.

The broad range of tariffs, quotas and outright prohibitions on imports that are part of IS policies are clearly not a form of infant industry protection. The infant-industry argument states that sectors and industries that can reasonably be expected to gain comparative advantage, after some learning period, should be protected.

But the broad protection under IS policies usually protect all industries indiscriminately, whether they generate technological externalities or have any chance of achieving competitive efficiency.

IS policies were advocated due to a very sharp decline in the prices of commodities and raw materials exported by many LDCs. Prebisch and Singer convincingly argued that low-income elasticity of demand for primary products implied that, in the long run, the terms of trade of primary product exporters would deteriorate.

In short, the IS approach to development applies the strategic argument for protection to one or more targeted industries in the LDCs. That is, the government determines those sectors best suited for local industrialisation, erects barriers to trade on the products produced in these sectors in order to encourage local investment and then lowers the barriers over time as the industrialisation process gains momentum.

If the government has targeted the correct sectors, the industries will continue to thrive even as protection comes down. In practice, however, the trade barriers are rarely removed. In the end, countries that follow IS strategies tend to be characterised by high barriers to trade that grow over time.

Development through Import Substitution Versus Exports :

During the 1950s, 1960s and 1970s, most developing nations made a deliberate attempt to industrialise rather than continuing to specialise in the production of primary commodities (food, raw materials, and minerals) for export as prescribed by the traditional trade theory.

Having decided to industrialise, the developing nations had to choose between industrialisation through import substitution and export-oriented industrialisation. Both policies have advantages and disadvantages.

An import substitution industrialisation (ISI) strategy has three main advantages:

1 The market for industrial product already exists, as evidenced by imports of the commodity. So risks are reduced in setting up an industry to replace imports.

2. It is easier for LDCs to protect their domestic market against foreign competition than to force developed nations to lower trade barriers against their manufactured exports.

3. Foreign firms are induced to establish so-called tariff factories to overcome the tariff walls of LDCs.

Against these advantages are the following disadvantages:

1. Domestic industries can grow by being accustomed to protection from foreign competition and have no incentive to become more efficient.

2. Import substitution can lead to inefficient industries because the narrow size of the domestic market in many LDCs does not allow them to take advantage of economies of scale.

3. After the simpler manufactured imports are replaced by domestic production, IS becomes more and more difficult and costly (in terms of higher protection and inefficiency) as more capital-intensive and technologically advanced imports have to .be replaced by domestic production.

4. IS policies tend to limit the development of industries that supply inputs to protected industries, which produce consumer goods. The concept of the effective rate of protection suggests that tariffs tend to escalate by stages of processing.

5. The countries that pursue IS strategies tend not to apply high tariffs to capital goods. As such, imported capital goods are used extensively in domestic production. Supported by other domestic policies (e.g., minimum wage laws that tend to raise labour costs) domestic firms utilise relatively capital-intensive production techniques. This means that employment in a newly industrialising sector does not grow at the desired rate.

6. Finally, because the whole development strategy depends upon the choices made by government officials, considerable resources are devoted to rent-seeking activities. In any event, the resources used in these activities could have been devoted to productive enterprises and hence represent additional economic waste over and above the usual deadweight loss of protection.

In the post-Second World War (1939-45) period, many LDCs, after achieving independence, tried to reduce their reliance on imports, focused on IS policies, and a few, like Brazil, had a short period of success following that strategy. But, by and large, the countries following these strategies stagnated or grew very slowly.

Protectionist barriers were erected mainly to help support domestic industries but also to help some firms which enjoy high profits by being insulated from outside competition. In some cases, the inefficiencies were so great that the value of the imported inputs was higher than the volume of output at international prices.

Protection had been granted at times by using the infant-industry argument — the argument that new industries had to be protected until they could establish themselves properly to meet the competition. But in many of the developing countries, the infants never seemed to grow up—protection became permanent.

The idea behind IS policies was that, developing economies would grow faster if they forced their economies to expand their industrial sectors and that faster growth was well worth the short- run cost of lost international trade. But import substitution policies are now seen as having failed to bring rapid economic growth to developing countries.

The economies that abandoned import substitution earliest—such as Korea, and Taiwan—became the most rapidly growing, and now nearly developed, economies. Those that held on to import-substitution policies the longest, such as economies in Africa and South Asia, have been the slowest growing economies of the world.

A common characteristic of industries in IS economies was that, they often failed to adopt new technologies even when they were available. This was due to an inherent contradiction in IS policies. Import-substitution policies are intended to promote the establishment of industries with higher rates of technology growth by offering protection as an incentive, but that very same protection reduces the competition which serves as an incentive for firms to innovate, invest and apply new technologies. Under protection, there is an incentive for an initial innovation, but once a new industry is established in the protected environment, there is little need to engage in creative destruction.

Slow Technological Progress under IS Policies :

The proximate reason for the failure of import-substitution policies is the gradual slowdown of technological progress. The likely cause of this slowdown can be found in the Schumpeterian model of endogenous technological progress.

For the process of creative destruction to work, there must be destruction as well as creation. If an initial creation is not followed by a second creation, which implies the destruction of the first creation’s advantage, then economic growth stops.

In India, Pakistan and many African countries, government planners and anti-market bureaucrats encouraged or even mandated collusion among protected industries. Thus, the initial closing of the market to foreign imports provided a onetime spurt of innovation as new firms were established to take advantage of the profit offered by the protected market.

But then the lack of foreign competition made further innovation less interesting and obstruction of others more lucrative. Hence, eventually, the rate of technological innovation slowed, and so did economic growth.

Seen in this light, import substitution is at best a temporary measure for increasing economic growth. But if there are only short-run gains in growth and those gains come at the cost of short-run static losses from protection, the attractiveness of import substitution is greatly diminished. Recall that import substitution proponents claimed that IS policies would lead to higher long-run growth. The widespread abandonment of import-substitution policies in recent decades should, therefore, not be surprising.

Outward-Looking Development Policies :

As opposed to import substitution (IS) policies, some LDCs have adopted outward-looking development strategies. These policies involve government targeting of sectors in which the country has potential comparative advantage. Thus, if a country is well endowed with low- skilled labour, the government would encourage the development of labour-intensive industries in the hope of promoting exports of these products.

This type of strategy includes government policies such as keeping relatively open markets so that, internal prices reflect world prices maintaining an undervalued exchange rate so that export prices remain competitive in world markets, and imposing only minimum government interference on factor markets so that wages and rent reflect true scarcity. In addition, successful exporters often enjoy external benefits in the form of special preference for the use of port facilities, communication networks, and lower loan and tax rates.

A trade-cum-growth strategy focusing on exports is called export-led growth. Under this strategy, firms get the encouragement to export in a variety of ways, such as being given increased access to credit often at a subsidized rate.

Favourable Arguments :

1. With export-led growth, firms produce according to their long-term comparative advantage. This is not current (static) comparative advantage, based on existing resources and knowledge. It is dynamic comparative advantage, based on acquired skills and technology, and recognition of the importance of learning-by-doing of the improvement in skills and productivity that comes from repetitive performance and production experience. With exports, the demand for the goods produced by an LDC is not limited by the narrow size of the domestic market. The market is the entire world.

2. The advocates of export-led growth also believe that the competitive pressure generated by the export market is an important stimulus to efficiency and modernisation. The only way a firm can succeed in the face of intense international competition is to produce what consumers want, at the quality they want, and at the lowest possible costs.

The growing intensity of competition from the rest of the world (ROW) forces specialisation in areas where low-wage LDCs have a comparative advantage, such as in the production of labour-intensive commodities. It also forces the firms to explore the best ways of producing. International firms often play a positive role in helping enhance efficiency. This also encourages multinational corporations (MNCs) to take advantage of low wages of LDCs, keep costs low and export huge quantities of standardised products like textiles and shoes.

3. Export-oriented industrialisation overcomes the smallness of the domestic market and allows an LDC to take advantage of economies of scale. The expansion of manufactured exports is not limited (as in the case of IS) by the growth of domestic market. This is particularly important for many developing countries that are both very poor and small.

4. Production of manufactured goods for export requires and stimulates efficiency throughout the economy. This is especially important when the output of an industry is used as an input of another domestic industry.

5. Finally, export-led growth strategy facilitates the transfer of advanced technology. Producers exporting to developed countries not only come into contact with the efficient producers within these countries but also learn to adopt their standards and production techniques. They come to realise quickly why timeliness and quantity in production are of strategic importance for achieving success in a global market.

Disadvantages :

On the other hand, there are two serious disadvantages of export-led growth strategy:

1. It may be very difficult for LDCs to set up export industries because of the competition from the more established and efficient industries in developed nations.

2. Developed nations often provide a high level of effective protection for their industries producing simple labour-intensive commodities in which LDCs already have or can soon acquired a comparative advantage.

Only a few countries have followed outward-oriented development strategies for extensive period of time, but those that have done so have been very successful. They include Japan in its post-World War II reconstruction and the newly industrialised countries (NICs) of Asia— Hong Kong, South Korea, Singapore, and Taiwan. In part, because of their success and because of high economic cost of import-substitution policies, many other countries have recently begun to adopt more outward-oriented policies.

An Overall Assessment :

Does the choice of which trade strategy to employ make a difference in the performance of the developing country economy? The World Bank’s World Development Report (1987) examined the experience for 41 LDCs in an attempt to answer this question. It classified countries according to four categories of trade strategy.

A country was classified as a strongly outward oriented economy (SO) if it had few trade controls and if its currency was neither overvalued nor undervalued relative to other currencies and thus did not discriminate between exports and production for the home market in incentives provided.

A country was classified as a moderately outward oriented economy (MO) if the incentives biased production slightly towards serving the home market rather than exports, effective rates of protection were relatively low, and the exchange rate was only slightly biased against exports (i.e., home currency slightly overvalued).

Finally, a strong-inward-oriented economy ( MO ) if the incentives biased production slightly toward serving the home market rather than exports, effective rates of protection were relatively low, and the exchange rate was only slightly biased against exports (i.e., home currency slightly overvalued).

A moderately inward oriented economy (MI) clearly favours production for the home market rather than for export through relatively high protection because of import controls and exports and definitely discouraged by the exchange rate. Finally, a strong-inward-oriented economy (SI) exhibits comprehensive incentives towards import substitution and away from exports through more severe measures than in MI.

Comparison of the Two Strategies :

1. employment generation and income distribution:.

In general, countries adopting outward-looking strategy have done better than those which adopted inward-looking strategy. Moreover, empirical evidence suggests that outward orientation rather than inward orientation may lead to more equal income distribution.

The main reason for this is that, the expansion of labour-intensive exports generates employment opportunities, while import-substitution policies often result in capital-intensive production processes that displace labour.

2. Foreign Exchange Reserve:

Another benefit of outward-looking strategy is that foreign exchange reserve is earned permanently. On the other hand, under inward-looking strategy foreign exchange is lost temporarily because the replacement of imports of final goods by domestic production requires imports of raw materials, capital equipment, and components. The end result may be increased rather than decreased dependence on imports.

Theory and Evidence :

The World Bank’s finding and advocates of the doctrine of comparative advantage led to the recommendation of the LDCs which adopt more outward-looking policies. Indeed, the world economy in the late 1980s and the 1990s saw a strong emergence of support for the market.

During the 1980s and the 1990s emphasis focused on the importance of outward-looking economic policies to foster growth and development in the developing countries. Formal statistical analysis has consistently shown that there is a close link between sustained economic growth and development and the ability to export successfully in the world economy.

For example, it has been found that, in the 1970s and 1980s, developing countries’ with open economies grew at 4.5% per year in contrast with an annual growth rate of 0.7% in closed economies. The growth rates of open industrialised economies were also found to be larger than those of their closed counterparts.

In recent years, no country with an inward-focused policy has proved successful in attaining or sustaining a high internal growth rate of GDP. As an example, during the past two decades (1990-2008) Sub-Saharan Africa has lagged behind other developing countries in growth in both exports and income.

By relying on traditional exports with low income elasticities instead of moving into exports with greater growth potential, African countries have sacrificed many of the potential gains that could have been had from fast proliferating globalisation.

In contrast, GDP grew by 7.6% in six of the major East Asian countries and 3.0% in Latin America as exports expanded at 15.7% and 9.6%, respectively, in the two areas. Consequently, Africa’s share of world trade has fallen from 4% in 1980 to less than 2% today.

The critical factor here is that, successful outward-looking policies have generally proved ineffective in attracting investment necessary to stimulate growth and development in developing countries as a group. It is more than pure investment, however, as the foreign component of this investment traditionally brings with it not only scarce capital but also a transfer of technology, management skills, organisational skills, and entry into highly competitive international markets.

In sum, the evidence is convincing that freer trade does impact positively on growth.

Flaws of Outward-Looking Policies :

Despite the seeming advantage of outward-looking policies, some economists and policymakers are reluctant to support the policy fully because of:

1. Protectionist Barriers:

The expansion of manufactured exports, such as that attained by Hong Kong, South Korea, Singapore and Taiwan (the “four Asian Tigers” ) can run into protectionist barriers in the industrialised countries. Since the labour-intensive manufactured exports pose a threat to well-established industries in industrialised countries (e.g., textiles-and shoes), restrictions such as the Multi-Fiber Arrangement ( MFA ) in textiles and apparel may stifle this route to development for many LDCs.

2. Shortage of Skilled Manpower:

In addition, the export path may require skilled labour, which is in short supply in LDCs. A huge amount of resources has to be devoted for necessary skill formation and knowledge acquisition. (No doubt import substitution also runs into the same problem).

3. Fallacy of Composition:

There is a ‘fallacy of composition’ in the outward-looking strategy. It is because while any one country may face high price elasticities of demand in exports of manufactured goods, the demand facing all LDCs is less elastic than that facing any one country. Sharp fall in prices may occur if all LDCs follow the same pattern.

4. Lack of Association between Export Growth and Industrialisation:

In addition, some empirical studies fail to find any positive relationship between exports and industrialisation. Some studies suggest that the positive link occurs only above some threshold income level.

Wanted: A Combination Strategy :

In the ultimate analysis, it seems that the two trade strategies—import substitution and export promotion—are not mutually exclusive. They may go hand in hand and may reinforce each other. So, what is called for is a strategy which seeks to combine the virtues of the two strategies.

In fact, some mix or sequence of the two strategies may be appropriate in some cases. For example, South Korea engaged in IS before embarking on its export-led growth path. In cases of infant industries this may be a good strategy.

Economic Integration :

In addition, M. P. Todaro has suggested that economic integration among LDCs may offer benefits because it is a combination of an outward-looking strategy (through freer trade with other LDC partners) and an inward-looking strategy in which the customs union as a whole is turning away from the rest of the world economy.

In any event, the precise extent to which a country should turn outward or inward depends on its own external and internal characteristics. The policies to be recommended can be decided on a case-by-case basis.

Conclusion :

There is clear evidence that those LDCs which have increased exports of manufacturers have succeeded in increasing export earnings. There is also ample evidence that producers in these respond favourably to economic incentives.

The East Asian countries have demonstrated clearly the viability of trade policies in promoting industrialisation through reliance on foreign markets (as opposed to domestic markets) and were based on dynamic comparative advantage that went beyond reliance on primary commodities.

The East Asian experience clearly demonstrated that the earlier export pessimism that underlay the ideas of IS was perhaps more an indicator of inward-oriented trade and payment regimes than an outward focus based on a dynamic comparative advantage. The East Asian experience suggests that LDCs with an outward focus would not lock themselves permanently into a pattern of primary product specialisation.

So the conclusion is that a clear understanding of comparative advantage and the importance of fostering the presence of correct relative prices of products and factors is central to harnessing the potential role of international trade in promoting the development of newly industrialising countries.

Salient Features of the New Export & Import Policy
Strategy of Export-Led Growth | India
Export Pessimism: Nurkse’s Version and Testing | International Economics
Foreign Trade Policy: Import-Substitution vs. Export Orientation

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Successful export promotion: lessons from emerging economies

Emerging economies such as Brazil, China and India have been very successful in enhancing trade performance. But how have they actually achieved this – and what lessons could less developed countries learn from their experiences? One element that works against improved trade performance is the high cost of trading faced by many emerging economies and developing countries. This is often the result of poor infrastructure as well as cumbersome procedures at national borders. Support for trade-related infrastructure and trade facilitation seeks to address such constraints and has been effective in improving trade performance and competitiveness. Cooperation with the private sector – and state-business relations more generally can also contribute positively to trade performance. Three key ingredients can ensure a country’s successful trade performance: support for trade-related infrastructure such as roads, railways, ports, energy and telecommunication; trade facilitation and the improvement of rules and procedures that govern how goods cross borders; and effective state-business relations. Going forward on trade-related infrastructure Experiences in China, India and Brazil present lessons on how overlapping challenges that impede the private-sector financing of infrastructure have been tackled. In a nutshell, it is important to establish a favourable institutional environment for infrastructure development, look for domestic institutional investors, seek foreign investment with the support of the public sector. This could be done by providing credit guarantees, supporting public-private partnerships (PPPs), and enabling private participation in infrastructure, for instance by enhancing upstream preparation involving sector, policy and legal and regulatory reforms. In China and Brazil, bank loans have helped to secure long-term financing, which is essential for infrastructure investments. The main substitute for bank finance for infrastructure if, for example, governments are not prepared to agree to enough contingent fiscal liability (as has happened in India), is to search for domestic institutional investors. The creation of new pension schemes offers some potential by producing a market for local currency-denominated long-term securities, thereby reducing the demand for bank finance. Less developed countries could search for foreign investors – a move that could be supported by the provision of credit guarantees from the public sector, either directly through loan guarantees or indirectly through regulatory forbearance at public sector banks. Brazil, for example, has motivated foreign companies to invest in public-private partnerships. Brazilian energy companies have issued shares and bonds in international markets, having had investment-grade ratings and having profited indirectly from sovereign guarantees. This could be a promising option for some larger corporations or public utilities in less developed countries. Going forward on trade facilitation Following the example of China, India and Brazil, it is essential for less developed countries to boost the use of information and communication technology, promote electronic data interchange and single window facilities for submission and processing of information and documents. They must also support the harmonization of documentary requirements across countries, minimize physical inspections, in particular through adoption of risk management techniques, and introduce industry and sector-specific trade facilitation initiatives, such as for agricultural products or low-valued exports. While these trade facilitation approaches offer the potential to enhance a country’s trade performance, improvements in trade performance also call for tackling the supply-side constraints to a country’s potential to make use of improved trading conditions. The experience of those three nations suggests that one major focus should be on the implementation of straightforward trade facilitation measures and on prioritizing paperless trade through the use of information and communication technology. In China, for example, paperless clearance procedures have increased the speed of customs clearance dramatically. Compared to traditional customs procedures, using paperless customs clearance reduces the average time spent on imported and exported products by 9.3 and 0.7 hours respectively. Less developed countries should also consider the introduction of risk management techniques to reduce the need for inspections. In addition, trade facilitation policies for low-valued exports have real potential for many less developed countries, which can draw inspiration from their introduction in countries like Brazil. There, the government simplified export procedures for exports of value less than $10,000 while addressing the problem of limited access to affordable transport for small and medium-sized enterprises by making greater use of the postal network, supporting them in exporting their products quickly. Some 8,000 exporters are using Exporta Fácil, representing almost 40% of total Brazilian exporters, many of which would not have otherwise shipped their products abroad. Since 2000, more than US$1.8 billion worth of goods has been processed by the scheme. Going forward on state-business relations Formalized state-business relations can facilitate economic performance, for example, on the basis of better allocation efficiency regarding government spending and better growth and industrial policies. However, they should be disciplined by competition policies to prevent them from becoming collusive rather than collaborative. The case of India suggests that a destructive collusive relationship can be changed into a more collaborative one when leaders and elites establish developmental coalitions. Effective state-business relations require safeguarding buy-ins from all actors, addressing vested interests that resist reform and creating a sound framework for competition. Capacity building and safeguarding buy-ins regarding state-business relations necessitate a strong state that is highly committed. Tackling vested interests requires coordination among other interest groups that can benefit from reform. Competition authorities can play important roles in facilitating the coordination of such groups. Creating a sound framework for competition is essential to making markets work efficiently to generate growth and development. Moreover, effective state-business relations in special economic zones can contribute to growth and successful trade performance. While individual less developed countries face their own unique opportunities and constraints when it comes to trade performance, these broad lessons from emerging economies could provide a road map for future discussion and action.

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The directorate is mandated to promote South African value added goods and services abroad by broadening the export base, increasing market share in targeted high growth markets and sustaining market share in traditional markets. This objective is pursued through the review and finalisation of the National Export Strategy which is built on the following critical pillars:

Improving the enabling export environment
Strengthening the export institutional framework
Increasing the demand for South African goods and services through market diversification
Enhancing the Country Value-Proposition and Sector Branding
Broadening the Export base as outlined in the National Exporter Development Programme
Enhancing Export Incentives and Trade Financing Instruments.

Export Promotion Offerings

Providing Market intelligence and advice, e.g. identification and information on new products and new markets;
Trade-lead facilitation;
Facilitating exports by matching potential exporters with foreign buyers;
Providing In-Market Support;
EMIA Financial Assistance;
Providing access to markets through Investment and Trade Initiatives, Outward Selling Mission and National Pavilions

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Economic Essays Grade 12
Grade 12 Economic Essays for the Next Three-Year Cycle (2021-2023) Macroeconomics ... Discuss in detail export promotion (Protectionism and Free Trade) INTRODUCTION Export promotion refers to measures taken by governments increase production of goods and services that can be exported. The government provides incentives to encourage production
The Meaning and Definition of Export Promotion
This article provides information about the meaning and definition of Export Promotion: Export promotion has been defined as "those public policy measures which actually or potentially enhance exporting activity at the company, industry, or national level". Although many forces determine the international flow of goods and services, export ...
Export Promotion and the WTO: A Brief Guide
This study focuses on export promotion schemes that developing countries may use without violating international trade rules. It examines the rules themselves - the WTO Agreement on Subsidies and Countervailing Measures for industrial goods and the Agreement on Agriculture for agricultural products - and looks at schemes currently in place in the developing world.
Export Promotion
Robert A. Blecker, in his 1999 essay " The Diminishing Returns to Export - Led Growth, " noted that export - led growth is a strategy that cannot be pursued by all countries at the same time. Export promotion requires that at the other end there is an importer of last resort, in other words, a country with the international reserve ...
Anatomy and Impact of Export Promotion Agencies
Laura Zorattox. Keywords: Exports, Export Promotion Agencies, Trade policy. This paper is a forthcoming chapter of the Research Handbook on Economic Diplomacy. The literature review draws on Cruz [2014]. The views expressed in this paper are the authors only yThe World Bank and UFPR. Email: [email protected].
PDF Export Promoting Trade Strategy: Issues and Evidence
Abstract. This paper evaluates new hesitations in adopting an export promoting (EP) trade strategy. It reviews past experience with trade strategies. It also distinguishes between the old export pessimism and the new export pessimism. The former was based on an (unwarranted) assessment of "natural" or market forces.
PDF Export Promotion and Firm Entry into and Survival in Export Markets
export promotion encourages exports mainly by helping firms enter into and survive in export markets. The impact on the intensive margin of exporting firms is not robust. This finding is consistent with export promotion helping reduce fixed rather than variable costs of exporting, which is to be expected if export promotion agencies help correct
EXPORT PROMOTION AND THE WTO
Foreword. Export promotion schemes can play an important part in the development strategies of countries, especially of developing countries that seek to make exports an engine for economic growth. Membership in the World Trade Organization (WTO) is a critical tool for participation in the multilateral trading system.
Anatomy and impact of export promotion agencies
Daily Updates of the Latest Projects & Documents. Recent literature has shown evidence of positive contributions of export promotion agencies around the world in raising exports, through the intensive and extensive .
Three Essays on Export Promotion Services and Systems: overcoming
The second essay, entitled Export Promotion Initiatives in a Cluster, - approaches the long-term development of a Brazilian beachwear cluster, using the case method of investigation and focusing ...
Export promotion agency and the key programs offered to exporters Essay
Export promotion and development are important aspects of the government due to its capability in reinforcing economic development goals for the countries involved (Delaney, 2012, p 1). The United States uses the aspect to offset market fluctuations, create jobs and at the same time use it as source of supporting national exports.
Import Substitution and Export Promotion' Comparison Essay
The use of either import substitution or export promotion to facilitate the economic development of a country has its merits and demerits. While import substitution provides protection to nascent industries, export promotion exposes these infant industries to competition. Both methods can be used to encourage industrial development thus ...
Full article: Effects of export and technology on economic growth
The study suggests that export promotion and adoption policies are most useful for China and other developing and transitional economies. Kaur, Yadav, and Gautam (Citation 2013) discuss for the Indian economy that there is a bidirectional causal association between FDI and economic growth. Moreover, they reveal FDI-led growth in pre ...
Import Substitution and Export Promotion
In this article we will discuss about import substitution and export promotion. Most economists and policymakers view LDCs as consisting of large "traditional" and "modern" sectors. Hence development has come to be seen as a process of contracting the traditional sector and its growth-retarding institutions in favour of a growing modern industrial sector. Less developed countries (LDCs) have ...
Export marketing strategy and performance: A focus on SMEs promotion
Exporting SMEs promotion in foreign markets consists of: (1) operational support for the foreign representative, including the supply of information, special marketing support for new products, training and missionary selling; (2) financial support, including cooperative promotion and budgets for promotional actions. H1.
PDF Essays in International Trade and Economic Geography
Essays in International Trade and Economic Geography Abstract This dissertation consists of three essays in the ﬁeld of international trade and economic geography. The ﬁrst essay develops a "market access" approach in an inter-regional trade framework to study the distribution of ﬁrm productivity and production in a network of
PDF ECONOMICS P1 EXEMPLAR 2014 MEMORANDUM
Disadvantages of export promotion . The real cost of production is reduced by subsidies and incentives. . The lack of competition because of incentives and subsidies forces competitors out of the market. . Export promotion results in increased tariffs and quotas by powerful overseas competitors. .
Essay memo
Essay essay discuss in detail south export promotion trade policy (26) evaluate the success of protectionism as trade policy to protect industries against. Skip to document. ... Introduction: Export promotion refers to measures taken by governments to increase the production of goods and services that can be exported. MAX 2 MARKS Main part ...
Successful export promotion: lessons from emerging economies
While individual less developed countries face their own unique opportunities and constraints when it comes to trade performance, these broad lessons from emerging economies could provide a road map for future discussion and action. Emerging economies such as Brazil, China and India have been very successful in enhancing trade performance.
Grade 12 Essays FOR THE NEXT Three Years 2021-2023 Amended
Discuss in detail export promotion (Protectionism and Free Trade) INTRODUCTION. Export promotion refers to measures taken by governments increase production of goods and services that can be exported. The government provides incentives to encourage production [Max 2] BODY: MAIN PART. REASONS:
PDF Export Promotion Strategy 2020-2025
TBP Time Bound Programme TCCIA Tanzania Chamber of Commerce, Industry and Agriculture TFTA EAC SADC and COMESA Tripartite Free Trade Area TICR Tanzania Industrial Competitiveness Report TISI Trade and Investment Support Institution TMEA Trade Mark East Africa TPO Trade Promotion Organisation TPSF Tanzania Private Sector Foundation UAE United Arab Emirates
Export promotion in South Africa : criteria for the evaluation of its
When assistance to promote exports is provided, it is important to evaluate how effectively the limited government resources are spent and applied. Such evaluation of export promotion programmes will enable public policy-makers to expand those programmes that are more effective. The aim of this study was to determine the Return on Investment ...
Export Promotion
Export Promotion The directorate is mandated to promote South African value added goods and services abroad by broadening the export base, increasing market share in targeted high growth markets and sustaining market share in traditional markets. This objective is pursued through the review and finalisation of the National Export Strategy which is built on the