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National performance in South Africa and the USA

 

National performance in South Africa and the USA

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Abstract

We studied the factors affecting economic performance in both South Africa and the United States. Comparing the income inequality, unemployment figures, and gross domestic production in both countries and how these factors have affected the living standards. We found out that the economic performance of the United States has increased the life of its citizens despite the global financial crisis experienced in 2008, while South Africa was hard hit by the crisis which led to more people remaining under the national poverty line.

Examining the Economic Growth of South Africa and the United States

South Africa is a developing African country that has made significant strides in economic growth over the past decade. The country’s leading economic boost comes from the mining industry; in 2015, a media release indicated that the mining sector’s total income had increased by 2.2% per annum, from R493,4 billion in 2013 to R519,5 billion in 2015. Comparing both years, the largest percentage of increases were reported for ‘coal and lignite’ (Charman et al., 2017).  In 2014, Her gross domestic product growth rate was –o.4%, in the last quarter. The main factors that contributed to this negative growth rate were the quarry and manufacturing industry. These industries decreased by 11.5% during that year’s fourth quarter. This reduction was primarily affected by the low production of gold, coal, and other metal ores.

The United States is a developed country located in North America. According to the US national economic accounts in 2015, the real gross domestic product increased at a yearly rate of 3.1% in the last quarter, in the third quarter, the GDP rose by 4.5%. The growth domestic product estimate released is based on a single complete source compared to the available sources of the second view in the previous years (Baumeister & Peersman, 2013). In the second estimate, the GDP increase was estimated at a 1.9% increase, the general picture of GDP growth remains similar. However, the personal consumption expenditures increased subsequently. The increase in GDP reflects positive contributions from various sectors such as private inventory investment, nonresidential fixed investment, and government imports (Table 1).

The GDP in the fourth quarter reflects downturns in the county’s exports and the government’s spending in the federal sector. An acceleration in imports was partly offset by an increase in the fixed residential investment. The dollar GDP accelerated by 5.2% or $195.2 billion, and $18,869.6 billion in the fourth quarter (Table 1) (Crowley et al., 2015).  The leading contributors to the U.S.’ economic growth in 2016 were wholesale trade, finance and insurance, and information services. According to the Department of Financial Analysis, about 21 industries contributed an overall 4.5% in the real gross domestic product increase rate in the third quarter.

real gdp

(Source: U.S. Bureau of Economic Analysis 2016)

The finance and insurance industries added a total increase of 10 percent in the last quarter; the third quarter reflected increases in the credit intermediation and insurance carriers as well as related activities. The trade in the wholesale sector rose by 8.6 percent; recording the largest increase in the year 2014, also telecommunication services grew by 8.5 % after a decrease of 0.3 percent, which reflected an increase in the information services (Cairncross, 2013).

Manufacturing of durable goods also increased by 6 percent in the last quarter after an increase of 0.4 percent in the second quarter. The third quarter increase reflects an increase in motor vehicle parts and computer and electronics manufacturing. The retail sector also increased by 2.8 percent; this increase indicates an acceleration in merchandise stores.

real value added by industry

The Global Financial Crisis

The 2008 global financial increase was the worst economic plague since the great depression in 1929. It led to a fall in prices such as housing that experienced a decrease of 31 percent. The crisis caused some problems in the United States. First, the Federal Reserve began generating liquidity into banks via the term auction facility. However, their actions were not enough. Entrepreneurs went after investment bank Bear Stearns. Nonetheless, since they had too many of these non-toxic assets, Bear discussed with JP Morgan and agreed to bail it out. Subsequently, the federal government sweetened the deal with a %40 billion guarantee (Coale et al., 2015).

As the situation deteriorated, the Treasury spent %150 billion to subsidise both Freddie Mac and Fannie Mae. The AIG was bailed out on %90 billion by the federal government. On September 19, 2008, the financial crisis created a run on ultra-safe money market funds, if this case became serious, the excess cash accounts would go bankrupt grinding the economy to a halt.

In South Africa, the financial crisis caused a decline in mining production since the country was not able to take full advantage of the global boom. Factors that caused a reduction in the mining sector include infrastructure challenges and squeeze on the investors and banks greatly affecting the funding of projects (Hall, 2015). Revenues for minerals such as platinum decreased by 10 percent in 2009. Some mines were forced to cut costs, restructure, and close shafts because their costs of production unsustainable and exceeded their revenues. Employment opportunities decreased due to the reconstruction of mining operations that had closed due to the global financial crisis. However, this was according to the type of mineral.

Key Economic Drivers in Both Countries 

South Africa is a regional assembly of automotive in Africa and a vital player in the region’s finance and retail value chains. Hence, the country depends on these links for its economic growth, its financial services are the most sophisticated in Africa and boast of a significant presence in the African economy. Real estate and insurance take the lead as the main factors of South Africa’s economy. In 2007, the county’s economy recorded its fastest growth recording an increase of 5.4 percent annually; this growth was influenced by a firm bull market. Also, household expenditure elevated their economic growth significantly, with the export sector also contributing 5 percent of the annual growth rate. This economic boost was a result of increased job creation and ease of access to loans and credits. The 2010 FIFA World Cup also significantly increased its economy (Lahiri, 2013). The financial sector which is largely driven by a rigid banking system resulted in approximately 25 percent of the gross domestic product increase in 2014. The manufacturing sector is fourth in the county’s economy and dominates the gross domestic product.

The United States’ GDP has experienced significant growth over the last 150 years. The steady average rate has grown by 2 percent every year. The US is the largest producer of oil in the world and also dominates the trade sector. Its total trade amounts to $4.93 trillion; this figure was recorded in 2012 (Coale et al., 2015). Its primary economic drivers are the business and finance sectors. 128 large company headquarters are based in the US.

Examination of the standards of living in both countries based on the economic and social welfare

GDP per capita

The United States GDP per capita was at $51638.10 when last recorded in 2014. Its gross domestic product per capita is equivalent to 400 percent of the world’s average. A majority of Americans expressed satisfaction with their standards of living from 2014 to 2017; the percentage increased from 60 % to 80 % in 2017 (Musango et al., 2014). Most are optimistic about the future, and that their standards of living will continue to rise by nearly twice the level, it is currently. Less than 20 percent of American citizens say their standards of living are ‘getting worse.’

us gdp per capita

south africa gdp per capita

In South Africa, the GDP per capita was recorded at $7593.36 in 2015. This is the equivalent of 65% of the world’s average. The country is prone to angry demonstrations about inadequate provision of services and poor living conditions. A general household survey carried out in 2014 revealed that services by the municipal council had increased in the past decade, and low-income families are being lifted from the direst poverty lines. However, the citizens are not satisfied, their expectations are higher than what their government can currently provide (Lahiri, 2013). In 2006, about 30% of South Africans reported hunger in the past year, though the proportion dropped sharply towards 2015. In 2006, one household in 10 used a bucket as a toilet, but now over 80% have a flushing toilet. The journey to high living standards may be slow, but major strides are being made to ensure quality living standards in the country.

Income inequality

South Africa is a different country globally, there are extremely high levels of income inequality in South Africa, and it appears to be falling in recent years, with average losses in the upper-middle parts of earnings distribution (Marten et al., 2014). This high inequality has negatively affected the citizens in some sectors of business who receive low incomes compared to others in the same country.

In the US, income inequality has risen since the 1980s; most states experienced income growth between 2009 and 2013. In 2015, the top 1 percent of families nationally made 25.3 times as much as the bottom 99%. Hence the United States’ living standards have been high since the 1970s to date (Crowley et al., 2015).

Population living below the poverty line

Poverty levels in South Africa have decreased as the national poverty line has reduced since 2007. According to statistics shown by Statistics South Africa, people living below the (FPL) food poverty line decreased to 25% of the country’s total population (Malik, 2013). Poverty levels dropped to 45% in 2012; this translates into about 24 million people living below the national poverty line.

In the US, 43.1 million people lived in poverty in 2014. Hence the poverty rate was 13.5%. The results indicate that the poverty rate was 1% higher than the year 2007 before the global financial crisis. Nonetheless, the majority of Americans live above the national poverty line hence the peoples’ living standards are relatively high.

Unemployment figures

In 2017, the US unemployment rate fell to 5% from 4.7% in the previous year; this was better than a market expectation of 4%. Currently, the unemployment rate in the USA is 5%, this is the lowest job rate since 2007 (Lloyd & Ralodi, 2014). The number of unemployed people declined by 300,000 to 7 million people. Hence the overall living standards of the citizens are currently high.

In South Africa, the unemployment rate decreased to 26% in 2016; employment rose while more citizens joined the labour force. The main job gains occurred in social and community services. About 16 million people were employed in 2010; this was 200,000 more than the previous years (Malik, 2013). The living standards of South Africans continue to rise as the unemployment rate continues to decrease.

Human development index

The human development index is measured by life expectancy, literacy, and GDP for all countries. It is a standard means for measuring economic development.

The UN development programme data indicated that the human development index in South Africa rose in 2007 to 0.683, and the trend continued to increase steadily up to 2012 (Chang et al., 2013). A researcher at the Institute of Johannesburg in South Africa, Thuthukani Ndebele said, “The increase in life expectancy between 2007 and 2013 accounts for the growth in South Africa’s HDI.” (2013)

In the U.S., the human development index is the highest, with a 6.27 ranking. The high HDI is a result of high levels of education for the citizens (Crowley et al., 2015). In 2013, a survey by the World Bank revealed that 70% of Americans are more likely to be in ownership of a bachelor’s degree. Hence a high level of education enables them to acquire well-paying jobs and maintain a decent standard of living.

Comparison of the economic growth and living standards of both countries

When comparing the financial performance of both countries, the US is well-developed and established as compared to South Africa. The United States has made great progress in its development; the country has invested in its human capital and offered a high level of training to its citizens. The education system is also great, with over 70% of the population having acquired a bachelor’s degree hence getting well-paying jobs. The living standards in the US are also high due to a well-developed economy that has enabled equal income distribution among the citizens and a high human development index. In South Africa, the living standards are relatively low due to a high income inequality leading to unequal distribution of income hence most of the population remains under the national poverty line (Menyah et al., 2014).

For the U.S., economic growth is inclusive, that is, the economy has provided equal opportunities for all citizens in education, health, social protection, and environmental quality. On the other hand, we saw the South African economy as exclusive because a large part of the population has been left out in the county’s development. About 65% of the country’s population lives under the national poverty line, and the same has limited access to education, health, social and welfare services from the government.

Conclusion

Comparing the economic situation in both the US and South Africa, we saw that the United States is well established economically, with a significant boost coming from financial services and the retail industry. On the other hand,  South Africa is an emerging country with relatively good living standards but with most of the country’s residents living in poverty and illiteracy.

References

Baumeister, C., and Peersman, G., 2013. Time-varying effects of an oil supply shock on the US economy. American Economic Journal: Macroeconomics, 5(4), pp.1-28.

Charman, A.J., Petersen, L.M., Piper, L.E., Lindeman, R. and Legg, T., 2017. Small area census approach to measuring the township informal economy in South Africa. Journal of Mixed Methods Research, 11(1), pp.36-58.

Crowley, P.M. and Hallett, A.H., 2015. Great moderation or “Will the Wisp”? Time-frequency decomposition of GDP for the US and UK. Journal of Macroeconomics, 44, pp. 82-97.

Chang, H.H., Larson, J., Blencowe, H., Spong, C.Y., Howson, C.P., Cairns-Smith, S., Lackritz, E.M., Lee, S.K., Mason, E., Sarazin, A.C. and Wali, S., 2013. Preventing preterm births: analysis of trends and potential reductions with interventions in 39 countries with very high human development index. The Lancet, 381(9862), pp. 223-234.

Cairncross, A.K., 2013. Factors in economic development. Routledge.

Coale, A.J. and Hoover, E.M., 2015. Population growth and economic development. Princeton: Princeton University Press.

Hall, R.E., 2015. Quantifying the lasting harm to us economy from the financial crisis. NBER Macroeconomics Annual, 29(1), pp.71-128.

Lahiri, K. and Monokroussos, G., 2013. Nowcasting US GDP: The role of ISM business surveys. International Journal of Forecasting, 29(4), pp.644-658.

Lloyd, T. and Rakodi, C., 2014. Urban livelihoods: A people-centred approach to reducing poverty. Routledge.

Musango, J.K., Brent, A.C. and Bassi, A.M., 2014. Modelling the transition towards a green economy in South Africa. Technological Forecasting and Social Change, 87, pp.257-273.

Marten, R., McIntyre, D., Travassos, C., Shishkin, S., Long, W., Reddy, S. and Vega, J., 2014. An assessment of progress towards universal health coverage in Brazil, Russia, India, China, and South Africa (BRICS). The Lancet, 384(9960), pp.2164-2171.

Mensah, K., Nazlioglu, S. and Wolde-Rufael, Y., 2014. Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, pp.386-394.

Malik, K., 2013. Human development report 2013. The rise of the South: Human progress in a diverse world.

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