Answer to Question #193377 in Economics of Enterprise for Sipho Dombani

Question

Suppose you are instructed by your managing director/head of the division to advise him/her of the potential impact on the following elements of the company’s/government department’s activities based on the current South African economy and/or global economic environment: a) Expansion of current capacity of company/division or not, provide reasons; b) Borrowing of money in the domestic or foreign market to finance activities; c) Utilisation of labour versus capital resources in production/service delivery; d) Is there any scope to take your business abroad or into Africa given the current domestic and foreign economic climate? Provide reasons why or why not. Your report to the managing director/head of division must be brief and to the point. 

Answer 1

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a] The GDP has shrank 7% compared with a 0.2% expansion in 2019, a deficit of 2.4 %of GDP and this will definitely reflect in the businesses profit or loss books hence expansion of current capacity of company / division will not be prudent and economical . Economic growth is hindered due to the pandemic and businesses are affected due to measures put in place to curb the spread of the pandemic . They can also expand if in service industry to cover the increased growth / demand for service example the health care sector

b] Borrowing of money in the domestic or foreign market to finance activities will also be appropriate at the same time not . First if the industry is borrowing for capital expenditure there is prospected capital inflow hence borrowing will be encouraged .However, if borrowing to cover recurrent expenditure with the current economical conditions , I will discourage the borrowing.

c] utilization of capital labor with the current economic conditions will lead to increased cost due to the increase in the factors of production and operational cost .

d] Is there any scope to take your business abroad or into Africa given the current domestic and foreign economic climate? No, the business environment with the current domestic and foreign economic conditions are not favorable to enable thriving of the business given the impact of the pandemic on businesses which has seen majority of startups shut down due to increased operational costs and the measures put in place to curb the pandemic .There is also increased cost needed to enter into the market. The business environment is also experiencing recessions .