Answer to Question #216431 in Macroeconomics for layton

Question

Now that the AcFTA has arrived, what is the possible impact; both positive and negative, on the business sector in South Africa? In your motivation you may use the GDP Formula as expressed by C + I + G + (X-M or X-Y) to illustrate your explanation. Be very specific in your motivation and your examples to clarify your response.

Answer 1

Solution:

The positive effect of AcFTA is that it will enhance competitiveness in South Africa’s business sector through the exploitation of opportunities for scale production, proper distribution of resources, and continental market access. It will also lead to exports diversification, accelerating growth, increased foreign direct investment, increase in incomes and employment opportunities, and broadening economic inclusion. Exports by South Africa’s business sector will increase, including an increase in consumption levels due to the affordability of goods and services. Also, new industries will be created since markets and economies across the region will be restructured and massive expansion of key sectors will be experienced. The country’s GDP will increase significantly due to an increase in consumption, investment, and exports.

The negative effects of AcFTA are that it will result in predatory pricing which will ultimately eliminate competitors and establish an unfair market advantage. It will also lead to increased vulnerability as many firms in the business sector will be exposed to numerous business risks. Also, new industries in the business sector will struggle to benefit in the competitive market resulting in their collapse in the long run. There will also be tax problems that will be encountered by the firms in the business sector due to complications in handling goods and services imported and exported without trade restrictions. The domestic industries in South Africa’s business sector will also be impacted negatively since they will not perform efficiently as more people seek cheaper goods elsewhere, resulting in their closure.