Answer to Question #208754 in Microeconomics for Precilla

Question

1. Critically discuss the positive and the negative effects of COVID-19 on 

the South African economy. 

2. In your opinion, should local industries in South be protected 

against world competition? Discuss fully. 

Answer 1

Solution:

1.). The negative effects of COVID-19 on the South African economy include the following:

·        It has led to an increase in the unemployment rate as many businesses have been forced to close down resulting in many employees losing their jobs.

·        It has disrupted most business operations, including disrupting global supply chains resulting in a loss in revenues and profits by many companies.

·        It has affected imports and exports to most companies making the cost of operation for many companies to increase massively.

·        It has led to the volatility of the South African rand due to scarcity of foreign currency resulting in a reduced value of the South African rand impacting consumer's purchasing power.

·        It has led to massive income inequalities among South Africans and resulted in more poverty due to depletion of income and savings and lack of employment opportunities.

The positive effects of COVID-19 on the South African economy include the following:

·        It has led to a more digital economy as more companies embrace digital technology in handling their businesses due to lockdowns and closure of face-to-face business operations.

·        It has resulted in the formation of new policy reforms that have been neglected in the past, which can be beneficial in the long-term especially in handling another future pandemic.

·        It has led to a liquidity rush in the capital markets due to the low-interest rates provided by the South African Reserve Bank, making it easy for individuals and businesses to borrow capital.

·        It has resulted in the transformation of nature jobs as more companies rethink office spaces and on-site work and most companies allowing their workers to work from home.

 

2.). Local industries should be protected against world competition.

This is important so as to allow the government to promote domestic producers, thereby boosting the domestic production of goods and services. The aim is to encourage domestic investment in a specific industry. It can also lead to more growth opportunities for local industries, lower imports, more jobs, and higher GDP due to a rise in domestic production.