Effects of Euro Zone Crisis on South Africa
The euro zone crisis posed a serious and real threat to South Africa’s economy. By January 2013, South Africa businesses had estimated a loss of US$ 15 billion in revenue because of the crisis. With 4 out of every 10 businesses affected on a global scope, there was an increase in the number of businesses that chose to make investment elsewhere.
An International Business report that was published by Grant Thornton’s estimated that the crisis wiped out $ 2trillion off revenues on a global scope and the effect would have a long term effects for EU business prospects which in turn would choose to carry out less trade in the country.
Towards the end of November 2011, 505 of finance professionals in South Africa felt the euro crisis had impacted their businesses negatively while another 28% claimed they expected their businesses to get affected by the crisis.
The crisis still poses a serious threat to the economy and the most optimistic Europe scenario translates to bad news for the country’s trade with Europe. The possibility of South Africa benefiting from Euro trade is therefore dampened unless there is employment of new growth strategies and alternate trade partners found.
At least a third of manufactured exports from South Africa are purchased by European countries. This means that the economy is heavily dependent on the European countries and though there are slight improvements noted in the euro zone economy, it is likely that recession will continue. This is especially true in the face of tightened bank lending conditions and widespread fiscal austerity. It is because of reasons such as these that the demand for exports from South Africa by European countries will continue to go down.
The expanding economies of Asia are however providing a source of demand for local exports from South Africa. Though this is the case, the demand is of raw materials and commodities rather than manufactured goods and this has also put a strain on South Africa’s manufacturing industry.
While the South Africa government has faced all these challenges, it has proven that it is willing to take the necessary actions needed to cushion its economy from the economic slowdown experienced globally. It has put in place national budget and policies that are geared towards creation of an environment that is conducive to allow growth of the economy.
However, for the plans to be effective there is need to put in place greater controls on government spending in order to ensure funds are used effectively.
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