Economic Implications Of Africa Downgrading-Myassignmenthelp.Com

Question: Discuss About The Economic Implications Of Africa Downgrading? Answer: Introducation Inflation in South Africa was expected to be effected for the reason of economic downgrade to the junk status. SP Global speculated well before that the value of Rand in the global market and all the bonds will share the same fate as Rand. This form of downgrade will raise the price of borrowing in South Africa for some period of time (Ngcobo Ladzani, 2016). Standard Poor stated that such a downgrade in the position of Rand will attract very few investors. The investors will like to withdraw money from the market and will not invest further. It will result in the weakening of South African economy. The country will face inflation pressures which will be transferred to the citizens who will face indirect financial pressure. Prices of basic goods and services will increase (Ngcobo Ladzani, 2016). According to research, South African government will have to borrow money from the international market which will cost them more as the price of Rand is less in the money market. Grants ma y come in from the government for the citizens but the money obtained from them will but less commodities due to inflation. Prices of all the goods and services will increase but the grants amount will not increase as the government is weak in its finances (Mugobo Mutize, 2016). Infrastructure which is already there may not get affected by the inflation but new development is highly unlikely to happen. Moodys rating agency established that the Rand was highly undervalued in the international market due to which exports will also hamper. Economic Growth Rate Due to downgrade of economic status of South Africa, the country has to borrow more from the international markets. As the borrowings will increase economic growth will decrease. This will result in lower standard of living of the citizens of the country. Exports and imports share a major chunk in the economy of the South Africa. Exchange rates of the currency with spike up. Government will be in debt which will be very hard to pay off quickly. To tackle this problem tax rates will be increased to finance the government expenditure. Credit Rating Company IOL states that there is a reduction of 0.7% in its GDP (Mugobo Mutize, 2016). There has been recession in the growth rates of the primary, secondary and tertiary sectors of economy. Manufacturing sector experienced a huge blow and trade sector followed the same pattern (Olayemi Nirmala, 2016). There was decrease of 5.89% and 3.71% in both sectors respectively (Olayemi Nirmala, 2016). To the countrys good fortune mining and agricu lture sector made positive growth but they have their limitations and cannot mitigate the loss incurred by other sectors of economy. The last nail in the coffin was put by the tertiary sector which includes trade, finance, transport, government services and personal service industry. They also showed reduction which made sure that country is in deep recession. Unemployment According to Bloomberg, high inflation and low economic growth directly results in rise in unemployment in the country (van Scheers, 2016). Deficiency of money in the market and high rate of product and services makes the companies and government to cut their expenses by firing their staff. It is a common practice to counter the effects of such economic downgrade. South Africa is in really bad shape with the economy reduced to junk status (van Scheers, 2016). Local companies were not able to make profits and hence cannot sustain a large workforce. Salary gets limited and there is no question of pay raises. In this scenario people who have average skill set will not get any job ("SOUTH AFRICA: Credit Rating Downgrade", 2013). Skilled people will not work at a place where there is no job security and there is no prospect of pay growth. According to S P Global high-paid and skilled professionals are leaving the country to work in foreign ventures to make monetary gains ("SOUTH AFRICA: Credit Rating Downgrade", 2013). Job prospects are reduced exponentially. Government is not capable enough to raise more job vacancies to counter this issue as there is lack of funds which is the basic reason for unemployment in South Africa in the first place. It can be concluded from the above discussion that South African economy has been downgraded to the junk status and it will take a lot of time for it to recover from this economic disaster. References Martin, W. (2013). South Africa and the New Scramble for Africa: Imperialist, Sub-imperialist, or Victim?.Agrarian South: Journal Of Political Economy,2(2), 161-188. https://dx.doi.org/10.1177/2277976013493574 Ngcobo, R., Ladzani, W. (2016). Analysis of economic transformation intervention in South Africa - the CA charter.Environmental Economics,7(3), 17-24. https://dx.doi.org/10.21511/ee.07(3).2016.02 Mugobo, V., Mutize, M. (2016). THE IMPACT OF SOVEREIGN CREDIT RATING DOWNGRADE TO FOREIGN DIRECT INVESTMENT IN SOUTH AFRICA.Risk Governance And Control: Financial Markets Institutions,6(1). https://dx.doi.org/10.22495/rgcv6i1art2 Olayemi, B., Nirmala, D. (2016). Creating economic viability in rural South Africa through water resource management in subsistence farming.Environmental Economics,7(4), 68-77. https://dx.doi.org/10.21511/ee.07(4).2016.07 van Scheers, L. (2016). Is there a link between economic growth and SMEs success in South Africa.Investment Management And Financial Innovations,13(2-2), 349-353. https://dx.doi.org/10.21511/imfi.13(2-2).2016.09 SOUTH AFRICA: Credit Rating Downgrade. 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