Economics ISA: Globalization and South Africa
April 23, 2013
Globalization is the process of expanding social and economic ties between nations, benefiting each partner by enabling them to concentrate on their competencies (GPF). The idea of globalization has existed for thousands of years since the Silk Road connected Asia, Africa, and Europe to speed up the transfer of goods. In the 19th century, this idea progressed further with new ways of transportation and communication such as railroads, steamships, and telecommunication.
In the 21st century, the idea of globalization has increased tremendously with the addition of commercial vehicles, airplanes, cellular phones, and most notably, the Internet. Organizations such as the World Trade Organization (WTO) and the International Monetary Fund (IMF) make it their mandate to provide aid to developing countries as they strive to globalize. South Africa has been integrated into the movement of globalization since it re-entered the international economy in 1990 after facing trade sanctions.
According to the CIA, at that time, emerging market economies were booming at a greater rate than the world economy. However, it took about four years for the South African economy to show signs of benefit. In 2010, South Africa was added to the BRICS countries (originally known as BRIC in 2001), which brings opportunities for South Africans dealing with globalization (BRICS). South Africa has tremendous potential due to its abundance of natural resources such as gold, diamonds, coal, natural gas and many other rare earth elements (CIA).
Globalization has proven to be a positive development in South Africa. It has improved trade partnerships with countries such as China and India, brought potential foreign investors, and given trade rights to South Africa. The removal of trade barriers benefits both consumers and producers of each participating country. As a result of globalization, South Africa’s socio-economic relationship with China and India has greatly improved. Since 2010, China has been one of South Africa’s most prominent trading partners (Loots), and the socioeconomic relationship between the two countries continues to boom.
The official relationship between South Africa and Taiwan (officially the Republic of China) was formed in the late 1990s, following the fall of apartheid. This event enabled South Africa to establish a strategic economic partnership with Taiwan, as reported by CIA. Moreover, in 1997, when Hong Kong (also known as “the Handover”) was handed over to China by Britain, this accelerated the recognition of the socio-economic bond between South Africa and China. Prior to these relations, trade between South Africa and China amounted only to $14 million (USD) in 1992. However, once these relations started gaining momentum in 1998, trade between the two nations increased significantly.
In 2010, trade between China and South Africa flourished to $25.6 billion (USD), showing a remarkable progression of trade over time (BRICS). Similarly, South Africa’s relationship with India showed analogous results. The culmination of apartheid in South Africa in 1994 made it possible for the country to gain global relations. Additionally, Nelson Mandela, the South African leader at the time, won the Mahatma Gandhi Peace Prize from the Indian government in 1994.
Moreover, economic activity between India and South Africa has expanded exponentially since 1993, from $3 million (USD) to $4 billion (USD) in 2006. This progression remained constant even through 2010 when the trade between the two countries reached $12 billion (USD). The trade is maintained through a free-trade agreement that both South Africa and India signed, according to the Ministry of External Affairs in India. Globalization has enabled South Africa to expand its trade towards other nations, resulting in a staggering increase in its gross domestic product (GDP) from $124.9 billion (USD) in 1990 to $408 billion (USD).
2 billion USD was invested by Fedec. The expansion of world trade is a result of globalization, which enables foreign investors to bring their business into developing countries. Globalization has helped attract foreign investors to South Africa, resulting in further advancements in the banking and management industry. The BMW plant Rosslyn, located outside of Johannesburg, is an example of success in South Africa due to globalization. The plant uses state-of-the-art equipment and well-paid trained assembly line workers who are unionized. In 2006, 14,000 South African BMW vehicles were exported to the US market.
Additionally, 80% of the vehicles produced in South Africa are exported to Japan, the US, and Australia. Although it takes 3 minutes longer to produce a BMW in South Africa compared to Germany, the savings from labor costs outweigh the time difference as labor costs are only 20% of those in Germany (Wessel). This foreign investment by BMW into South Africa would not have been possible without the effects of globalization. Furthermore, this foreign investment ensures growth in the banking industry since this invested money cannot be managed without a properly functioning banking system (Matoti).
Moreover, this development offers more job opportunities in South Africa and promotes a higher rate of employment. The expansion of the banking industry is a direct consequence of foreign investment from globalization. The growth of global trade can pose challenges to developing countries and lead to one country exploiting another. Organizations like the World Trade Organization (WTO) safeguard the rights of developing nations in a globalized world. The WTO primarily handles tariff disputes but also addresses anti-dumping and non-tariff disagreements.
This forum for mediation results in consumers and producers knowing that they can enjoy secure supplies and a greater choice of goods and services. Additionally, it causes producers and exporters to know that foreign markets will remain open to them. The WTO helped South Africa deal with anti-dumping reforms in the mid-1990s. Dumping is an economic situation where products from one country are brought into another country at a price lower than what is charged in the country of origin. This can cause problems since it spawns unfair competition, which kills the domestic industry of such a product.
As South Africa rejoined the global economy, it also became an active member of the WTO. In 1994, when South Africa joined the WTO, it had to implement certain obligations such as anti-dumping measures. This has resulted in healthy and secure trade between South Africa and its trading partners (Joubert). Since introducing these measures in 1994, South Africa’s GDP has increased from $135.8 billion (US dollars) to $408.2 billion (US dollars) as of present times (Fedec). This GDP growth is secure due to the legislation implemented by the WTO and can only be attributed to globalization.
Globalization is the economic concept that involves the expansion of world trade on an international scale, which shortens the distance between nations and ultimately increases global productivity. South Africa has experienced positive effects from globalization since the post-apartheid era in 1994 (Baartman). Economic globalization has benefited South Africa in many ways, such as boosting trade with China and India, attracting foreign investments, and establishing trade rights with the aid of outside organizations. The impact of globalization has increased South Africa’s GDP from $124.9 billion (USD) in 1990 to $408.
According to Fedec, South Africa’s GDP was valued at 2 billion USD in 2012. This, along with other factors, led to South Africa’s inclusion in the BRICS” emerging national economy association in 2010. The original members of this association were Brazil, Russia, India and China (BRICS). South Africa’s addition to this group is considered a major success resulting from globalization. These economic advancements and expansions are clear evidence of the positive impact of globalization on South Africa.
Bibliography:
- Baartman, Sarah. “A Short History of South Africa.” SouthAfrica.info. South African Government.
1. South Africa Info. “History of South Africa. ” South Africa Info. N.p., n.d. Web. 23 Apr. 2013.<http://www.southafrica.info/about/history/history.htm>.
2. BRICS. “Background of Fifth Brics Summit.” FIFTH BRICS SUMMIT.BRICS, n.d.Web.23 Apr. 2013.<http://www.brics5.co.za/>.
3.CIA.“Central Intelligence Agency.” CIA.N.p.,n.d.Web.23 Apr.2013.<https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html>.
4.Fedec, Anna.“South Africa GDP.” South Africa GDP.N.p.,n.d.Web.23 Apr.2013.<http://www.tradingeconomics.com/south-africa/gdp>.
5.GPF.“Global Policy Forum.” Globalization.University of Michigan,n.d.Web.23 Apr.
Globalization has been a significant topic in recent years. In 2013, the Global Policy Forum discussed the effects of globalization on various countries. Niel Joubert also wrote about South Africa’s anti-dumping regime and its reform on the World Trade Organization website. Elsabe Loots explored whether South Africa benefits from trade and financial liberalization in an article on the Trade and Industrial Policy Strategies website. Additionally, Nwabisa Matoti provided an overview of the banking sector in South Africa on www.banking.org.
The Banking Association South Africa. (n.d.). Retrieved April 23, 2013, from http://www.banking.org.za/getdoc/getdoc.aspx?docid=1130.
Ministry of External Affairs India. (n.d.). India – South Africa Relations. Retrieved April 23, 2013, from http://www.mea.gov.in/Portal/ForeignRelation/southafrica-august-2012.pdf.
Wessel, David. (n.d.). SOUTH AFRICA: Globalization Brings South Africa Gains — and Pains. CorpWatch. Retrieved April 23, 2013, from http://www.corpwatch.org/article.php?id=14529.
