Please answer these discussion questions. international business

Economic Development in South Africa

The Republic of South Africa was the product of British and Dutch colonial ambitions in Southern Africa. These date back to 1652 when Dutch traders established Cape Town as an important waypoint on the spice route between the Netherlands and the Far East. The British seized Cape Town and the surrounding area in 1802. They subsequently defeated both the indigenous Zulus and states established by Dutch settlers (known as Afrikaners) in 1879 and 1902, respectively, and incorporated the captured territory into the Union of South Africa. In 1961, the Republic of South Africa was established.

For decades, South Africa was ruled by the National Party. In 1948, the National Party imposed a policy of apartheid, reserving political power for the minority white population that comprised less than 10 percent of the total population. After significant international sanctions that limited trade and inward investment by foreign multinationals, causing significant economic hardship, the apartheid policy was abandoned in 1992. In 1994, the country held its first democratic elections. The African National Congress (ANC) won a majority in those elections, as it has in every election since then, and Nelson Mandela became the country's first black President.

Nominally, the ANC was committed to a mixed economy. In practice, the state privatized several of the state-owned enterprises it had inherited from the prior regime, although significant state-owned businesses still remain (they include electric utilities and the national airline). Mandela's successor, Thabo Mbeki, pursued orthodox macroeconomic policies aimed at reducing the government's budget deficit and taming inflation. At the same time, the end of sanctions meant more inward foreign direct investment and greater opportunities for international trade. As a result of these policies and developments, by the early 2000s the South African economy was growing at around 5 percent per year.

In 2009, Mbeki was succeeded as president by Jacob Zuma. Under his leadership, corruption thrived and public spending ballooned. Zuma himself was embroiled in several corruption scandals, along with a rape allegation. In early 2018, facing a motion of no confidence in Parliament, Zuma resigned. He was succeeded by Cyril Ramaphosa, but significant damage had already been done. Economic growth had slowed to a crawl, real GDP per person had shrunk every year since 2014, and the ratio of public debt to GDP rose from 26 percent in 2008 to 56 percent in 2018. To compound matters, South Africa has one of the worst AIDS epidemics in the world. Some 7.7 million people, or 20 percent of the general population, are HIV positive. One-third of all deaths in South Africa are AIDS-related. It hasn't helped that South Africa's leaders often failed to recognize the nature of the crisis. Mbeki publicly questioned the link between HIV and AIDS. Zuma told reporters that he knowingly had unprotected sex with an HIV-positive woman, but it wasn't risky because he took a shower afterward to stop himself from getting AIDS. Regardless of where blame lies for the epidemic, there is no question it has negatively impacted the South African economy. Almost three decades of ANC rule have also failed to solve a number of other endemic problems that bedevil South Africa. These include an income inequality that is among the highest in the world; persistently high unemployment (particularly among black youth); high violent crime (again, among the highest in the world); and widespread poverty. Many of these problems can be traced back to decades of apartheid, but it is striking that after 25 years of ANC rule, they still persist.

To compound matters further, South Africa now faces one of the worst COVID-19 epidemics in the world. Although official figures suggest that South Africa's caseload is below that of countries such as the United States and the UK, data on excess deaths suggest the true impact of the epidemic is two to three times higher than the official figures. Due to the epidemic, in 2020 the unemployment rate surged to 30 percent, the government budget deficit more than doubled, and the economy shrunk by an estimated 8 percent. Clearly, President Cyril Ramaphosa has his work cut out for him.

What Ails Argentina?

A hundred years ago, the South American nation of Argentina was one of the world's wealthiest countries. Its success was based on rich natural resources, a productive agricultural sector, an educated population, and an emerging industrial sector. Along with Australia and America, Argentina was one of the favored destinations for European immigrants. For much of the last 70 years, however, Argentina has stumbled from economic crisis to economic crisis. It now ranks around 60th in the world in terms of GDP per capita.

One problem is that successive governments have routinely spent more than they have made in taxes and other page 91incomewhich has happened every year but one since 1950. To finance high public spending and persistent budget deficits, Argentina has often resorted to printing money. This has fueled inflation. Indeed, Argentina has frequently recorded some of the highest inflation rates in the world. Persistently high inflation has hurt business investment as Argentines have looked for ways to move their money out of the country and into a stable currency that maintains its value, such as the U.S. dollar. Similarly, foreign businesses have limited their investments in the nation. Starved of capital, Argentinian enterprises have not been able to make productive investments, and economic growth has faltered

The country's history of high public spending dates back to the 1930s when Juan Peron, a charismatic Argentinian army officer, returned from a posting in Italy. Peron was an admirer of fascism in Germany and Italy. As National Labor Secretary and then president, he put his learnings into practice. As Labor Secretary, he created health, pension, and low-cost housing benefits, all very popular with the working class. As president, a position he held from 1946 to 1955, he brought unions under his control, nationalized utilities, the railways, tramways, and the merchant marine among other formally private enterprises. Wages rose, but production plummeted, inflation soared, and a revolt in 1955 forced him into exile. Despite this, the populist Peron left a legacy that still shapes the country's politics and economic policies.

Argentina has been governed by Peronists several times since 1955, most recently from 2003 to 2015. During the most recent period of Peronist rule, public spending surged to account for more than 45 percent of Argentina's economy. The number of public employees increased by more than 60 percent. The government expanded state intervention in the economy, nationalizing the largest oil company in the country. Argentines became accustomed to paying some of the world's lowest electricity bills as the state spent billions on energy subsidies. Payroll and welfare costs surged as benefits were expanded. Tariff barriers were raised to protect the country's inefficient business from foreign competition. Exports of agricultural and manufactured goods were also taxed to divert production to domestic consumptiona policy almost unheard of in modern economies. Export tariffs limited the opportunity for export-led growth and depressed real prices and returns to investment in the affected sectors. These nationalistic policies effectively isolated Argentina from the global economy, leaving it increasingly further behind in a self-imposed deep freeze.

In November 2015, Mauricio Macri, a center-right politician, won the presidential election against the incumbent Peronist Cristina Fernandez. Upon taking office, Macri embarked upon a reform program designed to liberalize the economy and promote greater economic growth. Among other actions, he removed or reduced some of the export taxes, cut some energy subsidies, and worked with the International Monetary Fund to try and shore up government finances. He also signed onto a trade deal between Mercosur, a four-country South American trade block that includes Argentina and Brazil, and the European Union. But he moved cautiously, did not cut the deficit fast enough, and was reluctant to impose further austerity on the country for fear of a backlash. He got a backlash anyway. His cautious government failed to rein in inflation, which exceeded 50 percent, and the economy contracted by 6.2 percent in 2018. By 2019, two-fifths of Argentina's citizens could not afford a monthly basket of staple goods. In November of that year, Macri lost the presidential election to his Peronist rival, Alberto Fernandez.

Alberto Fernandez has advocated a return to classic Peronist policies, including subsidies and higher welfare benefits but has promised to be more pragmatic than the last Peronist government. He has floated the possibility that Argentina will default on some of its foreign debt, has blamed the country's problems on austerity policies required by the IMF in exchange for loans, and has signaled that he will not accept the Mercosur trade deal negotiated by his predecessor in its current from. He has also pushed for higher taxes on agricultural exports, including corn, wheat, and soybeans. The goals of the export taxes include raising money for the government and diverting agricultural produce to the domestic market, where increased supply should lower food prices to Argentines. Whether any of this will help Argentina's economy remains to be seen, but if history is any guide, the prospects are not encouraging. In general, countries that turn their backs on international trade and implement subsidies and welfare programs they cannot finance do not do well.

Economic Development in South Africa:

1. Nelson Mandela, South Africa's first Black president, privatized a number of state-owned businesses. Why was this policy important to the country's economic development?

2. Discuss the legacy of apartheid in South Africa. What role did economic sanctions during the apartheid years play in the development of South Africa's economy? What role do they play today?

3. Why has South Africa's economic development stalled in recent years? What challenges face the country today?

What Ails Argentina:

1. What are the root causes of Argentina's relatively poor economic performance? Explain how these causes have impacted the country's economic growth rate.

2. How would you explain the persisting appeal of Peronism in Argentina, even though the economic track record of Peronist governments has not been good?