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Diversifying The Production Structure Essay

1603 words - 7 pages

2. If South Africa was to diversify the production structure in the medium-to-long term
according to a specific strategy, which sectors do you propose should receive priority and why?

In order to be able to comment on which sectors in the production structure should be prioritized in the medium to long term, there has to be a clarification of the terms used in the particular question. When diversifying a production structure, it isn't as simple as just a white or black answer but a more complex economic analysis of the given data within the production structure, and a recommendation to which sectors to focus on.

Black(2002, p.126) suggests that diversification can be defined as a ...view middle of the document...

If diversifying certain sectors will increase the production and therefore the output of a country, it could lead to substantial amount of income and even expenditure that is not accounted for. The expenditure side would come in effect to train a fraction of the labour force to specialize in producing the new diversified final products.

When looking for the sectors that need to be prioritized it is useful to look at South Africa's biggest exports in the present time, but also to look at the exports in the past to predict if a certain sector would be come more important or have a larger share in the total exports. A useful criteria to consider as well is which commodity is mostly demanded in the world and does South Africa, produce this commodity. The main exports in South Africa is gold, diamonds, platinum, other metals and minerals, machinery, equipment and coal.

The US department of State website (US Embassy, Sep 2010) states that “ During 2000, platinum overtook gold as South Africa's largest foreign exchange earner”.With the global direction moving more and more into the technological way of living. It would be important to South Africa to keep a priority on the manufacturing of platinum, but might even be more important to find a way of diversifying some of the platinum into other products that can be exported overseas. According to the eBullionGuide website (ebullionguide.com, 2009), the most important uses of platinum are fine jewelry, autocatalysts, hard drives and fuel cells.

Autocatalysts or as they are sometimes know catalyst converters, are being used in vehicles to reduce the amount of carbon dioxide that are produced by vehicles. Together with fine jewelry these two categories of modern uses consume almost 70% of the platinum produced (ebullionguide.com, 2009).

Stilwell (2004) argues that the manufacturing sector of the production structure relies mainly in the importing of goods that have been produced by exporting domestic raw materials. Therefore it would make sense if the South African economy was to diversify the mining and quarry sector in the production structure which would allow making different products like jewelry and autocatalysts as another way of exporting platinum but also gold. This could also be done with the other metals and minerals to form ferroalloys and stainless steel as a diversified production of the raw materials that could then be included in the GDP.

Figure 2.1: The mining & quarrying values from 1980 to 2009 (in R million):

South African Reserve Bank (2010) The mining & quarry values for 1980 to 2009. Quarterly Bulletin Supplement. Pretoria. June 2010

According the figure 2.1 above, mining and quarrying has on average been increasing steadily, especially since 2000, where the demand for platinum increased and in the South African economy platinum surpassed the amount of gold exported. There was a massive fall from 2008 from a value just under 20000 to about 3500...

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