South African Demographics and Economy Overview

South African Demographics and Population

• South Africa's population in 2022 was 62 million, increasing from 51.7 million in 2011.
• Gauteng has the highest population (15 million), while Northern Cape has the lowest (1.3 million).
• Three provinces, Gauteng, KwaZulu-Natal, and the Western Cape, comprise 56% of the country's population.
• The Western Cape has increased from the 5th to the 3rd largest province in population from 1996 to 2022.
• Black Africans represent the majority (81.4%), followed by Coloureds (8.2%), Whites (7.3%), and Indians/Asians (2.7%).

Role Players in the Economy: Households/Consumers

• Households (individuals, families, or groups living together) are essential for providing production factors to businesses and government institutions.
• South Africa had 16.2 million households in 2017, with 80.1% in formal dwellings, 13.6% in informal dwellings, and 5.5% in traditional dwellings.

Household Income Sources and Distribution

• Households have diverse income sources across the income distribution.
• The dominant sources are income from work and social grants.
• Wages are paid to labor, rents and interest are paid to property owners, and profits are earned by businesses.

Income Inequality in South Africa

• South Africa is a dual economy with high and persistent inequality, reflected in a consumption expenditure Gini-coefficient of 0.63 in 2023.
• Inequality stems from a legacy of exclusion and a lack of pro-poor economic growth, resulting in insufficient job creation.
• Wealth inequality is even greater, with limited intergenerational mobility, perpetuating inequalities across generations.

Household Expenditure and Consumption

• Households spend their income on goods and services produced by businesses.
• The South African Reserve Bank categorizes expenditure into four categories: Durable, semi-durable, non-durable, and services.

Business Enterprises/Firms

• Businesses, driven by profit maximization, provide goods and services based on market demand.
• Their primary function is to produce goods and services.
• Examples include butcher shops, doctors, banks, factories, etc.

Business Population and Structure

• The business population considers the total number of businesses based on factors like size, sector, location, and legal structure.
• A plant represents a physical establishment (e.g., factory, farm, store), while a firm owns and operates one or multiple plants.
• An industry comprises firms producing similar or identical products.

Organizational Structures within Firms

• Multiplant firms may operate horizontally, with plants performing the same function (e.g., Pick n Pay stores).
• Vertical integration occurs when firms own plants involved in different production stages (e.g., Nestle).
• Conglomerates operate in multiple industries across different plants (e.g., Tiger Brands).

Legal Forms of Business

• Three main legal forms exist: Sole proprietorships, Partnerships, and Companies (private or public).

Advantages and Disadvantages of Companies

• Companies benefit from limited liability, stronger financial capital attraction, and continuity.
• The principal-agent problem represents a key disadvantage.

Government/State/Public Sector

• Government encompasses all local, regional, and national levels, often referred to as the public sector in economics.
• Its primary function is to create a fair and free economic environment.
• Government uses tax revenue to provide public goods and services, as well as transfer payments to households and businesses.

Government Intervention in the Market

• Government intervenes due to market failures, typically arising when:
  • The market produces the "wrong" amounts of certain goods and services.
  • The market fails to allocate resources to the production of economically justified goods and services.
• Government intervention can also address the existence of public goods, which are non-rivalrous and non-excludable.

The Foreign Sector

• The foreign sector comprises various individual states, each with its own government, consumers, and businesses.

Factors of Production: Land, Labor, Capital, and Entrepreneurial Ability

• The production process utilizes factors of production including:
  • Land: Natural resources (e.g., arable land, forests, minerals)
  • Labor: Physical and mental effort of individuals
  • Capital: Manufactured aids for production (e.g., factories, machinery)
  • Entrepreneurial ability: A unique human resource distinct from labor.

Functions of an Entrepreneur

• Entrepreneurs play several key roles:
  • Initiate and combine resources (land, labor, capital) for production.
  • Make strategic business decisions.
  • Act as innovators.
  • Bear risk associated with business ventures.

The Production Possibilities Model

• This model illustrates how a society allocates scarce resources to produce goods and services.
• For simplicity, it assumes full employment, fixed resources, fixed technology, and production of only two goods (e.g., pizza and industrial robots).

The Production Possibilities Table

• Presents various combinations of two products attainable given specific resources and full employment.

The Production Possibility Curve (PPC)

• Shows the maximum output combinations achievable with full resource utilization and constant technology.
• Each point on the curve represents maximum output.
• Points inside the curve are attainable but represent lower overall output.
• Points outside the curve are currently unattainable with available resources and technology.

The Law of Increasing Opportunity Cost

• States that as production of a specific good increases, the opportunity cost of producing additional units rises.
• This is reflected in the bowed-out shape of the PPC.
• Greater quantities of one good require sacrificing larger amounts of the other.

Economic Rational and Optimal Activity Level

• Economic activity should continue as long as marginal benefit (MB) exceeds marginal cost (MC).
• Activity should be reduced when marginal cost exceeds marginal benefit.
• The optimal level occurs when MB = MC.