During the past months, we heard a lot about the world-wide economic crisis. It is also called an economic recession or slowdown. For the first time in about 75 years the world's economy is expected to grow smaller. There are different causes for this. The main cause is governments, households and businesses getting too deep into debt.
The economic crisis started in America. Banks and insurance companies in that country lent out more money than they could afford. They also gave too much credit, for example home loans, to people who couldn't afford to pay it back. The result is that these institutions had to cut down on giving credit.
When households and companies cannot get credit, economies start to slow down. This is because people start spending less money. For example, if you want to buy a car and you cannot get credit from the bank, you will do without a car or buy a cheaper car.
When there is an economic slowdown in a major economy like America, the rest of the world is also affected.
This is because most countries trade goods with each other through imports and exports. South Africa exports a wide range of goods to places like America, Europe, Japan and China. These include things like gold, platinum, iron, steel, coal and agricultural products. We import things like car parts, electronics, plastics and oil.
This means South Africa's economy is also affected by the economic slowdown. But our sound economic policies have helped the country to be less affected than some.
Unlike the American banks, our banks didn't lend out too much money. Our new National Credit Act also prevented credit givers from giving credit to people who could not afford to pay it back.
However, our economy is affected because there is less demand for the goods and minerals which we export. If, for example, fewer people are buying fewer cars in America, the factories making the components in China will close down.
This will mean orders for goods from South Africa, like platinum, which is used in car manufacturing, will be cancelled or reduced. If the mine which produces platinum gets fewer orders, it will have to retrench workers.
We are therefore likely to feel the effects through rising unemployment, especially in sectors like mining and manufacturing.
Furthermore, when the economy slows, government gets less income from tax. This means the country will have to borrow more money from other countries.
Many countries have taken steps to help them cope with the economic crises. Among these steps are reducing interest rates, reducing taxes and increasing employment.
In South Africa, measures to help the economy survive the crisis include:
- speeding up programmes, like building roads and bridges
- expanding our social grants system
- increasing spending on the Expanded Public Works Programme, as well as other public programmes to create jobs
- improving unemployment insurance benefits.
Our government has also taken steps to reduce its spending in some areas.
The world's economy is expected to start recovering by the end of this year or early 2010. South Africa's economy should also start recovering this year. This is due to things like lower interest rates, programmes to create jobs and the effect of the 2010 FIFA World Cup.
- National Treasury
What you can do to survive the economic crises
- Pay off your debt as soon as possible. If you can't pay the full monthly instalments, talk to your debtors to work out a payment plan or go to a debt counsellor for advice (see page 28).
- Once you've paid off your debts, put away some money for emergencies.
- Work out a monthly budget and buy only what you really need.
- Look out for bargains and specials when shopping.
- Join up with family or friends to buy food in bulk (large packs) and share the costs. Buying in bulk every month is cheaper than buying small amounts every week.
- Start you own vegetable garden or start a community vegetable garden and share with others.
Some people get together in stokvels and societies to share the burden of the cost of living.