Investment within a country can be seen as a vital component in terms of promoting economic prosperity. This essay is going to outline the importance of investment in terms of current and future economic activity by examining the effect of investment on growth and employment. The importance of the ability of the South African government to differentiate between private and public investment will be addressed by the use of a graph illustrating the investment rates of the private and public sectors. The essay will provide a definition of Capacity utilization and further analysis of its meaning with a graph illustrating capacity utilization rates. The link between firms with excess cash and capacity utilization will be analyzed by discussing the relationship between excess cash and capacity utilization with South Africa being the core focus. Infrastructure investment can be seen as a key aspect to promoting economic efficiency in a country. An in depth analysis of South Africa’s new growth plan, focusing on the increase in infrastructure development will also be outlined.
Investment can be defined as “An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth”(Investopedia, n.d: 1). This essay is going to discuss why investment is vital for both current and future economic activity with reference to growth and employment.
Statistics have noted that there is a combined unemployment rate of 30% in many third world countries while developed countries have an unemployment rate between 4% and 12% (IndexMundi, 2012). This is an extreme amount in terms of a world population that includes seven billion people (WorldOMeters, 2012).
A key aspect that can be used to fight these figures can be investment in a country. Private firms, financial institutions as well as government can provide investment. All parties will have a significant effect on current and future economic activity in terms of growth and employment.
Private and government investment provide a number of benefits. Investment can create a significant increase in job opportunities for the public (Kearsarge Global Advisors, n.d). The new facilities and projects that are created due to investment will provide a number of work opportunities for citizens within a country. The investment made in infrastructure of a country is vital in terms of job creation, which will have an immediate effect on the current economy. The planned investment in infrastructure each year will ensure the future of the economy is protected. If the government removes the difficulties in terms of the implementation of new plans to invest in infrastructure by the private sector, the amount of jobs that are created will be amplified (Kearsarge Global Advisors, n.d). It is clear that government must be aware of the difference between public and private investment, as this will allow for the two sectors to work together in terms of providing high investment rates.
Investment in South Africa has been deemed low in comparison to a number of countries across the globe. This is of extreme concern as South Africa had an unemployment rate of 24,5% by the end of 2011 (Global Finance, 2011). President Jacob Zuma has created the Presidential Infrastructure Coordination Committee that is the main component of implementing his plan of creating five million jobs by the end of 2020 (Business Report, 2012). This planned increase in job opportunities can only be achievable if there is a significant increase in investment by government.
Figure 1 indicates that prior to the 2008/2009 recession, the largest contributor of domestic investment was the private sector (South African Reserve Bank, 2012). Private investment has dropped significantly in relation to public investment since 2009. Government must be...
Please join StudyMode to read the full document