Economic Contemporary Issues
There are a variety of different economic issues that are affecting South African organizations. Some of these issues are recessions, inflation rates, interest rates and taxation. Inflation is the rise in prices, not of an individual product, but in the general level of prices of goods and services. Inflation shows the cost of living. If you buy a basket of goods for R100 this year, it will cost you more than R100 to buy the same basket of goods the following year. This results in the purchasing power of money to decrease. High inflation alters consumer behavior. It also causes people to spend money quickly, so that their money does not decrease in value, and instead, store away the food and commodities that were bought. This destabilizes the markets creating shortages. To survive inflation, organizations and businesses need to invest in long term capital gains because short term investments tend to give misleading results, making you think that you are making a profit. For example, if you are earning 6% interest in a bank, and the inflation rate is 10%, you are actually losing 4%. Organizations must also start to wisely manage their monthly expenses, such as phone bills, electricity, fuel, etc. Before buying an asset, ask yourself if the business really needs it and how often it will be used.
An interest rate is the cost of borrowing money. Interest is paid to lenders by the person who borrowed the money. It is usually calculated as a percentage of the principle amount. High interest rates can be negative for South African businesses because it forces them not to take loans and to expand to achieve higher profits. High interest rates also makes savings attractive. If consumers, save instead of spend, inventories will take longer to get sold and the business will slow production due to high inventories, postponing reinvestments of profits back into the business for expanding purposes....
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