Function and Importance of Investment Spending in South Africa

Topics: Economics, Investment, Capital Pages: 4 (1582 words) Published: March 15, 2013
Investment expenditure and increased investment rates are important for current and future economic activity in South Africa. This essay aims to draw attention to the mechanics behind the function and the importance of investment spending in South Africa. By analysing the importance of investment and the aspect of capacity utilisation percentages, as well as integrating these concepts into the vision put forward by the government in the New Growth Path framework, the aim is to help gain a clear and coherent understanding of the Investment function in its entirety and its relation to the South African macroeconomic environment. Investment expenditure as a Macroeconomic function is the purchase of capital. This capital comprises of both fixed capital and human capital. Due to the fixed and long-term nature of capital, Investment is important to South Africa in both the current and future periods. In the current period, investment expenditure adds to the present demand for capital goods, which stimulate demand in certain industries, leading to a higher demand for labour within these fields. The opportunity cost of present investment expenditure is current consumption, and therefore is largely determined by a state’s culture and economic condition, as well as their economic policies. Investment spending has a more noticeable effect on the future circumstance of a country. Previous expenditure largely leads to what is referred to in macroeconomic terminology as an increase in the production possibility of the country. This is effectively an increase in the capacity and efficiency of firms’ manufacturing and operating activities, and is due to the combination of technological innovation and the capital expenditure on the restoration and repair of capital in use. Technological development caused by previous capital expenditure can lead to new types of workers being demanded as new types of work are being developed. New technology isn’t completely constructive...
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