Globalization and its effect on the South African economy and the JSE securities exchange

Topics: Foreign exchange market, Monetary policy, Investment Pages: 33 (9404 words) Published: May 24, 2006
1. Introduction

"Globalization refers to the shift toward a more integrated and interdependent world economy." [Hill, 2003: pg6] South Africa provides a unique opportunity to observe the effects of globalization in that the pre democratic period was a period of very little globalization, which can be contrasted with the democratic period which has been characterised by rapid globalization. This sharp contrast emphasises the effects that globalization has on a country.

The essay is a longitudinal study that seeks to understand the impact of globalization on the JSE Securities Exchange, since the democratic elections in South Africa. Firstly this essay will analyse the impact globalization has had on South Africa in general. Then the essay will analyse the effect it has had on South African monetary policy. Further to that it will then analyse the challenges that globalization poses to South Africa. Then there will be more specific analysis on the impact of globalization on the JSE securities exchange. This section will seek to discuss the characteristics of an efficient securities exchange. Comparing the JSE to this will make it possible to determine the effect that globalization has had on the securities exchange and how this has affected the markets efficiency. Then the challenges of globalization facing the JSE will be discussed. This section will try to identify key issues facing the securities exchange, and possible solutions that the exchange can take to cement its place as efficient and reliable worldwide market.

2. The Impact of Globalisation on South Africa

Before discussing the impact that globalisation has had on South Africa, the extent of globalisation in South Africa must first be established. Globalisation's impact goes beyond economics to cultural, social and political influences as well. A comprehensive globalisation index is calculated by Foreign Policy Magazine, which includes the level of economic integration, technological connectivity, political engagement, and personal contact. The 2005 Foreign Policy Magazine Globalisation Index ranked South Africa at 48; this is behind six other African countries, including Uganda (33) and Tunisia (37). The ranking shows that South Africa is not very well integrated into the global community relative to other countries. This may be due to the fact that South Africa has not been "globalising" for as long as many other countries have. The rankings support this assertion in that South Africa fairs better than China (54) and Russia (52) who have also not been "globalising" for as long as many other countries1.

Tariff, non-tariff barriers and capital controls have all been decreasing since democracy (and South Africa's re-entry into the WTO); which is in line with the global trend. This is due to the downward pressure that globalization places on tariff structure and capital controls to maintain global competitiveness. Exports of goods and services as a percent of GDP have only increased slightly, from 24% in 1990 to 28% in 2003 [Human Development Report, 2005], and South Africa's share in world trade has remained around the 0.5% mark since 1995 [South African Department of Trade and Industry]. This shows that South Africa is maintaining its share of exports in the rapidly increasing global exports and thus is not being marginalised by the process of globalization.

The era of globalization has seen growth in world trade exceeding world economic growth, and to discuss the impact of globalisation on South Africa would thus require a discussion on the impact of increased trade in South Africa. Since Ricardian trade theory it has been generally accepted that trade is a positive sum game, and thus when discussing the impact of increased trade in South Africa it is not a question of whether South Africa benefited or not, but rather a question of by how much does South Africa benefit. The Heckscher-Ohlin Theory attempts to clarify the question of who gains more...

References: Salvatore, D; (2004), International Economics, 8th Edition, John Wiley & Sons, Inc.
Dollar, D and Kraay, A; (2001), Trade, Growth and Poverty, Finance and Development, Volume 38, Number 3. Available on: http://www.imf.org/external/pubs/ft/fandd/2001/09/dollar.htm Accessed on: 11 July 2001.
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