Words of Wisdom:


Diversifying the Production Structure

  • Date Submitted: 04/17/2011 10:07 AM
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2. If South Africa was to diversify the production structure in the medium-to-long term
according to a specific strategy, which sectors do you propose should receive priority and why?

In order to be able to comment on which sectors in the production structure should be prioritized in the medium to long term, there has to be a clarification of the terms used in the particular question. When diversifying a production structure, it isn't as simple as just a white or black answer but a more complex economic analysis of the given data within the production structure, and a recommendation to which sectors to focus on.

Black(2002, p.126) suggests that diversification can be defined as a broadening of the enterprises of a country between different types of products or markets. An example of diversifying is when say a country exports just cigarette paper, they can diversify that production by producing the cigarettes and then exporting the final product. This way there is an advantage of diversified markets have lower risk, because if   the paper for the cigarettes were to increase there is less risk, due to the fact that the paper only makes up a percentage of the final product.

Also the country benefits because of final products being exported, which can lead to an increase in employment, gross domestic product and economic growth. The disadvantage of diversifying is that a the production of a final product will need a certain expertise and if a country doesn't have the required human capital, the management and labour will be come overstrained and errors are made where the labour is not specialized in that field. Mistakes like this can be very expensive and can even drive investors away from a country for that specific market.

When talking about the medium-to-long term this would involve the next 5 to 10 years that are to follow, this is important because an economy has to make a budget and forecast the income and expenditure of the country for the future...


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