Why Supporting Local is More Important Than You Think As South Africa battles the twin effects of illness and lockdown the time is ripe to consider carefully how and where South Africans spend their money. There are those who have lots, and those who have little, yet if people understood the power of a single Rand to change the future of the country, everyone might spend it very differently. In 2015, a paper on the negative impact of shopping malls on local economies used research from India, USA and South Africa to explain how the arrival of a glamorous mall sucks the money out of the local community and pulls it away, into the coffers of big business. The counterargument in favour of malls is that small, rural and township dwellers deserve first world shopping, which provide local jobs and convenience, entertainment and better pricing than traditional high street shops. Most township residents would certainly vote for glorious first world shopping and low prices, at least in the first year. By year three however they might notice, for example in the small town of Grabouw or Knysna perhaps, how the main street is deserted. Small businesses that had thrived there for generations are now reduced to mere shells of their former self and replaced by those selling counterfeit, imported T-shirts or cheap bling. The money circulating locally has dwindled, small businesses have closed, many jobs have disappeared, and local wealth departed along with them. By year four or five, the shopping malls also suffer as local buying power is depressed along with the lower employment rate, resulting in an overall downturn in spending. For those who need more convincing, it is important to look at the maths of it. In basic terms it works like this – in the days before the arrival of malls and major chain stores, Mary would spend R10 at the baker; who (assuming a 10% profit retention); would spend R9 at the butcher; who would spend R8 at the tailor; who would spend R7 at the school; who would spend R6 at the stationery store; who would spend R5 at the farmer’s market and so on. A simple illustration of how one R10 note can create wealth ten times over. Recovery and regrowth of South Africa’s economy is our responsibility; now that you know the power of your money, where are you going to spend your next Rand?
2.1 The article refers to ‘the twin effects of illness and lockdown’. Use the Keynesian school to explain how Covid-19 and lockdown would impact the economy. (5 Marks)
2.2 The article states that, ‘A simple illustration of how one R10 note can create wealth ten times over’. What term is used by the Keynesian school to describe this effect of spending and incomes creations? (2 Marks)
2.3 Use the AD/AS model framework to illustrate and explain the effects of Covid-19 and the lockdown on the South African economy. (13 Marks)