Finance

South Africa’s policy uncertainty scares investors away

Policy uncertainty in South Africa scares investors and prevents them from investing in the country, hobbling economic growth. 

This is feedback from Investec South Africa CEO Richard Wainwright, who told CNBC Africa on the sidelines of the World Economic Forum that uncertainty is the main issue on the continent. 

“The issues are around uncertainty, particularly about policy frameworks. The continent and South Africa in particular have a lot of work to do on that front,” Wainwright said. 

Increased uncertainty results in increased volatility in financial markets, which results in investments not being made. 

He explained that high levels of uncertainty have a chilling effect on investment deals, with decisions effectively being put on hold. 

“It is policy certainty that will be the key driver for investment,” Wainwright said. 

Another issue he noted that inhibits investment in South Africa and the continent is the onerous regulatory burden companies face. 

For economic growth to take off, it has to become easier to do business in South Africa and the continent, while it must also be made easier for goods, people, and ideas to flow.

South Africa’s policy uncertainty has steadily increased over the past decade, resulting in lower investment, higher unemployment, and sluggish economic growth.

This was revealed by the North-West University (NWU) Business School in its quarterly Policy Uncertainty Index.

The index showed that uncertainty eased to 65.5 in the fourth quarter of 2023 from 71.8 in the third quarter.

Levels above 50 reflect growing policy uncertainty, while levels below 50 indicate policy uncertainty is declining.

The report said policy uncertainty would only drop below 50 when positive forces significantly outweigh negative forces.

In its report, the NWU Business School said there are strong correlations between policy uncertainty and negative economic outcomes.

High levels of policy uncertainty lower investment, employment and, subsequently, economic output. This results in sluggish economic growth in South Africa.

Standard Bank CEO Sim Tshabalala
Standard Bank CEO Sim Tshabalala

Wainwright’s comments echo those of the CEO of Standard Bank, Sim Tshabalala, who pleaded with political leaders to make it easier to do business on the continent and in South Africa particularly. 

Tshabalala said Standard Bank urges African countries to reduce the risk premium associated with investing on the continent. 

To do this, he advised political leaders to liberalise their economies, make it easier for goods, people, and ideas to flow across the continent, implement fiscal discipline, and make it easier to do business. 

Reducing red tape, in particular, is vital. “Make it only take a day to set up a company, not six months,” Tshabalala said. 

This will make it easier for small businesses to transition from the informal economy to the formal economy while widening the tax base and creating a more resilient state. 

Concerning South Africa specifically, Tshabala said the country has incredible competitive advantages but has failed to capitalise on them. He called for the state to improve its efficiency to capitalise on them. 

“Please improve the quality of our institutions. In the case of South Africa, we use the lovely phrase ‘Please capacitate the public sector’.”

“Some parts of the public sector are excellent, such as the National Treasury and the Reserve Bank. Replicate what is happening in those across the board,” Tshabalala said. 

“Please capacitate the state,” he repeated. “Please professionalise it. Please continue to make doing business easier.”

Regarding the elections in 2024 in South Africa, both Tshabalala and Wainwright bemoaned the increased uncertainty they bring. 

“South Africa will be alright,” Tshabalala said. “I am very excited for the next ten years in South Africa.”

Wainwright was more pensive, saying, “It will be good when 2024 is out of the way. Not only our election but also elections in major global economies.”

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