Policy uncertainty scares off investors

Political and economic policy uncertainty is at an all-time high in South Africa, inhibiting investment from foreign and local investors. 

North-West University’s Business School releases a quarterly Policy Uncertainty Index (PUI). PwC’s South Africa Economic Outlook, released in April, documented the index’s fluctuations.  

The PUI tracks news coverage of uncertainty, the views of a group of leading economists on levels of policy uncertainty, and the Bureau for Economic Research’s Business Confidence Index. 

Any increase above 50 reflects greater policy uncertainty, while a decrease below 49 reflects less policy uncertainty.

The index reached a record level of 71.7 in the first quarter of 2023, up from 53.2 at the end of 2022. 

This is the highest recording on the index since its inception in 2015.

PwC said that uncertainty in South Africa is partly driven by once-off international events such as the Russia-Ukraine war, high inflation in developed economies, and the lasting effects of Covid lockdowns. 

However, external uncertainty can be managed with policy certainty. External volatility does not have to translate into policy uncertainty. 

Policy uncertainty is primarily a function of the actions of government officials, legislative dealings in parliament, and the rhetoric of elected politicians. 

South Africa’s volatile policy environment 

A stable macroeconomic policy is vital for investment as it provides certainty for businesses that need to understand the environment in which they operate. 

SAICA executive Pieter Faber said the government’s macroeconomic policy is unstable and not achieving its stated aims of growth and employment.

South Africa has had eight macroeconomic policy frameworks in the last 25 years. 

It also has two different frameworks currently in operation – the National Development Plan from 2012 and the Economic Recovery Plan from 2020. 

There is also no clear plan on critical issues, such as the turnaround plans at Eskom and Transnet and how to increase youth employment.

The private sector needs a consistent, clear, and thought-through policy to invest – particularly over the long term. 

Policy uncertainty is most visible in South Africa’s constantly changing energy policy. The government currently have five policy documents relating to energy policy.

• The Integrated Resource Plan (IRP) 2019 
• The National Infrastructure Plan 2050 (NIP 2050)
• The Energy Action Plan (EAP)
• The Intended Nationally Determined Contribution (INDC) to global climate agreements
• The Just Energy Transition Investment Plan (JET-IP)

This is compounded by what energy analyst Chris Yelland has described as “making policy on the hoof” by electricity minister Kgosientsho Ramokgopa. 

Crucially, this uncertainty delays private sector investment in electricity generation, ensuring that load-shedding will be around for longer. 

What the private sector wants, according to Yelland, is policy certainty and a stable macroeconomic environment.

What is required now is for the government to get out of the way and allow the private sector to invest in electricity generation.