South Africa’s policy uncertainty scares away investors

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. 

Decreasing inflation and the Reserve Bank keeping interest rates unchanged in the fourth quarter pushed policy uncertainty down. 

However, uncertainty still pervades the South African economy as load-shedding, the country’s ports crisis, and deteriorating public finances are prevalent issues. 

Another factor that will increase uncertainty in 2024 is the upcoming national elections, which are set to be the most competitive since the dawn of democracy, and some expect the ANC to lose its majority. 

This means the country will likely enter uncharted political waters in 2024, with the prospect of a coalition government at the national level for the first time. 

Reserve Bank Governor Lesetja Kganyago and other experts have identified the elections as a key threat to the nation’s economic stability. 

As Kganyago explained in a recent City Press interview, “Politicians adopting a populist tone ahead of the vote could create uncertainty among foreign investors, discouraging investment in South Africa.” 

“I think by now we’ve had enough elections to know that, around this time of the season, there are these kinds of noises,” Kganyago said, referring to “muddy noise about institutions and so forth”.

This concern isn’t unfounded, as global research indicates that policy uncertainty indices often rise significantly during election periods. South Africa is unlikely to be an exception to this trend.

Policy uncertainty is a significant issue in South Africa as it has severe implications for business confidence and the investment climate in the country. 

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.