Good news about policy uncertainty in South Africa

Policy uncertainty worsened in the second quarter of this year, mainly due to the uncertainty surrounding the May elections. However, the potentially game-changing outcome of the elections could improve this later in the year.

North-West University’s Business School released its Policy Uncertainty Index (PUI) for the second quarter of 2024, which revealed that the PUI moved further into negative territory.

The Q2 2024 PUI rose further into negative territory, to 68.3 from 65.8 in 1Q 2024, and was again elevated. 

The main driver of the PUI’s second-quarter outcome was the perceived high level of uncertainty surrounding the recent elections. 

“This inevitably precipitated the latest rise in the PUI, when business and the markets over this period took a precautionary stance up to and around the elections on 29 May,” the report explained.

“Together with subdued economic activity in the first half of 2024, the higher PUI was the outcome of negative factors on balance outweighing the positive ones to move the index further into negative territory.” 

However, the report noted that policy uncertainty indices tend to spike in many parts of the world when important elections are pending. Therefore, the better news on the election front came too late in the second quarter to change the trajectory of the second quarter PUI. 

With election uncertainties now receding, recent political developments in South Africa can potentially reverse the negative PUI trend. 

“With the holding of successful free, fair and peaceful elections and the formation of a Government of National Unity (GNU) as well as the pending appointment of a new Cabinet, the opportunity now exists to lower the elevated level of policy uncertainty,” the report explained.

However, it is noted that it is still the early days for the GNU, and there are still political pitfalls and risks in what is still untested governance for South Africa. 

The outcome of this year’s elections saw the country embark on a new political terrain in which governance arrangements have to be re-imagined afresh and negotiated at both national and provincial levels.

The report stated that some grey political and policy areas may persist for now, but rating agency S&P nonetheless sees the election outcome as pointing to “broad policy continuity” in the country.

From an economic and business perspective, achieving a lower PUI and seeking better growth prospects could stem from the combination of four encouraging developments:

• The initial positive response from business and the markets to the formation of the GNU
• The roadmap for the GNU outlined by President Cyril Ramaphosa in his inaugural address on 19 June 19
• A strong commitment to implementing both existing and new growth-friendly economic reforms
• The GNU succeeds in creating a sufficiently powerful guiding and stable coalition to expedite such necessary reforms

“What is important now is that the GNU prioritises the higher fixed investment and real economic growth that South Africa now needs,” it said. 

“If setting the broad national agenda for the GNU is now its main task, then staying on the right economic track is another crucial one.” 

“A successful GNU, therefore, needs to create a policy environment that raises the level of overall fixed investment that SA so badly requires to achieve higher job-rich growth.”