New South African government’s big advantage

There are many stumbling blocks ahead for South Africa’s new government of national unity (GNU), but existing reforms and improvements provide it with the necessary building blocks to fast-track the country’s economic development.

This is according to North-West University’s (NWU) Business School, which recently released the Policy Uncertainty Index (PUI) for the second quarter of this year.

The PUI worsened in the second quarter, as pre-election uncertainty weighed on perceptions of the country’s policy and economic uncertainty.

However, the report stated that the election outcome – widely regarded as positive – could reverse this trend.

South Africa’s 2024 elections saw the ANC lose its majority for the first time in 30 years, which led it to partner up with opposition parties to form a GNU.

The PUI report for Q2 explained that, 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 was 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.

Professor Raymond Parsons of the NWU School of Business and Governance has previously said the new government faces a steep learning curve. 

The success of South Africa’s new government hinges on its ability to deliver results on the country’s biggest issues – unemployment, poverty, and inequality – while maintaining stability and avoiding political pitfalls.

However, the GNU has a headstart, with several existing mechanisms and programs that could expedite the outcomes needed for problem-solving in South Africa. 

The Bureau for Economic Research (BER) has emphasised the extent to which many of the building blocks to boost the economy are already in place, with mechanisms like Operation Vulindlela as a starting point. 

“There is no need to reinvent the wheel. Operation Vulindlela has done a lot of the heavy lifting in terms of policy reform,” the BER said. 

The government can also build on the recent collaboration of government and business to address the high-priority areas of energy, logistics, and dealing with crime and corruption.

Similarly, the revised National Development Plan (NDP) – which has enjoyed the support of most political parties in Parliament – also qualifies as common ground where ‘sufficient consensus’ might be found and policy predictability encouraged. 

In its 2023 Ten-Year Review of the NDP, the National Planning Commission strongly urged that “in the immediate term, South Africa needs to deal with policy uncertainty and significantly enhance coordination and coherence”.

Another key challenge for the GNU will be fixed investment, which has recently been significantly weaker. 

Nedbank previously reported a marked decline in fixed investment activity in both the public and private sectors in 2023, which the bank expected would spill over into 2024. 

However, Nedbank expects fixed investment to accelerate in 2025 based on renewable energy, stronger global growth and firmer commodity prices. 

Another positive development the GNU can build on is Eskom’s improved performance, which has eased load-shedding for most of 2024.

This, together with the emergence of renewable energy projects and an initial reduction in backlogs at ports, means these logistic bottlenecks are now marginally less of a drag on South Africa’s economic performance. 

“The challenge now is to consolidate a sufficiently powerful guiding and stable GNU that expedites the urgent and necessary economic reforms that the country needs,” the NWU report stated. 

“The more reforms gain momentum, the more policy uncertainty will recede, and investor confidence in South Africa’s economic prospects will grow.”