Concerns over policy uncertainty in SA improved moderately in the second quarter of 2021, edging closer to positive territory according to a gauge that tracks sentiment towards the country’s reform agenda.
The North West University (NWU) Business School’s policy uncertainty index (PUI) for the second quarter of 2021 eased to 50.3 from 55.2 in the first quarter, bringing it to the brink of positive territory. The gauge was last in positive territory in the first quarter of 2018 at the inception of President Cyril Ramaphosa’s presidency.
The index was launched in 2016 and is published annually in January, April, July and October. An increase beyond 50 reflects heightened policy uncertainty, while a decline below 50 means reduced uncertainty.
“As SA enters the second half of 2021, the economy is at a decisive tipping point regarding its economic prospects and reform agenda,” NWU Business School’s Raymond Parsons said.
“Fresh opportunities are opening up and more things suddenly seem possible. This could enable SA to capitalise on the current economic recovery and convert it into the sustainable higher medium-term job-rich economic growth it needs.”
The improvement in sentiment towards policy reform comes as SA grapples with a devastating third wave of Covid-19 infections that caused a record 26,485 new Covid-19 cases being reported on Saturday, with total deaths climbing to 61,507. That is threatening to put a break on a gradual economic recovery after 2020’s disastrous 7% slump in GDP, the steepest decline in a century.
Improving economy
NWU said the improvement in policy uncertainty in the second quarter was driven by a moderate decline in media citations of the words “policy uncertainty”; a survey of economists that showed the majority felt uncertainty had declined compared with the first quarter; and a Bureau for Economic Research (BER) survey showing manufacturers experiencing policy or political uncertainty fell from 80 to 72.
NWU also cited the improving global economy that the IMF expects will grow 4.4% in 2021, with higher commodity prices and improved domestic GDP in the first quarter. SA’s economy grew an annualised 4.6% in the first quarter of 2021, slightly down from the 5.8% expansion in the fourth quarter of 2020.
The economic recovery is still seen as fragile as the Covid-19 pandemic continues to cause havoc and the state-led vaccine rollout lags that of other countries. Investec estimates that just more than 3-million vaccines have been administered in SA out of a population of 59.62-million. By contrast, total global vaccinations have reached 3.16-billion, or about 40% of the world’s 7.9-billion people.
Even so, Parsons said an economic growth rate of 5% for SA in 2021 is still possible and that several policy reform announcements by the government in recent weeks are “significant breakthroughs”.
Chief among those was the government’s surprise decision in June to raise the threshold for private companies to generate their own electricity to 100MW, from a previous cap of 1MW.
Anticorruption progress
Parsons also cited the government’s sale of a controlling stake in SAA and the creation of an independent ports authority as positive policy reforms.
“There is also tangible if slow progress on the anticorruption front,” said Parsons.
“Cumulatively, these factors have now combined to push the PUI on the verge of positive territory, by driving a wedge into the stalemate that seemed to have assailed the economic reform programme for so long.”
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