Policy uncertainty in SA increased to its highest level since 2016, according to North West University’s (NWU) Policy Uncertainty Index (PUI) released on Monday.
The NWU Business School’s PUI for the second quarter of 2022 rose to 60.9 from 59.7 in the first quarter.
The uncertainty was driven by the continued and heightened global economic unpredictability arising from the Russia-Ukraine war, which also reinforced some persistent domestic policy concerns.
“Eskom’s load-shedding in particular continues to loom large over SA’s economic activity,” said the NWU Business School’s professor Raymond Parsons.
Policy uncertainty affects growth, employment and investment.
An increase in the index beyond 50 reflects heightened policy uncertainty, while a decline means reduced uncertainty. The PUI is published in January, April, July and October of each year.
The measurement of policy uncertainty has important implications for business confidence and the investment climate.
Added to the load-shedding problems, the impact of escalating food and fuel prices, economic damage from the floods in KwaZulu-Natal, continued local government delivery failures and progressively higher borrowing costs for business and consumers as interest rates rise have also reinforced domestic economic uncertainty, he said.
The risks of social instability in the wake of food and fuel price hikes have also risen, he said.
Another source of uncertainty is expected to flow from political developments arising from factionalism and related issues in the ANC leading up to its electoral conference in December.
“The concern here is that volatile ANC politics over this period may delay the implementation of key economic reforms,” Parsons said.
Another growing concern is global ‘stagflation’ — a situation of high interest rates combined with slow growth and high inflation.
Weak data, particularly from the US, continues to create fears of a recession, creating volatility in financial markets.
Central banks are racing to adapt to a world of high inflation and weak growth with tighter monetary policies.
Global economic uncertainty remains high, as it seems no-one yet has a sufficient grip on how strong these unique inflationary pressures will eventually be, or their ultimate effect on growth, trade, jobs, and income.
Parsons said SA will have to better manage the new balance of risks, absorb the pressures, exploit any new opportunities, and offer a clear sense of economic direction.
“SA must craft and implement economic strategies that build resilience and can help to offset global headwinds,” he said.
He said even a small open economy like SA has some cards to play.
“Government finances are in better shape now to underpin the economy with appropriate anti-cyclical policies and projects which can strengthen economic resilience,” Parsons said.
“The rest of 2022 must see SA expedite the implementation of existing half-forged policies and projects that will assist in reducing economic uncertainty, strengthening investor confidence, and facilitating a policy environment that is solid, coherent and consistent,” he said.
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