SA’s policy uncertainty index edged further into negative territory in the first quarter as the doubt around SA’s 2024 election dynamics and outcomes next month started to weigh on investor confidence and financial markets, the North West University’s policy uncertainty index showed.
The index was also affected by geopolitical risks in the first quarter, a move that saw policy uncertainty rise slightly from 65.5 in the fourth quarter to 65.8 in the first quarter of 2024.
North-West University professor Raymond Parsons said the Red Sea shipping disruptions in the first two months of 2024 in particular caused Suez Canal trade to drop by 50% from a year earlier, while trade through the Panama Canal fell 32%, obstructing supply chains and disturbing macroeconomic indicators.
“A cross-cutting number of events and trends converged to influence economic perceptions in the first quarter of 2024,” Parsons said.
“These included the state of the nation address, the budget, two MPC meetings, the poor fourth quarter GDP growth figures, and, importantly, the pending elections on May 29.”
He said the rise in the first quarter policy uncertainty index was, therefore, the outcome of negative factors that, on balance, outweighed the positive ones to edge the index further into negative territory.
The first quarter reading remains above the baseline of 50, reflecting heightened policy uncertainty, which carry potential implications for business confidence and investment climate.
Parsons said until inflation falls to the midpoint of the Reserve Bank’s target range of 3%-6%, interest rates will stay high for longer. He said the 2024 budget on February 21 recognised the overall need to slow the growth of national debt and lower its cost.
Another positive mentioned are 12 key infrastructure projects, which were recently announced to promote both public and private sector-driven development across various sectors, including transport, energy and agriculture. Successful business-government collaboration on the implementation front also has the potential to reduce policy and project uncertainty, Parsons said.
He said the number of reform initiatives already evident in some key policy areas such as energy, logistics and transport, and crime and corruption, could become important tailwinds to drive this year’s growth prospects.
“The role of the private sector here remains indispensable. If steadily and visibly implemented, the reforms are the steps now needed to build SA’s economic resilience, irrespective of the 2024 elections,” he said.
But even with all these positives, the growth outlook for SA in 2024 remains murky. Elevated policy uncertainty remains a serious obstacle to much higher investment, growth and job creation.
Parsons said of particular concern is the recent poor performance of gross fixed capital formation, especially that of private fixed investment. SA needs strong investment-led growth to drive its economy.
“This is where economic uncertainty, eroded business confidence and delayed or postponed investment decisions intersect to weaken the growth outlook,” he said.
Parsons said looming over the usual calibration of policy uncertainty, nevertheless, are now the risks arising from the pending SA general elections next month
“Global research shows that, in many countries, policy uncertainty indices tend to spike when elections are due,” he said.
He mentioned five specific factors that when combined, raise the level of uncertainty surrounding the 2024 election outcomes.
- Several recent polls say the support for the ANC governing party is likely to dip below 50% nationally and provincially.
- The political environment is generally more competitive and volatile due to new opposition formations.
- Individual candidates may now participate in the proportional electoral system without belonging to a political party.
- Current support patterns suggest a governance shift into coalition territory at both national and provincial levels, which has so far brought much unpredictability and instability to local government and metro-politics; and
- Political analysts and recent opinion surveys remain strongly divided on the likely election outcomes.
Parsons said the challenge of coalition arrangements at various levels of governance must be successfully addressed and governance frameworks need to be reimagined.
“It remains to be seen what governance solutions could emerge to deal with a likely shift in SA’s political economy. Although the economy will still nevertheless continue with its daily activities, political factors have now induced a tangible precautionary stance among investors and the markets,” he said.
He added that the prospect of political shifts in SA after 30 years of dominance by the ANC governing party has opened up several new areas of uncertainty not experienced since 1994.
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