With less than three days before the deadline to renew the African Growth & Opportunity Act (Agoa), SA’s failure to secure a trade deal with the US has put policy uncertainty in the limelight for local economists.
A report by the North-West University Business School found that policy uncertainty surged to its highest level since 2016 in the three months to end-September, measured by how frequently “uncertainty” is mentioned in the media as well as by surveys of economists and manufacturers.
Prof Raymond Parsons attributed the clouded outlook largely to the deterioration of Pretoria-Washington relations, with SA facing a 30% tariff on its exports to the US since August. This left some manufacturers at a disadvantage in the third quarter, particularly in the agricultural, automotive and other export-oriented sectors.
The latest RMB/BER business confidence index showed a sharp drop in sentiment among companies and consumers in the third quarter, with water shortages and other local structural constraints adding to the global headwinds for manufacturers, retailers and wholesalers.
The uncertain outlook has also put a damper on investment, resulting in persistently weak fixed capital formation, with survey data from Nedbank pointing to a sharp decline in fixed investment projects in the first half of the year.
“It is important that in the coming year a sufficient number of firms feel that economic and political prospects justify their making fresh plans for expansion,” said Parsons. “Total fixed investment is only about 15% of GDP but SA requires it to be closer to 20% if the government of national unity’s growth target of 3% in the medium term is to be achieved.”
Also at play is uncertainty around the prospect of SA lowering its inflation target, a move that Reserve Bank governor Lesetja Kganyago has called for repeatedly this year. The National Treasury has yet to declare a formal policy shift, but the Bank at its July monetary policy committee meeting signalled a firm intention to anchor inflation at 3%.
Parsons argued that “markets and business need to see renewed convergence of official views around the inflation target framework” in order to provide predictable trajectories and trends in borrowing costs for business and consumers.
There also needs to be a stronger perception of irreversibility to create policy certainty. Irreversibility of growth-oriented reforms means not only being satisfied with immediate better arrangements, but ensuring that the leadership, structures, capacity and culture are in place that will guarantee the right trajectory of results for the foreseeable future,” he said.
Despite persistent regulatory uncertainty, the Reserve Bank has been optimistic about SA’s economic outlook, recently revising up its 2025 growth forecast to 1.2% from 0.9% . The latest inflation data showed that August’s consumer inflation eased to 3.3% year on year from 3.5% in July, while core inflation remained at 3.1%.
All eyes are now on finance minister Enoch Godongwana’s medium-term budget policy statement on November 12, which should provide further clues to SA’s economic future.
The US has not yet indicated whether it will renew Agoa, despite President Cyril Ramaphosa warning SA will diversify its trade partners.
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