SA’s policy uncertainty index score worsens ahead of key election

President Cyril Ramaphosa during the Mayihlome Rally manifesto launch at Moses Mabhida stadium. Photo: Khaya Ngwenya / Independent Newspapers

President Cyril Ramaphosa during the Mayihlome Rally manifesto launch at Moses Mabhida stadium. Photo: Khaya Ngwenya / Independent Newspapers

Published Apr 3, 2024


The uncertainty around South Africa’s 2024 elections has started to weigh down on investors and markets, with the North West University’s Business School Policy Uncertainty Index (PUI) for South Africa edging further into negative territory for the first quarter of the current year.

Opinion polls and analysts say the governing ANC will require a coalition to retain its mandate, although Standard Bank analysts say President Cyril Ramaphosa’s party will garner sufficient votes to avoid a coalition.

Nonetheless, the South African environment ahead of the elections has started to weigh on investors and markets, notes the North West University’s PUI released yesterday.

Its PUI index for South Africa for the first quarter accelerated further into negative territory, worsening from 65.5 to 65.8.

“Not unexpectedly, the uncertainty around SA’s 2024 election dynamics and outcomes next month is now also weighing on investors and the markets,” noted the index report.

This was mainly because the South African political environment ahead of the key poll is “generally more competitive and volatile due to new opposition formations”, while “individual candidates may now participate in the proportional electoral system without belonging” to a political party.

Additionally, current support patterns suggest “a governance shift into coalition territory” at both national and provincial levels.

This was bringing “much unpredictability and instability to local government and metro-politics”, added the report.

Tatonga Rusike, Sub Saharan Africa economist for Bank of America, said last week that “eventual coalitions (were) likely to involve the ANC” with the “status quo on economic policy remaining” in place.

The North West University’s PUI is calculated as the net outcome of positive and negative factors influencing the calibration of policy uncertainty over a particular period.

During the first quarter period of 2024, media data collected by the university “reflected a decline in references to policy uncertainty” while “the survey of economists assessed that uncertainty had increased, specifically caused by politics and uncertainty facing consumers” in South Africa.

“The University of Stellenbosch’s Bureau for Economic Research survey of manufacturers experiencing policy/political uncertainty rose from 82 to 85.”

According to the North West University Business School, “the uncertain political outlook has led to a tangible precautionary stance among investors and the markets” in South Africa.

This at a time that the South African economy has continued to grapple with headwinds to the extent that gross domestic product growth (GDP) is likely to be about 1% in 2024, with economic recovery largely expected to be uneven as household finances remain under strain.

On the upside for South Africa ahead of the election, a number of important reform initiatives are “already evident in some key policy areas” that include energy, logistics and transport. These could make up key tailwinds to drive this year’s growth prospects for South Africa.

“While there is still a long road ahead, the B4SA partnership in these priority areas is reported to be achieving sustainable momentum.

“The role of policy uncertainty has loomed large in much of the recent economic debate in SA. It is seen to have important implications for business confidence and the investment climate in the country,” noted the index report.

During the first quarter period under review, a series of events and trends converged to influence economic perceptions. These include Ramaphosa’s State of the Nation Address, the Budget, two Monetary Policy Committee meetings, the poor fourth quarter GDP growth figures, as well as the pending elections set for the end of next month.

“The rise in the 1Q 2024 PUI was, therefore, the outcome of negative factors that, on balance, outweighed the positive ones to edge the index further into negative territory.”

The recent poor performance of gross fixed capital formation (GFCF), especially that of private fixed investment, has also been singled out as particularly worrisome.

Various surveys such as the recent Absa manufacturing sector survey confirm the recent loss of momentum in South Africa’s private fixed investment activity.

“This is where economic uncertainty, eroded business confidence and delayed or postponed investment decisions intersect to weaken the growth outlook. SA needs strong investment-led growth to drive its economy,” said the index report.