President Cyril Ramaphosa. Picture: Bongani Mbatha/ African News Agency(ANA)

JOHANNESBURG – The upcoming State of the Nation address (Sona), national Budget presentation and May elections would have significant sway on policy certainty after the fourth quarter policy uncertainty index remained in negative territory.

NWU Business School Policy Uncertainty Index (PUI) released on Friday showed an average score of 51.1 points in the last three months of 2018, down from 52.2 points in the third quarter. NWU School of Business economist Raymond Parsons said regulatory uncertainty must continue to be addressed.  

“There need to be profound and lasting changes in several key areas of policy, at least after the elections, to address the persistent low growth, high unemployment and sizeable contingent liabilities which weigh heavily on South Africa's fiscal prospects and debt burden,” Parsons said. “The bad news is that, although the economy appears to have reached a lower turning point, 2019 may not bring the desired level of political and policy certainty which the economy needs.”

Other issues highlighted by the PUI are the impact of the forthcoming Sona and national Budget in February on the policy environment and investor confidence.

Insight into the country's financial position will likely be revealed in the national Budget speech in February.

Finance Minister Tito Mboweni is set to walk a fiscal tightrope as debt servicing costs, contingent liabilities and the public wage bill all need to be met with limited resources.

The South African Reserve Bank last week flagged the weak performance of fixed capital formation and its implications for future growth performance.

Mamello Matikinca-Ngwenya, chief economist at FNB, said the weak economic growth was underpinned by weak overall business confidence and fixed investment. “The entrenched weakness in business confidence bodes ill for the fixed investment outlook, while possible extensions of electricity supply constraints are a looming threat,” Matikinca-Ngwenya said.

The PUI further said the degree to which inconsistent policy signalling around issues such as Eskom finances, the extent to which the nascent economic recovery is underpinned in the months ahead by appropriate monetary, fiscal and other policies would be instructive to business sentiment.

Tumisho Grater, economic strategist at Novare, said one of the key aspects to consider is the trajectory of the rand exchange rate which remains vulnerable to both domestic and international factors.

“This year, policy uncertainty from a political, monetary, fiscal and trade is likely to see the local currency display a fair amount of volatility. The international policy landscape will also remain eventful,” Grater said.

“A close eye will also be kept on local politics in the lead-up and outcome of the general elections and what the outcome means for the country and the implementation of the much needed growth-enhancing reforms.”

Uncertainty over the country's monetary policy has already gained traction after the ruling party said it wants the mandate of the reserve bank to include a focus on job creation and economic growth.

The land reform process the country has embarked on has also weighed down confidence in the key agricultural sector.