Businesses in South Africa are feeling a bit more confident about the country’s policy direction as a result of structural reforms embarked on since the formation of the Government of National Unity (GNU), and the continuing suspension of load shedding.
This is revealed in the North West University (NWU) Business School Policy Uncertainty Index (PUI) for the third quarter of 2024 published on Monday, which has substantially eased to 53.5 points from 68.3 points in the second quarter, but still remains above the baseline of 50 points.
NWU Business School economist, Professor Raymond Parsons, said the considerable easing was the outcome of various positive factors that, on balance, outweighed the negative ones over the past three months.
Parsons said that to a large extent, this reflected the blend of reduced political uncertainty and the better business mood created by the formation of the GNU, and the receding Eskom load shedding since March this year.
“Although still in negative territory, after several years of an elevated trend, the PUI is again on the cusp of positive territory,” Parsons said.
“To a large extent, the lower 3Q 2024 PUI calibrated the blend of reduced political uncertainty and better business mood recently created by the GNU and the phasing out of Eskom load shedding since March 2024.”
He said that in interrogating the PUI since its inception in 2015, two important cautionary aspects were relevant.
“In the first instance, for most of the period, the PUI has been in negative territory. And then, the periods of lower and better policy uncertainty levels have also been relatively short. Recent positive perceptions around political and policy stability were generated as the formation of the GNU started to make its influence felt in 3Q 2024,” Parsons said.
“All parties involved in the GNU are committed to expediting critical economic reforms and maintaining a sound macroeconomic framework. It is generally acknowledged that the more the GNU can demonstrate it is doing things differently and well, the better it will be for SA’s economic performance.”
According to the index, despite recent mixed high-frequency data, various surveys (including the PUI) now reflected a general upbeat sentiment over future business conditions.
Also on the positive front, economic growth of 0.4% for the second quarter, although modest, was said to suggest that renewed energy security had helped the country’s growth performance to cross a key threshold, so business and consumer confidence subsequently began to strengthen, but SA was nonetheless still in the foothills of economic recovery for now, and that the GNU was right to make inclusive job-rich growth its top policy priority.
The index lamented the fact that growth in SA had been too low for too long.
Despite the broadly positive global economic outlook, there remained widespread underlying concerns about rising international protectionism, geopolitical tensions, domestic politics, debt levels, and social polarisation, making the world economy more vulnerable, fragmented and uncertain.
According to the PUI, a weak link in SA’s growth prospects continued to be the lessening in total gross fixed capital formation (GFCF), which has declined for four consecutive quarters.
Parsons said the economy, therefore, was not on ‘cruise control’, and there remained risks to the country’s growth prospects.
“For now, SA is still in the foothills of economic recovery. Further steps are still required to consolidate and accelerate the implementation of economic reforms, to move the PUI definitively into positive territory, and hence boost investor confidence,” Parsons said.
He added that staying on the right economic track was now crucial.
“Key growth-friendly reforms, policies and projects, therefore, still need to be expedited by the GNU, in collaboration with the private sector where necessary, to build on the better business mood and secure a higher, inclusive and sustainable growth path for SA.”
BUSINESS REPORT