Investor wariness soars on Policy Uncertainty Index
The index by NWU School of Business and Governance reflects fear around recent changes in government policy
Recent changes in government policy are driving a sharp incline in uncertainty among investors‚ an index published by North West University (NWU) shows.
On Thursday, the NWU School of Business and Governance released the Policy Uncertainty Index (PUI) for the first quarter of 2017.
Professor Raymond Parsons‚ who established the index, said recent political events had caused the sharpest single increase in the index since its inception in 2015.
Uncertainty over the term "radical economic transformation" was "slow poison" for investor confidence‚ said another NWU professor‚ Waldo Krugell‚ who helped Parsons establish the index.
The PUI for January to March 2017 increased to 51 from 38.8 for the final quarter of 2016.
Parsons said the index was based on three pillars: media data‚ specifically articles mentioning policy uncertainty; a survey taken by economists from around the world; and figures from the Bureau of Economic Research at the University of Stellenbosch on the number of manufacturers who had indicated they believed politics constrained business.
At a media briefing in Johannesburg‚ Parsons and Krugell said the PUI was based on similar indices in countries such as the US. "We drew from those indices and adapted ours to better suit SA‚" Parsons said.
"The results for the first quarter of 2017 show an average index score of 51‚ reflecting a sharp rise over the PUI of 38.8 of the last quarter of 2016‚" he said. This figure puts the PUI‚ which works on a baseline of 50 points‚ back in negative territory for the first time since September 2016.
From its base of 50‚ the PUI spiked to 55.4 in the fourth quarter of 2015 as a result of "Nenegate"‚ when President Jacob Zuma fired then finance minister Nhlanhla Nene. It then dropped slightly to 53.1 in the first quarter of 2016 after Pravin Gordhan’s budget speech.
The index dropped to 52.5 in the second quarter of 2016 after Gordhan managed to steer the country clear of credit rating downgrades and dropped further to 46.5 after Gordhan presented his midterm budget in the third quarter. In the fourth quarter, the index dropped to 38.8.
Parsons detailed some of the factors that have influenced policy uncertainty in 2017‚ such as the global economic outlook‚ the national budget and the ANC policy document released ahead of their December national conference — and, of course‚ the economic effect of the cabinet reshuffle and the subsequent credit ratings downgrade.