Policy confusion continues to rise amid ANC chaos
The latest Policy Uncertainty Index shows policy uncertainty is at its highest since 2015 — and ‘business strongly dislikes a climate of uncertainty’
Uncertainty about government policy in SA rose sharply over the third quarter of 2017, giving rise to concern about the country’s economic health and capacity to achieve higher and sustained growth.
The latest Policy Uncertainty Index, produced by the North West University’s School of Business and Governance, shows that policy uncertainty has grown for five successive quarters and is now at its highest level since the fourth quarter of 2015.
The index measures the degree to which the negative effect of uncertainty about government policy increases the difficulty of making business decisions, notably about investment.
The business school’s Prof Raymond Parsons said on Thursday that business usually coped with a degree of uncertainty, especially that which was beyond the control of policy makers, but found it very difficult to manage an environment of eroding and constantly changing government policy.
"Business can even handle some negative certainty, say a nationalisation policy, because at least they know what to do. But business strongly dislikes a climate of uncertainty."
It had been shown empirically that when policy uncertainty was strong, it lowered investment, employment and output.
The index is compiled from three surveys: a questionnaire put to economists; a review of a survey of manufacturers by Stellenbosch University’s Bureau for Economic Research; and a review of the media. The index is based to 50, in which a lower rating indicates diminishing uncertainty and a higher score increasing uncertainty. The rating for the third quarter of 2017 is 53.6, up from the second quarter’s 53.1. In the third quarter a year ago, the index stood at 46.5.
The correlation between investment prospects and policy were clear, said Parsons. It had been shown empirically that when policy uncertainty was strong, it lowered investment, employment and output.
He cited the movement of the index in the fourth quarter of 2015 to its highest level of uncertainty following the dismissal of then finance minister Nhlanhla Nene. The index then fell substantially and steadily under former finance minister Pravin Gordhan, and to its lowest level yet in the fourth quarter, when a much-feared investment downgrade was averted.
Policy uncertainty had, for the time being, become the new normal, said Parsons. "However," he said, "business strategies can and must be adapted to accommodate the reality."
Econometrix economist Laura Campbell agreed with the assessment. "I am not surprised at all with the index’s rating. There is so much political noise going on about the ANC elective conference that there can be no certainty about which way policy will develop.
"The question is, how will the government get anything done when there is so much turmoil within the party. There is great uncertainty about whether the government will be able to implement the structural reforms that are necessary for the economy," she said. "Business is concerned over the likelihood of further credit downgrades if these structural reforms are not implemented."
Parsons said Finance Minister Malusi Gigaba faces his first major fiscal-policy test with his medium-term budget policy statement expected on October 25. "[The minister must] at least give an update on his recent 14-point plan, with his deadlines. He needs to prove his sceptics wrong," he said.
"Above all, Gigaba must ensure the message of the [the budget policy statement] is credible and builds confidence about the road ahead for the economy in ways that would reduce policy uncertainty."