The North-West University’s School of Business and Governance’s Policy Uncertainty Index for the fourth quarter of 2017 rose to 55.4, up from the 53.6 it recorded in the previous quarter.
Speaking at a media briefing in Johannesburg, Professor Raymond Parsons noted that this decline into negative territory brought the index back to its ‘Nenegate’ level in the fourth quarter of 2015.
Parsons attributed the increased uncertainty to two major factors, “the shock” of the medium-term Budget speech in October and the political uncertainty around the African National Congress’s (ANC’s) elective conference in December.
Further, the narrowness of the ANC leadership victory by Deputy President Cyril Ramaphosa and questions around the solidity of his mandate, risks of uncertainty from the two centres of power and populist policy decisions were also contributing to greater policy uncertainty.
While noting that the country now had new grounds for cautious optimism, particularly as decisions were being made around struggling State-owned parastatals, there were still key concerns. Parsons pointed out that ratings agency Standard and Poor’s Konrad Reuss had warned that none of the major issues of concern outlined in its November downgrade had been dealt with.
“The present positive market responses in the first quarter of the year, owing to political developments, therefore have limited shelf-life, until more decisive action emerges. The challenge is, how rapidly the South African economy can turn around to take advantage of these developments,” said Parsons.
Looking ahead, individuals and businesses could possibly still face substantial uncertainty from a host of tax decisions in the upcoming budget, which would be influenced by political factors.
“On the revenue side there are serious problems and now you have four major problems in the budget that need to be balanced out – free higher education, nuclear power, public sector wages and State-owned enterprises.”
He added that, while Finance Minister Malusi Gigaba had assured that government would not give Eskom another cent, this created problems in itself, as this once again raised questions about the need for further tariff increases.
“You have an economy that is beginning to recover, but threatened government spending cuts and [rising] tax are a very difficult balance to keep,” Parsons said, noting that Gigaba would face some significant challenges during his Budget speech.
Gigaba needed to ensure that the message of the Budget was credible and built confidence for the road ahead for the economy which would further reduce policy uncertainty and avoid universal junk status, he added.
“There is now real opportunity to dissipate clouds of uncertainty which have been hanging over the economy,” Parsons concluded.