As a result of various economic and political factors over the past three months, which generated a renewed degree of policy uncertainty, the North-West University (NWU) Business School’s Policy Uncertainty Index (PUI) rose to 51 index points in the second quarter, compared with 49.6 in the first quarter.

This rise in the PUI, Professor Raymond Parsons suggests, may be reversible, provided more tangible evidence begins to emerge that the structural reforms needed to see South Africa exit its low-growth trap are being implemented.

How the land reform issue is managed will be an important determinant of future levels of policy uncertainty and investor confidence, while a sustained strengthening in investor and business confidence depends on both economic recovery and structural reform, he points out.

However, Parsons warns that the official emphasis on rebuilding investor confidence remains key to South Africa raising its game in a highly competitive world.

The prospects for a global trade war and higher global interest rates, he adds, may also create headwinds for the South African economy, in general, and its currency, in particular.

“The more South Africa’s house is in order, the better its ability to manage any global economic headwinds.”

According to the PUI, S&P Global Ratings and Fitch have both left South Africa’s rating at subinvestment grade with a stable outlook.

“Both credit rating agencies recognised the recent positive political changes, but believe that South Africa still faces considerable economic and social challenges,” the index notes, stating that these assessments imply that the negative growth figures for the first quarter suggest that the country’s growth challenges are more formidable than originally thought.

The continued problems at State-owned enterprises like Eskom, with its financial and management challenges, industrial conflict and renewed load-shedding, have also detracted from the initial euphoria around political change in South Africa.

Since the start of this year, both business and consumer confidence have sagged, the index laments.

“The climate of policy uncertainty has been buffeted by a cross-current of positive and negative factors in the past quarter, which eventually contributed to subsequent lower confidence levels.”

According to ratings agency Moody’s, South Africa’s growth prospects will be limited by weak business confidence, while uncertainty around land and mining reforms remains a concern for investors.

Further, the PUI notes that, on the one hand, business and consumer confidence was initially boosted by the political changes that took place and the election of Cyril Ramaphosa as President of South Africa in mid- February, leading to a generally more positive national mood.

There have also been various initiatives taken by the new administration in the past few months to address State capture and other forms of widespread corruption. This all led to a so-called ‘Ramaphoria’ for a while, which now appears to be wearing off.

The index also states that, while some recent policy developments contain genuine and necessary elements of reform and transformation, several also lead to greater uncertainty.

These include issues such as land reform, the revised Mining Charter, the National Health Insurance proposal, the continuing Eskom saga and political factionalism.

These factors, the PUI indicates, are not all of immediate or equal importance to the policy environment, but their simultaneous impact might explain the persistence of an undercurrent of policy uncertainty in South Africa and why the PUI has moved back into negative territory.

“It is inevitable that a period of political and economic change will produce an initial ebb and flow in the level of policy uncertainty.”

However, the NWU Business School states that the 2018 second quarter PUI move into negative territory could well be temporary and reversible.