The North-West University (NWU) Business School's Policy Uncertainty Index (PUI) improved to 55.2 in the first quarter of this year, from 56.7 in the fourth quarter of 2020, but remains elevated and well in negative territory.
Negative factors that kept the first-quarter PUI in negative terrain include pervasive uncertainties, such as perceived implementation risks around key policy commitments set out in the State of the Nation and the national budget.
There is also a risk of a resurgence in infection rates resulting in stricter lockdown measures, and uncertainty about the adequate supply and roll-out of vaccines needed to inoculate the bulk of the South African population within definitive timelines.
Further, the decisions by global credit rating agencies about South Africa's international investment grading remain uncertain in view of doubts expressed by Moody’s Investors Service and Fitch Ratings about South Africa's fiscal trajectory as outlined in the recent national budget.
Additionally, persistent constraints on domestic electricity supply through continued load-shedding, which is likely to persist for another five years according to State-owned power utility Eskom CEO Andre de Ruyter, and a general lack of energy security remain as risks.
"However, there have been potentially positive developments on the energy front, with additional scope being granted to independent power producers. Increasing private sector investment in embedded generation is the only way to reduce the continued high risk of load-shedding in the short term. The latter has had a highly negative impact on investor and business confidence, especially the disruption of small businesses," the business school states.
Also on a positive note, the State of the Nation address and the national budget in February sought to nudge the policy framework towards a more growth-oriented stance within the new Economic Reconstruction and Recovery Plan (ERRP), as well as dealing with the ongoing pandemic, says NWU Business School Professor Raymond Parsons.
"Even with the renewed partial lockdown in early January, there was accumulating evidence recently that South Africa’s economic growth would firmly rebound back into positive territory in 2021 from its devastating -7% gross domestic product (GDP) growth last year. Exports have also been doing well.
"Various authoritative analysts have begun to revise their forecasts of GDP growth for 2021 upwards, with a recent private sector one even as high as 5%. The Reserve Bank's Monetary Policy Committee (MPC) at its meeting on March 25 also raised its GDP forecast for 2021 from 3.6% to 3.8%. With inflation contained and the MPC again keeping the repo rate unchanged, present indications are that borrowing costs are likely to remain low and stable for now."
There are other moves on the infrastructural front which promise positive outcomes in due course, as public and private investment need to move in tandem to promote higher levels of growth and job creation. The MPC statement on March 25 warned that sharply lower public and private investment last year and continued weakness this year would weigh on growth prospects, the business school notes.
Further, a recent Business Leadership South Africa study confirmed that the key to lifting declining levels of investment in infrastructure was to boost public-private partnerships.
"The efficacy and success of Operation Vulindlela as a ‘delivery unit’ to support the President and the Cabinet to accelerate the implementation of priority structural reforms is, therefore, an essential requirement. It remains necessary to create an investment-friendly policy environment to underpin future growth, based on an implementation-led recovery. The challenge now is to convert the anticipated short-term economic recovery in 2021 into sustained job-rich growth in the period ahead.
"Especially from a business point of view, the more the ERRP and its key components are seen to be consistently and coherently implemented as a definitive growth plan, the more it becomes possible to move the PUI closer to positive territory. The ERRP now gives SA its best opportunity to improve the investment climate and get the economy on a higher job-rich growth path in the years ahead," Parsons says.
Reducing policy uncertainty requires creating a credible macroeconomic environment that provides a stable outlook for investors, consumers and workers. The PUI can potentially therefore respond positively to policy shifts that build certainty and renew confidence, he adds.
"South Africa needs an implementation-led recovery that reduces policy uncertainty, promotes investment and boosts job-rich growth."