Un­cer­tainty about pol­icy is mount­ing

Business Day - - FRONT PAGE - Neels Blom Writer at Large blomn@busi­nesslive.co.za

Un­cer­tainty about govern­ment pol­icy in SA rose sharply over the third quar­ter of 2017, giv­ing rise to con­cern over the coun­try’s eco­nomic health and ca­pac­ity to achieve higher and sus­tained growth.

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 North West Uni­ver­sity’s School of Busi­ness and Gov­er­nance shows that pol­icy un­cer­tainty has grown for five suc­ces­sive quar­ters and is 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 when it con­cerns in­vest­ment.

The busi­ness school’s Prof Ray­mond Par­sons said on Thurs­day that busi­ness usu­ally coped with a de­gree of un­cer­tainty, es­pe­cially when it 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.”

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, with a lower rat­ing in­di­cat­ing 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.

The cor­re­la­tion be­tween in­vest­ment prospects and pol­icy was 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 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 be­come, for the time be­ing, the new nor­mal, said Par­sons.

“How­ever, 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 faced his first big fis­cal pol­icy test with his medium-term bud­get pol­icy state­ment on Oc­to­ber 25. He must “at least give an up­date on his re­cent 14-point plan, with his dead­lines. He needs to prove his scep­tics wrong.”

Ray­mond Par­sons

Laura Camp­bell

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