South Africa’s upcoming national elections pose a major risk to the local economy, with policy uncertainty remaining elevated and investors wary of investing in the country entering uncharted political waters. 

This risk was highlighted by the North-West University (NWU) Business School in its policy uncertainty index, which remained high in the fourth quarter of 2023. 

Policy uncertainty is a major issue in South Africa as it has severe implications for business confidence and the investment climate in the country. 

In its report, the NWU Business School said there are strong correlations between policy uncertainty and negative economic outcomes. 

High levels of policy uncertainty lower investment, employment and, subsequently, economic output. This results in sluggish economic growth in South Africa. 

Levels above 50 on the policy uncertainty index (PUI) reflect heightened policy uncertainty, while levels below 50 indicate that uncertainty is decreasing. 

For the fourth quarter of 2024, the PUI lowered to 65.5 from 71.8 in the third quarter. Only when positive forces significantly outweigh negative ones will the PUI drop below 50. 

Decreasing inflation and the Reserve Bank keeping interest rates unchanged pushed down the PUI, along with positive developments in the global economy and free trade in Africa through the expected extension of a trade agreement with the United States beyond 2025. 

The US pledged its support for renewing these tariff concessions for Africa. In particular, the report said that US-SA economic diplomacy also seemed to be put back on a more constructive basis. 

However, major negative forces remain, such as load-shedding, the ongoing crisis at the country’s ports, and South Africa’s stagnant economy.

Another source of policy uncertainty has been the serious deterioration in South Africa’s public finances during 2023, outlined by the Finance Minister in the Medium-Term Budget Policy Statement (MTBPS). 

While South Africa prepares to calibrate its policy uncertainty, a major risk factor looms on the horizon – the 2024 general elections. 

SARB Governor Kganyago and other experts have identified the elections as a key threat to the nation’s economic stability. 

As Kganyago explained in a recent City Press interview, “Politicians adopting a populist tone ahead of the vote could create uncertainty among foreign investors, discouraging investment in South Africa.” 

This concern isn’t unfounded, as global research indicates that policy uncertainty indices often rise significantly during election periods. South Africa is unlikely to be an exception to this trend.