Elections 2024: The economic impact of policy uncertainty

The North-West University Business School’s Policy Uncertainty Index (PUI) for South Africa edged further into negative territory for Q1 2024. But South Africa is no stranger to policy uncertainty – the PUI has mostly been in negative territory since its unveiling eight years ago by the university.

The more uncertainty there is in South Africa about anything – from the government’s energy policy and regulatory framework to its foreign policy – the more difficult things become from an economic and business perspective. And elevated policy uncertainty inevitably hampers both foreign and domestic investment as major drivers of job-rich growth.

My contribution to a recently launched, multi-authored book, Tipping Point: Turmoil or Reform – South Africa’s Political Economy after 2024, takes a timely look at the dynamics surrounding SA’s watershed 2024 election on 29 May and what may lie ahead.

All the evidence points to a distinct breaking (to a lesser or greater extent) of the mould in which the country’s politics have been cast since 1994.

The wide range of persuasive opinions offered by political pundits on its pages around the outcome of the election is a testimony to the level of uncertainty swirling about in the current political climate.

Fittingly, in the final chapter of the book, written by myself and titled, “South Africa: Grappling with the ‘Age of Uncertainty’ ”, I unpack political and policy uncertainty and how it negatively impacts the economy, investor sentiment and economic growth, in which business has a big stake.

Elections and policy uncertainty

With the 2024 election looming, the calibration of policy uncertainty in the PUI has been complicated by the unusually high levels of speculation (often of the gloomy variety) surrounding the event. Not unexpectedly, business confidence has been brittle in recent months.

The uncertain political outlook, prompting caution among investors and markets, has been well captured in recent PUIs. Today, the political environment in SA is highly competitive and volatile in the wake of new opposition formations with several surveys predicting major shifts in voting behaviour nationally and provincially on the 29th of May.

In particular, signs are pointing to a governance shift into coalition territory, which has (so far) brought much unpredictability and instability to local government and metro politics. Various opinion surveys also suggest that coalition governance could take root in three key provincial economies – Gauteng, KwaZulu-Natal and the Western Cape. According to Stats SA, these three provinces account for about 63% of SA’s gross domestic product (GDP).

Adjusting to the norms and conditions for successful and stable (new) coalition arrangements at all levels of government will involve a steep learning curve. It will also be a stern test of the responsible political leadership that will be needed to navigate a different set of governance circumstances.

And despite the inevitable “horse trading” that will take place after the election, governance arrangements will still need to be reimagined to ensure stability. “Good economics” needs to be accompanied by “good politics” after 29 May if SA is to stand any chance of achieving a bigger, stronger and better economy.

SA economy: beyond the 2024 elections

However, perspective is needed. Although excessive policy uncertainty brings with it heavy costs, it doesn’t mean that South Africa’s economy will grind to a halt when uncertainty rises. Many businesses have become quite adept at coping in a climate of uncertainty, using a variety of strategies and remedies.

On that note, Tipping Point offers a 12-point indicative plan on how the public and private sectors can minimise uncertainty. In essence, organisations need to be adaptable and flexible, using innovative and even unconventional tactics to achieve this. Those that are best able to anticipate and manage the relevant risks and opportunities emanating from a changing political environment will have an all-important competitive edge.

If organisations’ best forecasts turn out to be quite wrong, they nevertheless need appropriate fall-back options. Adaptation, after all, is about survival. Survival involves finding not necessarily the best solution but the one that is good enough. Survival, in turn, demands a range of coping skills that need to be continually deployed in SA today.

The ultimate question is not whether South Africa’s economy will adjust to possible political economy shifts after the 2024 elections, but rather how quickly and how well it will do so. How informed and flexible businesses are will be key factors in this regard.

The 2024 elections will soon come and go. The PUI will remain a major tool for business decision-makers to assess whether our future political economy will provide a clear and predictable policy environment that enables businesses to adopt a long-term perspective on growth and development.