"Policy uncertainty hits a record high". Is that a headline that induces panic, or one that needs perspective and remedies? After all, what goes up can come down.
The North-West University Business School’s Policy Uncertainty Index (PUI) for the third quarter of 2025 rose to a new high of 81.0 (baseline 50) from 75.9 in the second quarter. So, what is the vantage point here?
The index has been around for some years — mostly in negative territory, and therefore been an important metric companion of South Africa’s less-than-optimal economic performance in recent years.
The PUI was originally introduced because, from about the mid-2000s, hardly any economic assessment or media release about the South African economy from international or local financial institutions, business lobbies, economic analysts, financial journalists or credit rating agencies appeared that did not contain the words "policy uncertainty".
It was therefore regarded as helpful to develop an additional analytical tool that would fill a gap in the country’s monitoring of its socioeconomic environment, and which was derived from the best global uncertainty indices available.
Why does this matter? When policy uncertainty is a prominent feature of an economic environment, it lowers investment, employment and output.
Elevated levels of policy uncertainty inhibit meaningful investment and a willingness to employ. Firms postpone investment decisions, especially investment that entails high costs of reversal. The evidence in South Africa over the years indicated that persistently negative trends in the PUI, after a time lag, pointed to a weakening in the fixed capital investment needed to underpin higher, sustained, job-rich growth.
Even as the present economic recovery has unfolded, weak fixed capital formation has persisted and unemployment levels have become critical. Positive economic news was better-than-expected GDP growth figures for the second quarter of 2025. They confirmed the incipient economic recovery had not only accelerated but also broadened across several sectors.
Importantly, both household and government consumption spending provided firm support. The economic upturn, though still modest, is expected to continue in the months ahead, with growth of about 1%-1.2% now anticipated in 2025 as a whole.
But investment and consumption must have a balanced relationship to maximise longer-term economic growth. Fixed capital formation has not yet improved on a scale sufficient to ensure healthy growth.
A fixed capital investment ratio at about 20% of GDP is required to support the GNU’s growth target of 3% in the medium term. Instead, it is still only at about 14% of GDP. There are several positive economic platforms in South Africa on which to build much higher renewed growth, but the global and well-known domestic negative factors that continue to elevate policy uncertainty remain.
How can we bring the PUI closer to positive territory? On the international trade front, key South African exporters face 30% US tariffs, the expiry of the African Growth and Opportunity Act (Agoa), and a new trade deal with the US that is still pending. Diversification is inevitably the correct export path to follow, but it will take time. The economy must remain globally competitive to promote its market share wherever it wants to sell, as well as put its national economic interests at the centre of its foreign policy.
As a small open economy, we must also recognise the negative global factors over which South Africa has little control, despite the wish for continued multilateralism and wanting to clinch alternative trading arrangements.
In short, it means South Africa must minimise the impact of global economic shocks by better managing what it can control: strengthening domestic policy certainty. Though some progress has been made with growth-friendly economic and governance reforms, the implementation processes now need much more urgency, pace and direction. We must try to get more things right the first time around. The medium-term budget next month must not become another casualty of a political saga like the main one was earlier this year. Growth-oriented reforms should be irreversible. In the coming year, a sufficient number of firms must feel that economic and political prospects in South Africa justify fresh plans for expansion. A boost in investor confidence requires a clear and predictable policy environment that enables business to take a long-term perspective on growth and development.
• Parsons is a professor at the North-West University Business School
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