Policy uncertainty, the economy and business

Elevated policy uncertainty acts as a tax on investment. In 1921, Frank Knight made a basic conceptual distinction between risk and uncertainty. In a market context, risks can be hedged through the use of different instruments, yet in the policy context, uncertainty makes waiting and seeing an option with value. However, this can come at a high economic cost. The academic analysis of policy uncertainty is today an active field of research globally. Some papers have been published in this regard, each using different approaches to measure macroeconomic and policy uncertainty. In 2015, the North-West University Business School (in conjunction with the School of Economics) pioneered the creation and publication of a Policy Uncertainty Index (PUI) for South Africa, which has since then captured the impact of key events – from ‘Nenegate’ to ‘Ramaphoria’. This paper presents an analysis of policy uncertainty in South Africa and how the PUI has contributed to an understanding of the economic environment in which business operates, with a specific focus on investment. The paper’s contribution lies in the unique context that it creates – where policymaking is more performative than evidence-based and there is a perennial tug of war between the state and market forces, against the backdrop of South Africa’s mixed economy.