“South Africa’s reform completion index fell to 71.1 in Q2 2026, marking the first negative momentum since tracking began in 2024. While governance reforms showed modest improvement, energy sector setbacks and declining confidence in AI governance principles have cast doubt on the country’s ability to sustain business policy progress.”
South Africa’s business policy landscape has reached a critical juncture. The Business Leadership South Africa (BLSA) Quarterly Review for July 2026 reveals that reform momentum has turned negative for the first time in over two years. This development signals potential challenges for the country’s economic trajectory, investor confidence, and long-term competitiveness.
Reform Index Decline
- The reform completion index dropped to 71.1, down from 71.7 in the previous quarter.
- Although still 26% above the baseline established in March 2024, the decline represents a reversal in momentum.
- Of 172 deliverables tracked, 13 improved, 20 declined, and 139 remained unchanged.
Sectoral Breakdown
- Economic reforms: Fell by 1.1%, largely due to setbacks in energy sector deliverables.
- Criminal justice reforms: Declined by 0.8%, reflecting slower progress in institutional strengthening.
- Governance reforms: Improved by 1.3%, driven by the Public Service Amendment Act.
This mixed performance underscores the uneven pace of reform implementation across different policy areas.
Energy Sector Challenges
Energy reform remains the most pressing issue.
- Virtual wheeling protocols dropped sharply from 100 to 81.25 points.
- Delays in Independent Power Producer (IPP) bid windows have slowed progress.
- Eskom’s efforts to secure 27 distribution agency agreements are ongoing but face bureaucratic hurdles.
The energy sector’s stagnation is particularly concerning given South Africa’s reliance on stable electricity supply for industrial growth.
Governance Improvements
Despite the overall decline, governance reforms provided a silver lining.
- The Public Service Amendment Act boosted governance scores by 12.5 points.
- Electronic Travel Authorisation reforms improved visa processing efficiency, rising from 65.8 to 90.75 points.
These gains suggest that institutional reforms, though slower, are still advancing.
AI Governance Setbacks
One of the most notable declines was in AI governance principles for financial institutions, which fell by 25 points.
- This raises questions about South Africa’s readiness to regulate emerging technologies.
- Financial institutions have expressed concern about regulatory uncertainty, which could hinder innovation and investment.
Business Confidence and Policy Implications
The decline in reform momentum has direct implications for business confidence.
- Investors rely on consistent policy progress to justify long-term commitments.
- A slowdown in reforms could exacerbate existing challenges such as municipal dysfunction, high fuel costs, and weak consumer confidence.
International Context
Global economic volatility, particularly due to the Middle East crisis and fluctuating oil prices, has compounded domestic challenges.
- Oil prices rebounded to $90 per barrel, raising fuel costs for South African households and businesses.
- The rand has remained relatively resilient, but inflationary pressures persist.
Outlook for Q3 2026
Looking ahead, several milestones are expected:
- Gas IPP bid window 1 preferred bidders.
- Gazetting of Network Statement Volume 4.
- Eskom’s continued push for distribution agency agreements.
These developments will be critical in determining whether reform momentum can be restored.
Risks and Challenges
- Energy insecurity remains the biggest risk to economic growth.
- Policy uncertainty in AI governance could deter investment in fintech and digital industries.
- Municipal dysfunction continues to constrain local economic activity.
Conclusion
The July 2026 BLSA Quarterly Review serves as a wake-up call for policymakers. While South Africa has made notable progress in governance reforms, the decline in energy and AI-related reforms threatens to undermine broader business policy objectives. Restoring reform momentum will be essential to safeguard economic stability, attract investment, and ensure long-term competitiveness.
