The rule of law and competitiveness: Insights for South Africa
Author: Ginen Moodley, Moodley Attorneys Inc.
What makes an economy competitive?
This was a question asked by Arturo Bris, director of the IMD World Competitiveness Center as part of the release of the 2026 “IMD World Competitiveness Booklet”.
Bris points to the obvious factors including costs, scale, access to infrastructure and technology or market access but he ultimately concludes:
“Economic competitiveness in 2026 is no longer mainly a contest of cost or scale, or even of innovation. It is a contest of institutional credibility. The more fragmented the world becomes, the more valuable predictable rules, enforceable commitments, and legitimate state capacity become.”
As a legal professional and entrepreneur in South Africa, this resonates strongly with me.
How does the rule of law interact with the economy? The IMD identifies 5 clear functions of the rule of law and the economy.
The first is Predictability. Participants want to narrow uncertainty around contracts and the associated regulation and administrative action. This in turn extends investment horizons and reduces the associated risk premium.
The second is Protection. This secures property and intellectual property rights and supports entrepreneurship and innovation-led development.
The next consideration is Constraint which limits the arbitrary use of power and corruption – something which is very topical in South Africa at the moment. Appropriate constraints lower administrative business costs.
After this comes Coordination – shared expectations for exchange and dispute resolution. The effect of this is the reduction of transaction costs across complex economies.
Finally the concept of Legitimation – making state intervention reviewable, bounded and credible – improving the quality and investability of industrial and security.
With infrastructure investment being a major theme in South Africa, the IMD report draws an interesting intersection between the rule of law and infrastructure noting:
“Unlike a port or fiber network, it doesn’t produce output directly. It works through expectations. A factory, a data center, a regional treasury, or a research cluster can physically exist almost anywhere. Where it is sustained at scale, and where it is reinvested over decades, is decided long before the spreadsheet, by whether investors and operators believe the political–legal environment will remain intelligible when conditions worsen.”
Delving deeper into the IMD rankings, there are some interesting insights.
- South Africa ranks 54th out of 70 in the overall rankings – up 10 positions on the previous year and without unpacking country-specific data, some of these gains could anecdotally be attributed to focus on reforms-focused activities including Operation Vulindlela and the exiting of the Financial Action Task Force (FATF) “grey listing”
- In terms of the “Government Efficiency” category, South Africa also comes in 54th. What is interesting about this category is that other African countries including Botswana (44th), Ghana (47th) and Nigeria are outpacing us who have carried ourselves as the “Most Advanced economy on the continent”
- In terms of Infrastructure, we rank 59th,
Interestingly, when we look at the country analysis, South Africa ranks 27th in terms of Tax Policy – the South African Revenue Services (SARS) has regularly been a well-regulated institution where stakeholders have a clear understanding of the framework in which they operate.
One of the successes in 2025 was the exiting of the so-called “grey list” and this speaks to the some additional research released by Transparency International which highlighted that financial intelligence units can help uncover corruption and recover stolen assets. Transparency International explains:
“FIUs are public bodies that receive and analyse suspicious transaction reports from banks and other reporting entities, then pass financial intelligence to law enforcement agencies, prosecutors, supervisors and foreign counterparts. Sitting at the centre of national anti-money laundering systems, they connect fragments that no single bank or authority can see alone.”
By empowering FIUs, “dirty money” can be traced and those who are involved in corruption can be held accountable. The current structural distrust between taxpayers and law enforcement is something that contributes toward a negative view on South Africa’s investment climate.
Interestingly, one of the areas highlighted by the Transparency International report is that the US has dropped Beneficial Ownership reporting. It will be interesting to see how this translates into global economic competitiveness in the coming years.
Often there is a perception that “the law” and legal activity correlates with “red tape” and business inefficiency – the data suggests that strong legal frameworks and institutions contribute toward a stronger economy.
As an entrepreneur operating in the South Africa legal profession, we hope to contribute to a stronger economy.
