What makes an economy genuinely competitive in today’s global market? According to Arturo Bris, Director of the IMD World Competitiveness Center, the answer goes far beyond traditional metrics like cost, scale, infrastructure, or market access.
As highlighted in the 2026 IMD World Competitiveness Booklet, economic competitiveness is increasingly a contest of institutional credibility. In a fragmented global landscape, predictable rules, enforceable commitments, and legitimate state capacity have become the ultimate economic differentiators. For South African legal professionals, business leaders, and investors, this core link between the rule of law and long-term economic stability is more relevant than ever.
5 key functions of the rule of law in economic performance
The IMD identifies five distinct mechanisms through which a strong, reliable legal framework directly shapes economic outcomes:
- Predictability: Narrows uncertainty surrounding contracts, administrative actions, and regulations. This stability extends investment horizons and reduces the risk premium required by foreign and local investors.
- Protection: Safeguards physical property and intellectual property rights, fostering an environment where innovation-led development and entrepreneurship can thrive.
- Constraint: Places clear limits on corruption and the arbitrary use of power, directly lowering administrative business costs.
- Coordination: Establishes shared, transparent expectations for commercial exchange and dispute resolution, significantly cutting transaction costs across complex markets.
- Legitimation: Ensures state interventions remain reviewable, bounded, and credible, which elevates the overall quality and investability of industrial projects.
Institutional trust as an invisible infrastructure
While physical assets like ports and fiber optic networks produce direct output, the rule of law acts as an invisible foundation that drives investor decision-making long before capital is committed.
“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.” — IMD World Competitiveness Booklet
South Africa’s position in the 2026 IMD rankings
The 2026 IMD rankings reveal both encouraging progress and clear operational challenges for South Africa:
- Overall Ranking (54th out of 70): South Africa climbed 10 positions from the previous year. Gains can be partially attributed to focused reform initiatives such as Operation Vulindlela and progress made toward exiting the Financial Action Task Force (FATF) “grey listing”.
- Government Efficiency (54th): South Africa continues to lag behind several continental peers in this category, with Botswana (44th), Ghana (47th), and Nigeria outstripping South Africa’s institutional efficiency metrics.
- Infrastructure (59th): Emphasizes the pressing need for sustained public and private sector investment to support sustainable economic growth.
