One thing holding South Africa’s economy back

A new report has revealed that improving South Africa’s trust levels could boost productivity in the country by over 8%, leading to better economic growth.

This was revealed in PwC’s South Africa Economic Outlook for August 2024, which looked at the Edelman Trust Barometer for 2024 and found that South Africa is a distrustful society.

This is based on the surveyed levels of trust that people have in government, business, the media and NGOs.

The survey found that six out of ten South Africans trust the business sector to do the right thing. This ranks the country 15th out of 28 territories assessed by Edelman.

“Our people have seen the hard work done by businesses to help rebuild the economy during some of our biggest recent challenges, including Covid-19 and electricity load-shedding. This has boosted trust in the private sector,” PwC explained.

They found that South Africa’s trust levels are a third as strong as the top-performing countries globally. 

Furthermore, PwC’s South Africa Chief Economist and Africa Sustainability Platform Leader, Lullu Krugel, explained that there is a strong positive relationship between trust and measurements of prosperity in a country.

She said social trust is a deep determinant of economic progress – it fosters cooperation, reduces transaction costs and encourages investment and innovation. 

“When individuals trust each other, they engage in mutually beneficial exchanges, leading to economic growth and development,” she said. 

“Trust lubricates the wheels of commerce, enabling efficient market functioning and facilitating collaboration among diverse stakeholders.”

At a macroeconomic level, she said there is a strong positive relationship between trust and measurements of prosperity like, for example, real GDP per capita. 

To test this theory and see whether this is a causal relationship or mere correlation, PwC looked at traditional measures of productivity like human, physical, innovative and intangible capital, the PPI.

This measure adds pillars for social capital, natural capital and institutions. These three additional explanatory pillars account for around a quarter of productivity across the 25 economies that the PPI was benchmarked on. 

In this index, social capital is represented by survey data indicating the share of people agreeing with the statement “most people can be trusted” in their country.

The results of this simulation showed that greater interpersonal trust can boost local worker productivity by more than 27%.

“To better understand the potential impact of improved trust on economic productivity, we have simulated a boost in national productivity that could come from increasing social trust in South Africa,’ the report explained. 

“With South Africa’s trust levels only about a third as strong as the top performing countries globally, the scope for improvement is large.”

If, for example, South Africa’s trust levels improve to a position similar to France’s, the PPI shows that local workers could be 8.3% more productive.

Furthermore, PwC’s analysis shows that South Africa’s productivity could increase by up to 27.1% if the country reaches a societal trust level comparable to that of top-performing country Norway.

“We believe that increased interpersonal trust can have an outsized positive impact on South Africa’s productivity and the economy overall,” PwC said.

PwC South Africa’s Lead Economist for Macro Analysis, Christie Viljoen, said higher levels of societal trust can create a more efficient, cooperative and positive economic environment, leading to increased productivity. 

Benefits include reduced transaction costs, heightened transparency, reduced bureaucracy and greater international interest, among many others:

• Reduced transaction costs by lessening the need for extensive monitoring and enforcement mechanisms
• Heightened transparency as individuals/organisations are more willing to share information, resources and expertise
• Reduced bureaucracy and increased administrative speeds as decisions can be made more quickly
• Greater international interest in trade and investment by reducing the perceived risks of cross-border transactions. 

However, PwC also noted that fixing South Africa’s trust deficit is a far greater challenge now than it was just a few decades ago.

PwC’s Megatrends experts explained that this is due to the growth – both locally and abroad – of economic disparity, the rise in global social and political polarisation, and the lack of trust that citizens have in various public and private institutions. 

“It is precisely because of this that private organisations can play an outsized role in addressing these challenges in South Africa and elsewhere,” the report said. 

“Local businesses are increasingly expected to do so by consumers, employees and other stakeholders, in support of an economic system in which value creation and increased growth improve the lives of individuals and the health of societies.” 

“By getting ahead of these issues now and taking a lead on how to do business in a way that does well and does good at the same time, companies are exercising not only a moral duty but also securing their future in a country where their existence depends on society’s willingness to let them exist.”