In what has now become a familiar pattern, South Africa has fallen in the ranks of the economically free as measured by the Fraser Institute in Canada, slipping to 93rd from 89th among the 152 countries surveyed. This is only the latest of the indices in which South Africa has slid downwards – earlier this year, the country fell in the World Economic Forum’s Global Competitiveness Report, slipping to 56th place from 40th in 2006. The reasons cited for the fall are familiar – unreasonably stringent labour laws, lack of competitiveness in industry, onerous red tape for small businesses, and infrastructure bottlenecks – and have been the same reasons given for our weak economic performance for the last ten years. Perhaps one day, things will actually change. – FD
By Anthea Jeffery with Neil Emerick
South Africa continues its downward slide on the index of economic freedom compiled by the Fraser Institute in Canada, says the IRR in a policy paper published in its @Liberty bulletin today.
Thirteen years ago, the country ranked in 41st position. Today it stands in 93rd position among 152 countries, according to the 2014 Economic Freedom of the World report.
Writes Neil Emerick, author of the IRR policy paper and a long-standing contributor to the Economic Freedom of the World project: ‘South Africa now shares the investment “appeal” of other countries with a ranking in the “90s”. These include Mexico and Haiti (which rank above South Africa), along with Tanzania and Swaziland (which rank just below it in 94th and 95th places).’
The Economic Freedom of the World report measures various dimensions of economic freedom, including personal choice, voluntary exchange, freedom to compete, and security of private property. The report draws on sources such as national accounts, the Global Competitiveness report, and the World Bank’s Doing Business report.
The index itself is made up of five broad categories: (1) Size of Government; (2) Legal Structures and Security of Property Rights; (3) Sound Money; (4) Freedom to Trade with Foreigners; and (5) General Business Regulation
Says Emerick: ‘The most-free countries in the world are Hong Kong, Singapore, New Zealand, Switzerland, and Mauritius. At the bottom of the rankings are Venezuela, the Democratic Republic of the Congo, Argentina, Zimbabwe and Algeria.
‘South Africa comes near the bottom (142nd out of 152 countries) for its regulation of hiring and firing practices, and 139th for its collective bargaining rules.
‘The government’s desire to build a developmental state has also led to a high tax and spend bill. South Africa ranks 123rd for the size of its government expenditure, as a percentage of gross domestic product (GDP).‘On a positive note, South Africa still has a reputable court system (ranking 22nd for judicial independence and 13th for the impartiality of its courts). It also has a moderate inflationary environment, for which it ranks 43rd.’
The index is an important predictor of economic prosperity and individual well-being. Countries with more economic freedom and secure property rights grow faster and have citizens who are healthier and wealthier, living 79 years on average. This compares with more oppressive regimes, where life expectancy is closer to 63 years.
Notes Emerick: ‘It is also better to be poor in a free country than an un-free country. The poorest 10% in the most-free countries have significantly higher average GDP per head than the poorest 10% in the least-free countries.’
By contrast with South Africa’s persistent decline, the rest of the continent’s move towards economic freedom continues. Namibia moves up from 125th place to 109th, Kenya from 87th to 77th, and Rwanda from 35th to 29th. Mauritius moves into the top five countries, not just in Africa, but in the world.
‘The link between economic freedom and prosperity is undeniable, adds Fred McMahon of the Fraser Institute, publisher of the index. ‘The most economically free countries offer the highest quality of life and personal freedoms, while the lowest-ranked countries are burdened by oppressive regimes that limit the freedom and opportunity of their citizens.’
