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SA trails behind in economic freedom ratings

SA was at 47 on the index in 2000; it’s now ranked 101 out of 162 countries. Another red flag.

The 2019 Economic Freedom of the World annual report was released last Thursday.

Produced by the Fraser Institute in cooperation with the Economic Freedom Network, a group of related bodies in nearly 100 countries and territories, its index ratings are based on data from sources such as the International Monetary Fund, the World Bank and the World Economic Forum.

The report ranks 162 countries and territories – with Hong Kong at number one, Singapore second, the US fifth and Canada eighth.

South Africa is ranked at 101. Mauritius is in ninth position, while Botswana is at 49 and Zambia at 83.

Of the Brics countries, India is 79th, Russia 85th, China 113rd, and Brazil 120th.

The index provides a measurement of the degree to which countries’ policies and institutions are supportive of economic freedoms in five areas:

  • Size of government
  • Legal structure and security of property rights (legal rights according to gender are now included)
  • Access to sound money
  • Freedom to trade internationally, and
  • Regulation of credit, labour and business.

There are 25 components in the index, and 43 distinct variables.

South Africa’s economic freedom ratings and rankings (latest data)

 

Rating out of 10

Ranking out of 162
 

2000

2017
Size of government

6.41

5.77 113
Legal system and property rights

6.06

5.05 84
Money growth, inflation

7.85

8.17 99
Freedom to trade internationally

7.38

6.87 96
Regulations

7.49

7.2 74
– Credit market regulations

9.61

9.18 54
– Labour market regulations

5.86

6.61 78
– Business regulations

7

5.8 122
Overall ranking, 2000 and 2017 47 101 

 

 

 

South Africa’s worst ratings:

  • Integrity of the legal system 3.33
  • Legal enforcement of contracts 3.93
  • Reliability of police 3.65
  • Business costs of crime 2.59
  • Capital controls 0.77
  • Hiring and firing regulations 3.48 (2000: 2.05)
  • Bureaucracy costs 3.56 (2000: 6.53), and
  • Extra payments/bribes/favouritism 2.83 (2000: 6.77).

The poor ratings ultimately brought down South Africa’s ranking, with some of its Southern African Development Community (SADC) neighbours securing substantially higher positions on the index.

SA’s ranking (and rating) in comparison with some of its SADC neighbours

 

1950

1965

1980

2000

2017

Mauritius

7.37

7.40

5.11 (55)

7.59 (27)

8.07 (9)

Botswana

4.06

4.34

5.45 (45)

7.46 (32)

7.37 (49)

Zambia

4.07

4.80

4.65 (65)

6.70 (63)

6.84 (83)

South Africa

4.43

5.17

5.27 (50)

7.04 (47)

6.61 (101)

South Africa trails behind. Not an impressive track record to attract any new foreign investment.

When interference and control eclipses personal choice …

Self-ownership is a fundamental cornerstone of economic freedom – the right of personal choice, voluntary exchange, open markets, and property rights. Therefore, a country should provide the infrastructure to ensure this.

A political process that interferes with the right of choice or “the use of violence, theft or fraud by others” will negatively impact economic freedom. In other words, a country should protect its citizens.

“Economic freedom is reduced when taxes, government expenditure, and regulations are substituted for personal choice, voluntary exchange, and market coordination,” states the report.

This concept is particularly pertinent for South Africans. State corruption is being laid bare before the Zondo Commission of Inquiry, the ailing mismanaged state-owned entities are requiring bailout after bailout, government debt is spiralling out of control, government is proposing to interfere in private medical care, and there is the omnipresent threat of higher taxes. One doesn’t need to be a mathematician nor an economist to realise that this must negatively impact the economy.

Freedom and entrepreneurship versus public policy

The data in the report shows that economic freedom is associated with more innovative entrepreneurship, and firms in countries with greater economic freedom receive more patents. The intangible assets in these countries more than double those in the least economically free countries.

It is now recognised that entrepreneurs play a critical role in stimulating economic progress. Public policy should therefore support and foster entrepreneurs.

There is an argument as to whether the quality or the quantity of entrepreneurs is the most important outcome of any intervention.

The emphasis in South Africa, however, appears to be more focused on raising taxes on owners of capital and strangling them in bureaucracy and regulations.

In 1980 South Africa moved from the third quartile (the fourth quartile is the least free) to the second quartile, and in 2006 it moved back to the third quartile.

It is a somewhat depressing scenario, and this is not the only red flag indicating that South Africa is regressing. The economic freedom index joins many others that point to a decline in the economy.

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Put the Economic Freedom Fighters in charge, they will have us at the bottom in no time!

I note that country to aspire to according to Malema is right at the very bottom of the list.

I would really like to believe that the Govt is aware of these stats and can see the negative trend. Unless their ideology forbids them from doing so, all they need to do is see what the successful countries are doing and copy them. No mystery there. Here’s hoping that they are able to turn this tanker around because the alternative is disastrous for us all.

A commendable sentiment, but unfortunately it would be no different to wanting to believe in tooth fairies and father Xmas.

Please note that economic freedom is not a communistic or socialistic concept and therefore has no place in SA.

How’s this possible? I thought the ANC freedom fighters were bringing freedom …

“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.” – Thomas Jefferson

Is South Africa a democracy? This is a nation who enslaves itself willingly and eagerly. We sell our freedom in exchange for false promises and then we burn everything we have when the promises don’t materialise.

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