South Africa ranks 90th in economic freedom rankings

The study would not include the full impact of state capture.
The country is among the not so free – and the index doesn’t take factors such as bailouts or fruitless, wasteful, and irregular expenditure incurred by SOEs into account. Image: Shutterstock

To what extent do South Africa’s policies and institutions support economic freedom?

According to the 2020 Economic Freedom of the World report recently published by the Fraser Institute (which is based on 2018 data), South Africa climbed up from 101 in 2017 to 90 in 2018 (out of 162 countries).

However, a lot has happened since 2018, and going up in the rankings doesn’t necessarily mean that there is much improvement.

The study bases economic freedom on personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately-owned property, and includes a measure to gauge the extent to which women have the same economic freedom as men.

It is based on common measurements, and would not include the full impact of a catastrophic happening such as state capture.

Hong Kong and Singapore occupy the two top positions of the first quartile (the most-free regions), and Zimbabwe falls within the lowest 10. Venezuela has the last spot. However, the report does mention that the interventions of the Chinese government in 2018 and 2019, and the resulting insecurity of property rights, may have a negative impact on Hong Kong’s score in the next study.

1. Size of government

Size of government includes government consumption, subsidies and investment, as well as the top marginal tax rate and state ownership of assets.

An increase in government spending, taxation and the increasing cost of state-owned entities (SOEs) decreases economic freedom.

But there is no measurement of wastage, such as the fruitless, wasteful, and irregular expenditure incurred by SOEs, nor is there any measurement for money turfed down the SOE drain, or on the additional costs incurred by procuring through go-betweens.

However, South Africa ranks a dismal 107 (2017: 113).

2. Legal system and property rights

This measurement is based on judicial independence, impartial courts, protection of property rights, military interference in rule of law and politics, integrity of the legal system, legal enforcement of contracts, regulatory costs of the sale of real property and the reliability of police.

The protection of persons and their property rights is a fundamental component of economic freedom.

To what extent do land invasions, brutal attacks on residents, and prescribed assets (forcing retirement funds to invest in specific SOEs or government projects) hamper economic freedom?

To what extent does government’s inaction in reining in zombie SOEs (other than changing the board members from time to time), which leads to an increase in government debt and the increasing risk of government guarantees coming to fruition, hamper economic freedom?

Prescribed assets and a wealth tax constitute a threat to property rights.

South Africa ranks 54 (2017: 84). But then, there is no measurement for the hollowing out of institutions such as the National Prosecuting Authority, nor for not charging criminals.

3. Sound money

This measurement is based on money growth, standard deviation of inflation, inflation (most recent year) and the freedom to own foreign currency bank accounts.

Thanks to the good governance of the South African Reserve Bank, which managed to ward off state capture, South Africa’s money growth and control of inflation is well-controlled. There are still however restrictions on investing offshore.

South Africa ranks 98 (2017: 99).

4. Freedom to trade internationally

Freedom to trade internationally is based on tariffs, regulatory trade barriers, non-tariff trade barriers, black-market exchange rates, financial openness, capital controls and the freedom of foreigners to visit.

South Africa ranks 113 (2017: 96).

5. Regulations

South Africa ranks 77 (2017: 74).

Credit market regulations

Credit market regulations are based on ownership of banks, private sector credit and interest rate controls.

South Africa ranks 52 (2017: 54).

Labour market regulations

Labour market regulations are based on hiring regulations and minimum wage, hiring and firing regulations, centralised collective bargaining, work hours regulations and mandated cost of worker dismissal.

South Africa ranks 81 (2017: 78).

Business regulations

Business regulations are based on administrative requirements, bureaucracy costs, starting a business, impartial public administration, licensing restrictions and cost of tax compliance.

South Africa ranks 122 (2017: 122).

Comparative table based on 2018 data
Mauritius Botswana Zambia SA Namibia Zimbabwe
Ranking 7 43 69 90 107 155
1. Size of government 21 75 38 107 131 158
2. Legal system and property rights 33 45 82 54 39 132
3. Sound money 25 47 65 98 143 157
4. Freedom to trade internationally 16 55 65 113 131 138
5. Regulations 18 29 124 77 21 135
– Credit market 66 56 118 52 28 120
– Labour market 25 44 116 81 12 94
– Business 23 40 108 122 74 147

It is a no-brainer that a higher level of economic freedom accords with a higher level of GDP. However, the report does say that this is backed up by numerous scholarly studies.

Those who are living in the most-free countries also have a higher life expectancy, no doubt due to the benefits of better medical care and living standards.

South Africa is ranked in the third quartile (countries of the not so free), with Brics partners Russia, India and Brazil.

China is in the fourth quartile.

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Failure , Corruption & Mediocrity R Us !

South Africa is once again a bottom feeder in world rankings, but I am not surprised.

On a more philosophical level – It is clear that the policies of the “Economic Freedom Fighters” will only push us further down the economic freedom ranking. The disheartening part is, when a collectivist society eventually, and unavoidably, becomes disillusioned with the results of communism, it moves towards the next logical step, which is fascism.

As an anti-capitalist society moves further away from economic freedom, it moves closer to enslavement on an individual level. The disdain for economic value by the anti-capitalist mentality manifests in contempt for the value of human life. The Fascist NAZI party showed this clearly. Anti-capitalism and xenophobia are the two sides of the same coin. Simply look at how EFF members threat non-members.

The all-encompassing corruption in the ruling party is the natural consequence of anti-capitalist mentality. Corruption is the manifestation of contempt for the value of the lives of fellow citizens. Our disappointing score on economic freedom, supported by the level of corruption, proves that the ANC and socialism is the antithesis of human rights and “social justice”.

“Freedom to order our own conduct in the sphere where material circumstances force a choice upon us, and responsibility for the arrangement of our own life according to our own conscience, is the air in which alone moral sense grows and in which moral values are daily recreated in the free decision of the individual. Responsibility, not to a superior, but to one’s own conscience, the awareness of a duty not exacted by compulsion, the necessity to decide which of the things one values are to be sacrificed to others, and to bear the consequences of one’s own decision, are the very essence of any morals which deserve the name.”
― Friedrich August von Hayek, The Road to Serfdom

We rank 90 out of 180 – I did not see any indication of how many on the total list. We went up from 101 to 90 which is a 6.11% improvement despite having one of the worst presidents for many years. Now let us see what President Ramaphosa can do with our help.

Count me out. I am not helping ‘them’.

Ironically the EFF will worsen this.

Perhaps another point to consider, when it comes to rankings, is that a rank, as is SA, will by default improve if another rank, such as another country, worsens.

Great summary, thank you.
Surely BBEE should affect our ranking under labor market or business regulations? And expropriation without compensation will surely affect freedom in the legal and property rights segment.
It seems a bit grey with no measure for wasteful and fruitless expenditure, corruption and blatant theft?
Maybe there’s a specific Ranking for the Kakistocracies of the world.

I rate Ramaphosa the worst president to date.

End of comments.

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