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South Africa ranks worse than Russia in economic freedom

South Africa, revered as one of the world’s freest countries in 2000, has taken a monumental tumble in the latest global ranking.

The latest Economic Freedom of the World (EFW) index, which measures the degree to which the policies and institutions of countries support economic freedom, has ranked South Africa 94th with Russia ahead at 87th. The latest global ranking comes as a monumental tumble from the 46th position South Africa held in 2000 – at that time, South Africa was revered as one of the world’s freest countries.

The report measures the economic freedom — the ability of individuals to make their own economic decisions — by analysing the policies and institutions of 162 countries and territories. These include regulation, freedom to trade internationally, size of government, sound legal system, property rights, and government spending and taxation.

Rounding out the top 10 are New Zealand, Switzerland, Ireland, the United States, Georgia, Mauritius, the United Kingdom, Australia and Canada (joint 10th). The 10 lowest-ranked countries are Sudan, Guinea-Bissau, Angola, Central African Republic, Republic of Congo, Syria, Algeria, Argentina and Libya, with last place going to Venezuela.

“If South Africa is to increase prosperity and reduce unemployment and poverty, it is essential that the financial sector be allowed to function as freely and efficiently as possible without stifling bureaucracy, and that true judicial independence be restored expeditiously,” says Free Market Foundation executive director Leon Louw.

Size of government

As government spending, taxation, and the size of government-controlled enterprises increase, an individual’s choice is substituted for government decision-making – and economic freedom is reduced. South Africa’s ranking has moved from a score of 5.97/10 in 1980 to 6.04 in 2016, with the government wage bill taking a toll on the economy’s fiscal space.

The International Monetary Fund, after its consultations with South Africa this June, echoed the sentiment, noting: “A large public-sector wage bill relative to the size of the economy and to that in many peer emerging markets is at the centre of the fiscal expansion. Therefore, rationalising the public-sector wage bill becomes a priority.”

Maarten Ackerman, chief economist and advisory partner at Citadel, says: “South Africa’s wage bill rates terribly compared to other OECD [Organisation for Economic Co-operation and Development] countries and the main reason for that is since 2008, job creation has been primarily in the public sector.”

In addition to the massive public wage bill, recent wage increases have increased wage inflation pressure. Ackerman adds:

“The public sector is costing government too much. The World Bank estimates that Eskom is 66% over-staffed and that it is an example of a sector that has too many people for the productivity that it is putting out.”

The recent OECD competitive index revealed that South Africa ranks quite low in terms of labour flexibility, particularly with regards to how hard it is to hire or fire someone. Ackerman adds: “In terms of policy reform, the election year is here and you cannot expect an aggressive cut in the wage bill.”

Legal system and property rights

Protection of persons and their rightfully acquired property is a central element of both economic freedom and civil society. Indeed, it is the most important function of government and South Africa, with its policy uncertainty, has seen a decline in these metrics.

The report also highlighted a decline in judicial independence from 7.18 in 2000 to 6.52 in 2016.

Policy uncertainty continues to obstruct capital flows into South Africa. As Ackerman says: “Despite some of the positive changes we’ve seen, the message that we get when we speak to foreign investors is that they cannot commit long-term capital until they get clarity on the land issue.”

Freedom to trade internationally stagnant

This aspect of the index scrutinises the freedom to exchange: in its broadest sense, the buying, selling and signing of contracts. The report’s methodology reduces a rating when freedom to exchange does not include businesses and individuals in other nations.

Despite being the continent’s most industrialised country, the latest index reveals a deficit in the movement of aspects related to production, with tariffs still impeding movement.

“We need to focus on the requirements needed to go through an industrialisation phase,” says Ackerman. “We have the resources and the labour, but we need incentives for industrialisation hubs to open up. You do not protect less competitive industries through tariffs, but rather provide incentives to attract investment.”

South Africa however scored a stellar 10/10 on the black-market exchange rates scorecard.

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How ironic. This ANC Government claims to be pro-poor yet, after a good start in the late 1990s, absolutely EVERYTHING that it now does is anti-poor: Anti-Investment, anti-growth and anti-employment:
Uncertain property/asset rights, excessive personal and corporate taxation, laughably capricious “twin peaks” regulation, administered prices, minimum wages, inscrutable apartheid-era forex controls, derisory mining, financial and other “charters”, oppressive labour laws – all over-layed by an almost complete break down in law and order, theft, corruption and state capture.
No wonder the poor are getting poorer.

Pro-poor means making everyone poor – that is what cANCer meant 😉

Seems that everything that is bad, we are good at and vice versa. Govt needs to decide – either they forge on with populist rhetoric in a desparate bid to secure votes for 2019 or bite the bullet with nation building policies. The former is short term gain with empty promises and empty the cupboards, the latter, a longer term chance at turning the tide. Mr ‘Congeniality’ or Mr ‘True President of the People’ – CR must decide coz he can’t have both.

Where is the mass media coverage? Nowhere…

Today is down grade day by Moody’s, hopefully I’m wrong. But like all things the the downgrade is just a symbol after all the facts have already played out.

True reform will never happen, everything has been in a slow decline we have been swimming in the bottom for so long, the worst part is that the economy has not even bottomed out yet.

Stagnation is regression, once it does bottom out it will be a slow 7 year walk back to investment grade. Reform will be forced by the international community, so that these racist Labour laws and anti white taxes are put an end to. Or the suffering will continue.

These ranking only proof 1 things as the comments come through, they anc does not know how to govern a country. They put the party ahead of the country at every chance and just like that what the anc has become A divided, lifeless thug, who has no productive means South Africa has become the anc.

the ANC doesn’t care about or comprehend an downgrade or the future of SA. They just bulldozer ahead. Just look at Zimbabwhe. I don’t think that is an unreasonable comparison.

SARS is also becoming a major source of frustration for middle class taxpayers.

We are in the second week of the month, and its already been all action, can not wait for the next two weeks, the wheels are cumin off faster then one can say “expropriate”. Category 5 tornado named “Ancthinking” heading SA way , and its the most destructive one to ever hit South Africa, if you can evacuate do it now, if you stay put to ride it out, stock up and safeguard, the eye of “Ancthinking” is fast approaching.

and still the looting goes on and on…the poorer will get even poorer.

…only for those who are not made men in their respective “governments” politbureax?

How on earth did we even reach 94th? I quote from your article above, “These include regulation, freedom to trade internationally, size of government, sound legal system, property rights, and government spending and taxation.” As RSA is regulated most things financial to the hilt and stifled even a modicum of possible growth with failing policies e.g. AA (economic apartheid) , BEE (deliberate government enforced exclusion of minorities in economic participation). Property rights & sound legal system? See Section 25 of Constitution “Revision” the Zondo Commision into State Capture where that Mafia Don Zuma WILL walk. Not to mention those other brass botchups such as the Mining Charter, rigid& noncompetitive labour policies et al. Goverment spending? It is as they say to laugh, except Joe Taxpayer is picking up the bill again. A bloated, inefficient, belligerent, self righteous, self serving government is as much use and value of polished poop. I rather think 94th is flattering given where we should be if all things PC were ignored. This is not a political rant – it’s time RSA just got on with things instead of pussyfooting around hidden agendas and government infighting/power plays! Name one real, constructive, tangible, quantifiable thing our so called government has done for South Africa over the last 5 years, that was not coupled with business SA or the general public? Can’t? Thought so…

What a mess. Then at the recent Cosatu congress one of the guest speakers is from where? You guessed it Venezuela!! and that about sums up this mob

Jobs requiring thinking capacity. In times past this was a must for success. Sailing a ship from A to B required the best available. Today, thanks to Machine and GPS, some needed, but not to much. The neath, flawless, takeover of the S.A economy by the formerly oppressed worked the same way. Human greed is a economy motor. The stimulus by start is named entrepreneur. It end with going public. The main fault in today economy’s is bypassing the first. BEE did just that. What it did not is explained by all who made it to be called rich, beyond dreams.

No problem, guavament will fix this by simply enacting some new legislation.

Ever seen terrorists successfully run a country? We have another bunch in red trying to do the same.

The Triple Alliance has deliberately destroyed SA’s economy, with the ANC knowing full well that it cannot govern unless there is union support. The Communist Party and COSATU / NUMSA are controlled by uneducated cadres who have no understanding on how economies are successfully managed, and there are those in the ANC who are silent and complicit because they will lose their jobs.

Just walk down the aisles in any grocery shop, and see how little is manufactured in this country. There are too few factories here – factories which could employ hundreds of thousands and allow SA to export to the rest of the continent, but NO! With labour laws as they are in RSA? Who in their right mind would want to invest here, build factories and deal with the unions? There are other investment options in the region – such as Mauritius, Rwanda, and Tanzania. A country which does not manufacture and export will see its currency collapse – we only need to look at Zimbabwe to see how this happened. But the ANC is willing to let SA go the same route, out of spite; the massive indebtedness of the State Owned Enterprises is clear evidence.

At Rhamaphosa owned McDonald’s jobs are being replaced by automatic ordering systems. The ANC can never connect the dots..

It’s quite fitting looking at South Africa and Russia. One group of communist scum comparing to the next. Both as corrupt and incompetent as each other.

JSE traders clearly haven’t seen this today – going hell for leather 🙂

This is what in a country where taxi thugs are treated like the royal family while skilled citizens are encouraged to leave and law-abiding taxpayers are told to do the right thing while politician loot and steal to their hearts content. The ‘Rainbow Nation’, only if you are a taxi thug.

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