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SA’s economic freedom diminishing, reveals global report

SA’s economic freedom diminishing, reveals global report

Photo by Bloomberg

7th October 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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South Africa has slumped in the world rankings of economic freedom, dropping from 41 out of 152 jurisdictions in 2000 to 93 in 2012 – largely owing to ineffective government regulation and the “crowding out” of the private sector by the State, think tank Free Market Foundation (FMF) director Eustace Davie has observed.

His assertions were based on the findings of the recently released ‘Economic Freedom of the World’ report, produced by Canadian public policy research institute the Fraser Institute, which underlined the extent to which South Africa faced dwindling global economic integration between 2000 and 2012.

South Africa’s 2012 score of 6.73 out of 10 meant it flanked countries such as Haiti, Tanzania and Swaziland and was considered less economically free than States such as Mongolia, Kenya, Cambodia and Israel.

Elaborating on South Africa’s scores in key components of economic freedom –ranked from one to ten, where a higher value indicated a higher level of economic freedom – Eustace revealed that the ranking of “the size of the government” – which was loosely measured by the proportion of the gross domestic product (GDP) attributed to government – had narrowed from 5.45 to 5.38 between 2000 and 2012.

“This is telling, because the greater the involvement of government in the formation of GDP, the less productive the economy is and the lower the country’s level of economic freedom,” FMF cofounder Leon Louw told Engineering News Online.

South Africa’s “legal system and property rights” measure also scored poorly, despite increasing marginally from 5.88 to 5.92 over the 12 years.

In contrast, in terms of "access to sound money”, South Africa continued to perform well, scoring 8.23 in 2000 and 8.1 in 2012.

“[This is owing to] the South African Reserve Bank, which is doing a good job,” Davie noted.

The country’s “freedom to trade internationally” improved slightly, from 7.19 to 7.22, while its “regulation of credit, labour and business” score changed to 7.04 in 2012 from 7.07 in 2000.

“The changes from [the previous] report may appear small, but it is the direction of change that is of critical importance.

“The decline in South Africa’ economic freedom score over the past decade and its slide down the rankings reflects the general decline in the economy that the general public can see happening around them,” Davie argued.

Contrasting sharply with South Africa, Mauritius was found to be the most economically free country in the Southern African Development Community and, improving from a score of 7.6 in 2000 to 8.09 in 2012, was ranked the fifth most economically free country in the world.

“This improvement was no accident. After wide consultation with the general public, the Mauritius government embarked upon reforms to free up the economy and make it more attractive for investment.

“This is an approach that is certainly worth emulating, but South Africa is moving in the opposite direction,” commented Davie.

Hong Kong, with a total score of 8.98, once again topped world rankings in 2012, followed closely by Singapore, with 8.54, New Zealand, with 8.25 and Switzerland, with 8.19.

Globally, the average economic freedom score dropped slightly to 6.84 from 6.87 the prior year.

The US, “once the bastion of economic freedom”, now ranked twelfth in the world, alongside the UK.

“Owing to a weakening of the rule of law, increasing regulation and the ramifications of its war on terrorism and drugs, the US has seen its economic freedom score plummet from 2000, when it ranked second globally,” Davie added.

Venezuela again had the lowest level of economic freedom worldwide, with the Republic of Congo, Zimbabwe, Argentina and Algeria rounding out the bottom five countries.

Davie, meanwhile, outlined that economic freedom could be felt through the extent to which citizens enjoyed personal choice, voluntary exchange, freedom to compete and the security of private property.

“The link between economic freedom and prosperity is undeniable. The most economically free countries offer the highest quality of life and personal freedoms, while the lowest-ranked are usually burdened by oppressive regimes that limit the freedom and opportunity of [their] citizens,” he observed.

Countries in the top quartile of economic freedom had an average per capita GDP of $39 899 in 2012 compared with $6 253 for lowest-quartile nations, while life expectancy was 79.9 years and 63.2 years respectively.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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