South Africans will not be surprised to learn from the 2016 Economic Freedom of the World (EFW) report, published by the Fraser Institute, that their country has lost another 12 places on the economic freedom index, dropping from 93rd in 2013 to 105th in 2014 (the latest year for which comprehensive figures are available for the 159 countries analysed).
They will nevertheless be distressed to learn that SA has lost 73 places on the index since 2000.
The poor business and jobs environment in SA is reflected in the decline in its economic freedom ratings as well as other rankings that compare various aspects of country economies.
Most disturbing is the apparent belief that economic problems can be solved by increased authoritarianism. According to the evidence, the opposite is true. Authoritarian top-down government leads to economic decline, unemployment and poverty.
The year 2000 marked a watershed for economic freedom in SA.
The general optimism that prevailed at the start of the new millennium has been steadily eroded as the country has plunged down the economic freedom index at the same pace as Venezuela, which is now 159th in the ranking. If SA keeps implementing poor policies, like that of a national minimum wage, it could end up as a failed state along with Argentina and Venezuela.
The top EFW countries (rated out of 10) are:
- Hong Kong (9.03)
- Singapore (8.71)
- New Zealand (8.35)
- Switzerland (8.25)
- Canada, Georgia
- Ireland, Mauritius
- UAE (tied at 7.98)
- Australia and UK (tied at 7.93)
Substantial benefits flow to the citizens of countries with high EFW ratings and rankings. GDP per capita, 2014, in the top quartile of economically free countries was $41,228 compared with $5,471 in the least free quartile.
The average annual income of the poorest 10% of people in the freest quartile of countries was $11,283, more than twice the average incomes in the least free countries.
Life expectancy in the freest economies is 80.4 years and in the least free countries it is 60.4 years. Political rights and civil liberties are much greater in the freest nations than in the least free, which is particularly important for South Africans to note as a loss of economic freedom has been shown to lead to a loss of political freedom.
SA’s poorest scores
The EFW index measures the degree of economic freedom in five major areas:
- Size of Government
- Legal System and Security of Property Rights
- Sound Money
- Freedom to Trade Internationally
SA’s poorest scores (out of 10) are in respect of Capital Controls (0.77), Business Costs of Crime (2.95), Bureaucracy Costs (3.11), Administrative Requirements (3.15), Integrity of the Legal System (3.33), Legal Enforcement of Contracts (3.93), and Government Enterprises and Investment (4.00).
SA has been overtaken on the economic freedom index by an increasing number of Sub-Saharan African countries.
Countries ranked in this area are:
- Mauritius (5)
- Seychelles (36)
- Rwanda (49)
- Uganda (54)
- Botswana (59)
- Liberia (65)
- Kenya (71)
- The Gambia (73)
- Zambia (78)
- Tanzania (93)
- Namibia (94)
- Swaziland (95)
- Lesotho (102)
- South Africa (105)
In 2000, the only countries ahead of South Africa on this EFW list were Mauritius and Botswana. Now there are more than a dozen. These countries have become economically freer than SA and they are growing faster.
If the South African government seriously wants the country to have higher economic growth, lower unemployment and reduced poverty, it should abandon socialist ideas and turn to economic freedom.
The evidence from the research is clear – more economic freedom brings with it all of those benefits including a higher life expectancy.