SA ranked below Russia
ECONOMIC FREEDOM: PUBLIC WAGE BILL CITED
Economic Freedom of the World index paints gloomy picture.
SA needs to reduce poverty by allowing financial sector to function freely and efficiently – FMF.
The latest Economic Freedom of the World (EFW) index, which measures the degree to which the policies and institutions of countries support economic freedom, ranks South Africa 94th, with Russia ahead at 87th. The latest global ranking are as a monumental tumble from the 46th position SA held in 2000.
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 and property rights, and government spending and taxation.
Rounding out the top 10 are New Zealand, Switzerland, Ireland, the US, Georgia, Mauritius, the UK, Australia and Canada (joint 10th).
The 10 lowest-ranked countries are Sudan, Guinea-Bissau, Angola, Central African Republic, Republic of Congo, Syria, Algeria, Argentina, Libya and in last place, Venezuela.
“If South Africa is to increase prosperity and reduce unemployment and poverty, it is essential the financial sector be allowed to function as freely and efficiently as possible without stifling bureaucracy, and that true judicial independence be restored,” said the Free Market Foundation’s 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. SA’s ranking has gone up 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’s latest consultations with SA in June echoed this sentiment: “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.”
Recent wage increases have also increased wage inflation pressure.
Legal system and property rights
Protection of persons and rightfully acquired property is a central element of economic freedom and civil society. SA has seen a decline on the metrics with policy uncertainty. The report also highlighted a decline in judicial independence. Policy uncertainty still obstructs capital inflows. Maarten Ackerman of Citadel says: “Despite some positive changes, the message we get when we speak to foreign investors is that they cannot commit longterm capital until they get clarity on the land issue.”
Freedom stagnant to trade internationally
The report’s methodology reduces a rating when freedom to exchange does not include businesses and individuals in other nations. “We need to focus on the requirements needed to go through an industrialisation phase. We have the resources and the labour but we need incentives for industrialisation hubs to open up,” says Ackerman. “You do not protect less competitive industries through tariffs, but rather provide incentives to attract investment.”