SA’s economic freedom limited

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).

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 countries), and Zimbabwe falls within the lowest 10, with Venezuela taking the last spot.

1. Size of government

The 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 by SOEs. SA ranks 107 out of 162 (2017: 113).

2. Judicial independence

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. SA ranks 54 (2017: 84).

3. Sound money

This 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 SA Reserve Bank, which managed to ward off state capture, the country’s money growth and control of inflation is controlled well. However, there are still restrictions on investing offshore. SA ranks 98 (2017: 99).

4. International trade

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. SA ranks 113 (2017: 96).

5. Credit market regulations

These are based on ownership of banks, private sector credit and interest rate controls. SA ranks 52 (2017: 54).

6. Labour market regulations

These are based on hiring regulations and minimum wage, hiring and firing regulations, centralised collective bargaining, work hours regulations and mandated cost of worker dismissal. SA ranks 81 (2017: 78).

7. Business regulations

These are based on administrative requirements, bureaucracy costs, starting a business, impartial public administration, licensing restrictions and cost of tax compliance. SA ranks 122 (2017: 122).

This article first appeared on Moneyweb and was republished with permission.

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