SA’s economic freedom ranking declines in 2020

SA’s global ranking in terms of economic freedom declined in 2020, as the Covid-19 pandemic and subsequent restrictions led to a general decline worldwide.

The country fell to 99th out of 165 nations measured in the Fraser Institute of Canada’s Economic Freedom of the World: 2022 Annual Report, released on Thursday in SA by the Free Market Foundation (FMF). That continues a downward trend since 2000 when it was ranked 47th. In 2019, SA was ranked 93rd.

The Fraser Institute produces the Economic Freedom Report in co-operation with a group of independent research and educational institutes in almost 100 countries and territories.

The report, launched in 1996, measures economic freedom — the ability of individuals to make their own decisions — by analysing several indicators including regulation, size of government, property rights, government spending and taxation.

Unprecedented drop

The lockdowns and restrictions on economic activity that governments imposed to respond to the Covid-19 pandemic meant that 146 of the 165 countries recorded an unprecedented drop in freedom in 2020.

The categories measured are the size of government where SA ranked 117th and where its score declined to 5.99 from 6.14; the legal system and protection of property rights where SA ranked 56th and its score improved to 5.95 from 5.09; access to sound money where SA ranked 101st and its score declined to 8.21 from 8.24; freedom to trade internationally where SA ranked 123rd and its score declined to 5.8 from 6.6; and regulation of credit, labour and business where SA ranked 104th and its score declined to 6.78 from 7.16.

According to FMF director Eustace Davie the reason for the deterioration in SA’s ranking clearly corresponds to the deterioration in economic activity in the country. “Mass unemployment is a particularly significant and tragic consequence of that deterioration,” he said.

“When jurisdictions increase taxes and regulations, the people become less economically free, which means slower economic growth and less investment,” said Fred McMahon a Fraser Institute Resident Fellow.

Top and bottom

Hong Kong and Singapore topped the rankings again, continuing their streak as first and second respectively, followed by Switzerland, New Zealand, Denmark, Australia, the US, Estonia, Mauritius and Ireland.

The 10 lowest-rated countries are Democratic Republic of the Congo (DRC), Algeria, Republic of Congo, Iran, Libya, Argentina, Syrian Arab Republic, Zimbabwe, Sudan and Venezuela. Autocratic countries such as North Korea and Cuba can’t be ranked due to lack of data.

The rankings of other major countries include Japan (12th), Canada (14th), Germany (24th), Italy (43rd), France (54th), Mexico (65th), India (90th), Russia (94th), Brazil (114th) and China (116th).

McMahon said “where people are free to pursue their own opportunities and make their own choices, they lead more prosperous, happier and healthier lives.”

This was confirmed according to research in top peer-reviewed academic journals, which showed that people living in countries with high levels of economic freedom enjoyed greater prosperity, more political and civil liberties and longer lives.

For example, countries in the top quartile of economic freedom had an average per-capita GDP of $48,251 in 2020 compared with $6,542 for bottom-quartile countries. Poverty rates are lower: in the top quartile, 2.02% of the population experienced extreme poverty ($1.90 a day) compared with 31.45% in the lowest quartile. Life expectancy is 80.4 years in the top quartile versus 66.0 years in the bottom quartile.

ensorl@businesslive.co.za