The Fraser Institute in Canada has released its annual Economic Freedom of the World Report for 2016. It was widely reported in the media (and by Ineng) that South Africa’s economic freedom has declined year on year. But how have neighbouring countries fared; are they giving greater freedom to businesses, allowing growth and wealth creation, or are they increasing regulations, instability and cronyism? This article will give an overview of SADC countries and look at their levels of economic freedom.
What is SADC?
The Southern African Development Community (SADC) is a regional economic community of 15 countries in Southern Africa that works towards greater integration and increased trade. It is one of eight regional economic communities in Africa.
Above: A video explaining SADC and its goals.
The fifteen SADC member nations are:
- Democratic Republic of the Congo
- South Africa
Economic Freedom in the SADC member nations
The most recent data available for calculating the index in the 2016 edition of Economic Freedom of the World is from 2014. In the table below countries are ranked by their 2014 economic freedom rating.
- Mauritius is not only the most economically free nation within SADC, but ranks fifth overall in the world. It ties for fifth place with Canada, Georgia, Ireland, and United Arab Emirates. The Heritage Foundation, a think tank in the United States, publishes another ranking of economic freedom in the world and describes Mauritius as “a regional leader in economic freedom” that “benefits greatly from a sound and transparent legal framework that institutionalizes and supports the rule of law.”
- Mozambique, Malawi, DRC, Zimbabwe and Angola all rank within the bottom 20 internationally. Of these nations Zimbabwe has been the only nation to show a minor improvement in rankings, with an increase of 3% year on year.
- Angola, despite its natural wealth, is notorious for its corruption and most of its population lives in poverty. Crony Capitalism rules at the expense of free markets, real entrepreneurship and broad-based prosperity. It ranks a dismal 154 out of 159 countries listed. Angola is unsurprisingly in the ten lowest-ranked nations along with Iran, Algeria, Chad, Guinea, the Central African Republic, Argentina, the Republic of the Congo, Libya and, lastly, Venezuela.
- Botswana continues to be one of the highest ranked countries in Africa, with a well-deserved reputation for stability, democracy and economic growth. The World Bank states that Botswana “has been one of the fastest growing economies in the world and moved into the ranks of upper-middle income countries.”
- South Africa continues to drop in the economic freedom rankings, at a time when government should be doing everything in its power to encourage business and investment it is creating a hostile climate for entrepreneurs.
South Africa’s scores in key components of Economic Freedom:
- Size of Government: changed to 5.54 from 5.55 in the last year’s report.
- Legal system and property rights: changed to 5.79 from 5.81.
- Access to sound money: changed to 8.04 from 8.17.
- Freedom to trade internationally: changed to 6.71 from 7.04.
- Regulation of credit, labour and business: changed to 7.11 from 7.15.
The Economic Research Southern Africa (ERSA) released a working paper released entitled The Impact of Economic Freedom on Economic Growth in the SADC: An Individual Component Analysis. In this paper they state that “empirical results confirm that economic freedom is positively related to economic growth in the SADC countries”. They go on to write that:
“With respect to policy recommendations, primarily a country needs to establish fiscal and monetary policies that are conducive to the progress of economic freedom. Reducing international trade barriers and opening an economy to foreign trade would translate into higher growth rates. Deregulating capital markets, labour markets and businesses was found to improve a county’s growth. Maintaining a country’s legal system supports all other economic freedom components, and is paramount in ensuring the advancement of prosperity.”
Therefore there is independent research that confirms the link between economic freedom and economic growth within the SADC region. South Africa should look at the examples set by Mauritius, Seychelles and Bostwana and work towards reducing the size and scope of government, allowing entrepreneurs and small businesses to flourish, thereby creating jobs, wealth and prosperity.
- Economic Freedom of the World: 2016 Annual Report
- IOL – SA’s economic freedom plummets
- SABC – SA scores badly in Economic Freedom of the world report
- Heritage – Index of Economic Freedom 2016 (South Africa)
- Cato Institute: Economic Freedom of the World
- National Growth Strategy for South Africa
- Daily Maverick – South African policy trajectory risks Venezuela-style economic decline
- Economic Freedom in South Africa
- Economic Freedom of the World in 2015
- ERSA – The Impact of Economic Freedom on Economic Growth in the SADC
Written by Michael Howe-Ely.
Michael is head of marketing at Ineng.