CAPETOWN – South Africa’s economic freedom has dropped 54 places in only 19 years to a ranking of 101 out of 162 countries, according to the Economic Freedom of the World (EFW) 2019 Report released on Friday.
The country is reeling from a bloody nose dealt on Thursday as business confidence plummeted to a 20-year low in the third quarter, as revealed by the Rand Merchant Bank and Bureau of Economic Research Business Confidence Index.
The country’s 101st ranking is effectively a decline of two places from last year, but still a far cry from when South Africa achieved an enviable ranking of 47 in 2000 and was in the top 30 percent of economically free countries.
Video by: Chelsea Lotz, Business Report TV
The EFW index measures the degree to which a country’s policies and institutions support economic freedom and is the premier measurement of economic systems. There are five main components: size of government; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labour and business.
Neil Emerick, an associate of the Free Market Foundation, said South Africa’s nosedive had predictable consequences. The unemployment rate was the highest and the country was witnessing dramatic human and capital flight, as individuals sought to invest and live in countries with greater levels of economic freedom.
“South Africa’s government continues the reduction of its citizens’ economic freedoms. Followers of this index will not be surprised to see falling investment in South Africa, lack of business confidence, and increased scrutiny from international agencies,” said Emerick.
The report, produced by Canada’s Fraser Institute, stated that countries that scored highest on the EFW index were among the most prosperous, healthiest, cleanest, and safest places to live. The lack of economic freedom condemns countries to lower incomes, greater poverty, more inequality, reduced life expectancy, fewer political rights and liberties, and bleak prospects for the quality of life.
All eyes are now on Finance Minister Tito Mboweni’s economic transformation, inclusive growth and competitiveness plan, which was described by Solidarity as a step in the right direction as it welcomed the overall nature of the document.
In his document, Mboweni stated that the combination of low growth and rising unemployment meant that South Africa’s economic trajectory was unsustainable.
“The government should implement a series of growth reforms that promote economic transformation, support labour-intensive growth, and create a globally competitive economy We estimate the economy-wide impact of the proposed interventions over time, based on when they can realistically be implemented, and find they can raise potential growth by 2 to 3 percentage points, and create more than 1 million job opportunities,” reads the document in part.
Morné Malan, a senior researcher at the Solidarity Research Institute, said: “We welcome several aspects of the plan that we believe will promote economic freedom. The fear, however, is, firstly, that even these limited aspects will not be implemented, and secondly, that should they be implemented, it will simply end with implementation.”
Solidarity urged the state to look at other countries that had experienced economic recovery and to investigate how those countries managed to improve their situation.
“With countries such as Spain we see that they had an unemployment rate in 2013 comparable to our country’s current unemployment rate, but that it has dropped by more than 10percentage points by 2019. Because of this, their economic growth has recovered. Economic freedom, in broader terms, has led to uplifting several million from poverty around the world, and it can do the same for South Africa - provided that South Africa implements it,” said Malan.
Mboweni, when addressing the 2019 Banking Summit, said there were hints that the country’s ecomonic situation was gradually getting better.
“After contracting by 3.1percent in the first quarter of 2019, growth rebounded by 3.2percent in the second quarter. Unfortunately, these two quarters have cancelled each other out. Growth on a year-on-year basis was subdued at 0.9percent after registering no growth in the first quarter,” he said.
The minister highlighted that real gross fixed-investment posted a positive growth of 6.1percent after contracting by a revised 4.1percent quarter-on-quarter in the first quarter.
“We need to get the economy moving. We need new ideas to solve old problems,” said Mboweni.