South Africa’s Economic Freedom Rating has improved from 5.9 in 1990 to 7.3 in 1997 on a scale of 10 according to the Economic freedom of the world: 2000 annual report .
South Africa is ranked 47th out of 123 countries analysed in the publication. Hong Kong and Singapore shared the top rating of 9.4. They were followed by New Zealand, the USA and the United Kingdom.
Economic freedom of the world is published by the Economic Freedom Network (EFN) of institutes from 55 countries including the Free Market Foundation of Southern Africa.
Economic freedom and quality of life
There are astounding differences in economic and social outcomes between nations that are more economically free than those that are less free. Life expectancy is 20 years longer for people in the 24 most free countries (the top fifth) than in the 24 least free countries (the bottom fifth). Average income per person in the top fifth was $18,000 in 1997, compared to less than $2000 for the bottom fifth.
South Africa’s performance
Despite slow improvement during the 1990s, South Africa’s economic-freedom rating continues to fall midway among rated countries. Government expenditure (31.6 percent of GDP in 1997) remains extremely high for a low-income country ($4,513 per-capita GDP in 1996) but fiscal discipline has been improved and the level of expenditure as well as the size of the budget deficit is declining.
The first democratic government and the 1996 Constitution greatly improved the legal structure. Conscription has been abolished and several pro-market changes have been made. However, while controls on the movement of capital have been substantially reduced, exchange controls remain in place and the inflation rate, while declining, has been consistently higher than the rates of South Africa’s major trading partners.
Trade tariffs have been reduced and the powers of the former agricultural marketing boards removed. Farmers and long-protected industries have had to adjust to the changed circumstances and formal unemployment has consequently increased to around one-third of the potential work-force. New labour laws have exacerbated the problem by imposing increased costs on employers. The high unemployment level and restrictive labour laws also make it difficult for the government to implement its planned reduction in the number of civil servants and employees at state-owned industries. The government has re-stated its commitment to privatisation but the process is proceeding very slowly.
South Africa can improve its economic freedom rating and prospects of higher growth by continuing to reduce the growth rate of the money supply, replacing the existing limited rights to own foreign currency with total freedom to maintain foreign currency accounts in local banks, abolishing the remaining limitations on the ownership of bank accounts abroad, substantially reducing government expenditure as a percentage of GDP, privatising rapidly, and reducing marginal tax rates.
An important aid to researchers and policy makers
The Economic freedom of the world: 2000 annual report provides researchers and policy makers with the empirical support needed to document objectively the impact of greater or lesser reliance on freely operating markets. Although the data show that many people still face governments that are hostile to private property, personal choice, and freedom of exchange, economic freedom is advancing across the world, and the prospects for freedom and prosperity look brighter than ever.
