Economic freedom of the world report reveals another drop in ranking for SA

The 2023 Economic Freedom of the World (EFW) annual report reveals that South Africa has dropped to 94th, down one place from its ranking of 93rd last year, out of the 165 countries analysed. The country therefore remains in the third out of four quartiles of economic freedom.

The report is published by the Fraser Institute in Canada each year. The Free Market Foundation (FMF) is the Fraser Institute’s partner in South Africa.

This is a significant drop from South Africa’s highest ranking on the index, which was attained in 2000, when it placed 47th, amidst the largely business- and growth-friendly reforms of the Mandela and Mbeki administrations. Since then, the country has consistently declined on the rankings as government has introduced more and more misguided policies.

These policies invariably seek to regiment economic activity in line with government’s ideological ambitions, rather than with the economic needs and demands of society as manifested in the market.

‘This year’s report shows that South Africa’s latest EFW ranking of 94th is the lowest, and its score of 6.53 (out of 10) is the second lowest since the 1994 transition. This means that South Africans have once again lost economic freedom not only in absolute terms but relative to most other countries,’ wrote Richard Grant, Professor of Finance and Economics at Cumberland University and senior consultant to the FMF, of this year’s report.

‘The consistent decline is a clear consequence of the government’s unabated, stifling desire for economic control,’ said David Ansara, FMF Chief Executive Officer.

There is a two-year lag in the available data, meaning this year’s report utilises data from 2021.

The Fraser Institute defines ‘economic freedom’ as:

‘Individuals are economically free when they are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. When individuals possess economic freedom they are able to decide what, when, and how goods and services will be produced, exchanged, and consumed. Put another way, economically free individuals are permitted to decide for themselves rather than having options imposed on them by the political process or by the use of violence, theft, or fraud by others.’

There is a clear causal link between human progress and prosperity and economic freedom. The EFW shows that the poorest 10% of the population in countries that rank in the first quartile of earn some US$14,204 per annum. In the fourth quartile (the least economically free states, where government interferes in economic matters as a matter of course), the poorest 10% earn a paltry US$1,736. The third quartile, which South Africa ranks in, is not much better, with the average income earned by the poorest 10% of these states being US$2,641.

‘In other words, in countries that have adopted free market economies, the income earned by the poorest portion of the population is 8.18 times greater than the incomes of the poorest in countries that have opted for state-regimentation of the economy,’ added Ansara.

The EFW contains a clear roadmap for any country wishing to become economically free and prosperous. Countries that have benefited from following this roadmap include Singapore, Hong Kong, Switzerland, New Zealand, and the United States, which constitute the top-5 jurisdictions in this year’s index.

The countries that make out the bottom-5 jurisdictions are Venezuela, Zimbabwe, Syria, Sudan, and Yemen.
‘Venezuela and Zimbabwe – as opposed to Singapore and Switzerland – are regrettably the states that the present South African government seems most keen to imitate,’ said Martin van Staden, FMF Head of Policy.

To determine a country’s rank on the index, the Fraser Institute looks at five ‘Areas’:

Size of government (South Africa ranks an eye-watering 119th)
Legal system and property rights (South Africa ranks a commendable 59th)
Sound money (South Africa ranks 95th)
Freedom to trade internationally (South Africa ranks 103rd)
Regulation (South Africa ranks 91st)
With ‘size of government’ being South Africa’s most poorly-performing metric, the FMF recently proposed to finance minister Enoch Godongwana – who had mooted the necessity of significant spending cuts – that South Africa’s Cabinet be slashed from some 30 ministers down to only 10 state departments in the central sphere.

South Africa is among the top-10 economically free states in sub-Saharan Africa, squeezing in in 10th place. It was beaten by Mauritius (the freest jurisdiction on the continent and the only to rank in the first quartile), Cabo Verde, Seychelles, The Gambia, Botswana, Kenya, Rwanda, Nigeria, and Uganda.

‘There still remain lessons that other African states can teach South Africa,’ added Van Staden.