What South Africa can do to improve its economic standing in 2019

The Heritage Foundation has ranked South Africa 77th out of 180 countries in terms of economic freedom.

Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please.

The Heritage Foundation indicates that with a world rank of 77/180, South Africa is fourth in the African region. The country’s over-all economic freedom score improved with 0.7 in 2017.

Brand South Africa welcomed South Africa’s improvement on the index, with GM for Research for Brand South Africa, Dr Petrus de Kock, saying the index provides some insight into dimensions of the South African economic environment as the country continues to grapple with historical challenges, and the need to spur on entrepreneurship and innovation.

“Notable improvements for South Africa in 2018 include the improvement in the area of investment freedom, and judicial effectiveness. The latter is significant coming in a year where the administration of President Ramaphosa made investment a key focal area of its work,” said de Kock.

South Africa’s improvement in the rankings comes as a result of advancements in these areas:

  • Property rights – which is up a fraction from 67.6 to 67.7;
  • Judicial effectiveness increased from 59.7 to 65.9;
  • Fiscal health sees an improvement of +4.6 from 70.7;
  • Business freedom advanced by +3.1 points from 62.0;
  • Labour freedom improved by +1.2 in 2018 from 58.9; and
  • Investment freedom significantly improved by +10.0 from 40.0.

How to improve things

“South Africa’s economic growth has decelerated because of declining global competitiveness, growing political instability, and weakened rule of law that in 2017 caused the country’s investment-grade credit rating to be downgraded to junk status, denting investor confidence,” the researchers said.

To turn things around, the foundation suggested that:

  • Government must maintain macroeconomic stability;
  • Tackle rising public debt;
  • Deal with inefficient state-owned enterprises;
  • Control spending pressures;
  • Secure the vulnerable judicial system from political interference;
  • Get a handle on the numerous scandals and frequent political infighting that have severely undermined government integrity.

“We are pleased with the upward trend of the nation’s competitive performance, particularly since 2018 saw a declining global competitiveness of the economy, and South Africa also slipped into a technical recession during the first half of the year which it moved out of after the economy saw a 2.2% rebound in the third quarter,” said de Kock.

“It is therefore promising that South Africa, according to the 2018 Index of Economic Freedom, is ‘moderately free’ in terms of its economic activity.

“Economic freedom is about much more than a business environment where business flourishes, it has a far reaching impact on other aspects such as human development and the power of choice.

“Consequently, it remains imperative for South Africa to continue safeguarding openness to its market, government size and rule of law.”

On the global front, based on the measurements of this index, the Heritage Foundation finds that the global average economic freedom score is 61.1, the highest score since inception of the index 24 years ago.

At an aggregate level, of the 180 economies measured by the index in 2018 – 102 scored better, while the economic freedom scores of 75 got worse.

In the case of South Africa, it can be noted that the country is one of the 102 that improved its economic freedom score.

Released on an annual basis by the Heritage Foundation, the Index of Economic Freedom provides insight into the extent to which governments enable an open and unrestricted economic environment for citizens and businesses to operate in.


Read: 3 possible scenarios for the South African economy – Treasury

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What South Africa can do to improve its economic standing in 2019