Saturday, October 24, 2020

Botswana among top three free economies in Africa

Botswana is ranked among the top three free economies on the African continent, the latest joint report by the US-based Heritage Foundation and Wall Street Journal said.

In a report which surveyed over 40 countries, it said Botswana, alongside Mauritius and South Africa, is rated as one of the continent’s freest economies, while-unsurprisingly-non-reforming oil exporters like Chad, Angola and Congo (Brazzaville), and, of course, Zimbabwe, languish at the bottom of the index.

Sub-Saharan Africa (SSA) is ranked last in seven of the ten economic freedoms assessed, performing particularly poorly in three crucial areas: property rights, freedom from corruption and business freedom.

The region does better than the global average on one factor, government expenditure, but it is worse in respect of taxation. Thus, signs of government failure are “overwhelming”, according to the report, and, in some cases, are so severe that the next few years will be “inevitably bleak”.

With high levels of political instability, it is unlikely that even the “liberalising tendencies” seen in countries like Mauritius and Botswana can have enough of a “statistical impact” to lift Africa up the freedom index.

This seems to be a particularly bleak assessment given that most African economies are freer today than in the mid-1990s. However, there are signs of a plateau effect since 2000. Indeed, in just over half of the top 25 African economies, economic freedom has regressed since 2000, while at the bottom of the table countries like Nigeria, Congo (Brazzaville) and Algeria, which made strong gains in the late 1990s, have slipped backwards.

This matters because, for the most part, the world’s freest economies are also good performers. Incomes per head in the top 20 percent are double those in the next fifth and more than five times those at the bottom of the pile. They also have lower unemployment and inflation rates.

According to the report, 13 years of economic freedom data “suggest that countries that increase their levels of freedom experience faster growth rates”. It goes further, claiming a virtuous cycle, with higher GDP growth rates triggering subsequent increases in economic freedom.

However, the Index of Economic Freedom does not deal with the reality that some of the world’s best-performing economies-notably India, China and, recently, oil exporters-are defined as “mostly unfree”. China, the world’s fastest-growing large economy, ranks 119th in the index with an average score of 54.

This places it just below the Sub-Saharan average, and squarely within the “mostly unfree” range. There has not been any noticeable improvement since the mid-1990s, while being unfree has not constrainedÔÇöindeed, may even have contributed toÔÇöChina’s economic growth. Equally, India, ranked 104 with a score of 55.6, is “mostly unfree”, although its ratings have improved steadily since 2000, with a 22 percent improvement in its score over the past seven years.

A similar comment applies to fast-growing African economies. Thanks to their oil wealth, unfree and repressed economies like Angola, Chad, Nigeria and Equatorial Guinea are growing much more rapidly than their freer and better-managed counterparts at the top of the African table.

Such “inconvenient truths” undermine the argument that the links between economic freedom and economic performance are immutable. They are clearly not, making it difficult for donor agencies and multilateral lenders like the IMF and World Bank to push their governance and business reform agendas in Africa.

Similarly, it is apparent that investment is pouring into unfree economies-even those like the DRC and Sudan, which cannot get as far as the ranking stage-suggesting that investors pay scant attention to levels of freedom, whether economic or political. This is unwise.

Repressed economies may be growing rapidly and outperforming their better-managed peers, but strong growth does not guarantee stability, while the very low scores for property rights in fast-growth economies, including China, are a reminder that short-term gains may not be sustainable.

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