As Sub-Saharan Africa battles to lift its head above the parapet of poverty and economic destitution, a key ingredient that is often overlooked by those who desire to see improvements. The brutal truth is that the economic freedom of a country is without question a key foundation for communities and countries to prosper. The article below, penned by professor of finance and economics, Richard J Grant of Columbia University peels back the stark realities of the economic freedom landscape in the region and provides relevant and timely advice for dealing with areas affecting declines in the global rankings.
Freedom is More Than a Myth in Creating Real Prosperity
How might a border guard get rich? Might a border crosser from the north believe that three R100 notes slipped into a travel document could make the difference between a three-week visa and a three-month visa? Why might a Zimbabwean be willing to risk paying an unofficial premium to stay in South Africa legally for a couple of extra months?
While the per capita GDP in South Africa has been stagnant for the past decade, it is still more than double that of Zimbabwe. And just as water runs downhill, people gravitate toward better income opportunities, to where they have greater freedom to work and to earn. The South African border management officers must work much harder than their Zimbabwean counterparts to limit the flow of foreign visitors who intend to work, whether legally or illegally, in their countries.
Higher incomes don’t just happen. While culture and personal aptitudes certainly play a large role, the biggest differences between peoples of similar cultures are explained by the governance of the jurisdiction in which they live and the resulting level of freedom with which they are blessed to live and to work. We have long known that people who live in relatively free and orderly societies tend to enjoy higher standards of living, longer life spans, greater safety, better health, and less corruption. The difficulty lies in how to achieve and maintain such liberty when the temptations haunting those who would govern us lead them to expand their power at the expense of our freedom and livelihoods.
Global Data Offers a Clear Perspective
Given this tension between liberty and the will to power, we can see the expansion of governmental powers as a form of corruption, a deviation from the promise and prerequisites of prosperity. And while not all forms of corruption can be explained by ideology, all ideologies that expand the reach and power of government officials will necessarily manifest in corruption, both grand and petty.
We can measure this. The newly released Economic Freedom of the World 2025 Annual Report shares data on several measures of economic freedom for 165 countries and legal jurisdictions covering most of the world when these measures of each country’s overall economic freedom are compared to corresponding measures of perceived corruption, the correlation is strongly negative.
The more economically free a country is, the less burdened it is by corruption. The less power that a government official has over the livelihoods of other citizens, the less able is that official to extract profit for political favours.
Economic freedom is not the same as political freedom, but measures of “personal freedom” also strongly positively correlate with economic freedom. Higher economic freedom scores are also associated with less poverty, lower rates of infant mortality, and longer lifespans.
Rankings Raise Questions on South African Economic Freedom
Of the 165 countries with Economic Freedom of the World (EFW) scores, South Africa ranks in 83rd place, with a score of 6.61 out of 10. Zimbabwe ranks 164thwith a score of 3.91, which explains the wide difference in per capita income and in the direction of worker migration. Within Africa, South Africa has neither the highest nor the lowest EFW score. But compared to several other regions of the world, sub-Saharan Africa scores the lowest, though it has improved on average over much of the past 25 years. Unfortunately, within that group, South Africa’s EFW ranking and absolute score have both been in slow decline.
The overall EFW score is an average of scores from five categories, or “areas,” of economic freedom:
- Size of Government;
- Legal System and Property Rights;
- Sound Money;
- Freedom to Trade Internationally; and
- Regulation.
Of these, South Africa’s highest score is in the area of Sound Money. It is still low compared to other countries but with the promise of a lower inflation target, we can expect that EFW score to improve in the coming years. In contrast, the Reserve Bank’s stated desire to phase out cash will almost certainly cause more harm than good. And the Bank’s latest search for a link between monetary policy and climate change seems to be little more than shilling for a carbon tax.
Details of Low Score Areas Highlight A Concern
This brings us to Area 1- Size of Government, which includes government spending and taxation. This category has been competing with Area 2, Legal System and Property Rights to be South Africa’s lowest category. With high government consumption and redistribution plus interest payments on government debt, any new taxes or increased rates are likely to dampen economic growth and further shrink the tax base.
The slow decline of the Area 2 score is perhaps the most worrisome. Judicial independence is of only token value when the courts lack impartiality, and a society that loses its respect for private property rights cannot remain civilized. In such a society, people are afraid to go out in the daylight and will not even try it at night.
The failure of police services has forced people to change their lifestyles and to devote an increasing portion of their after-tax income toward private security arrangements. As the Area 2 score declines, a government’s perceived legitimacy also declines.
A breakdown in the rule of law and the loss of legitimacy cannot be corrected by an authoritarian crackdown. But that becomes the danger. A government must either perform its core functions, such as adjudication, policing, and provision of municipal services with a degree of competence or yield its authority and resources to the private neighborhood associations that rise naturally to fill the gap.
History Tested Values Needed
Respect for law and the maintenance of order depend on a foundation of rational law, much of it tested by centuries of history, and the fair and competent enforcement of such law. The same applies to regulation of business activity, especially to employment law, which now treats employers and employees – and even different racial groups – as adversaries rather than as freely cooperating adults, equal before the law.
A morally founded determination to increase economic freedom, with a steadfast focus on the protection of its essential legal foundations, is the only path compatible with human dignity and a prosperous civil society.
