NS4301 Summer Term 2015Economic Freedom

Overview• Oxford Analytica, “Sub-Saharan Africa Economy:

Questions of Freedom, EIU, Feb 2, 2015

• Summary of Heritage House Index of Economic Freedom, 2015

• Main findings

• Economic freedom in Sub-Saharan Africa is increasing, although pace is very slow.

• In 2015 average score for region is 53.8 out of 100 – just 0.1 points higher than 2013 (higher score, more freedom)

• Top ranked country was Hong Kong at 89.6

• Report calls into question:

• Idea that Sub-Saharan Africa is undertaking broad reforms and

• That economic freedom is a key determinant of investor interest

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Economic Freedom in Africa I

• Heritage Index ranks 186 countries on four broad freedoms

• Rule of law (property rights, freedom from corruption)

• Limited government (fiscal freedom, government spending)

• Regulatory efficiency (business, labor and monetary freedom) and

• Open markets (trade, investment and financial freedom)

• In 2015 Sub-Saharan region as a whole ranked hear bottom of countries classified as “unfree”.

• Mauritius now ranked tenth in the world ahead of the US and UK (12th and 13th respectively)

• It is the only country in the “mostly free” category

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Economic Freedom in Africa II

• Botswana is the second highest ranked African economy. It is in 36th place followed by Cape Verde (60th), Rwanda (65th), Ghana (71st, South Africa (72nd) and Madagascan 70th – all ranked “moderately free”

• 27 African countries fall into the “mostly unfree” grouping while the “repressed” category is dominated by oil and resource rich countries such as Angola, Chad, Congo, DRC, and Equatorial Guinea as well as

• Long standing problem states including CAR, Eritrea, and Zimbabwe

• Heritage tends to find a good correlation between economic freedom and economic growth – resources are used more efficiently with increased freedom.

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Economic Freedom in Africa III

• However some of the countries scoring low in economic freedom have been doing fairly well economically.

• Reason – not so much the level as the trend that affects economic growth

• Angola may be a arepressed economy, but its economic freedom score has almost doubled since 2000

• The marginal decline in South Africa’s score over the past 15 years also tells a story about the country’s current state of policy paralysis and disarray

• Data for Mauritius are particularly striking• Country has improved its score from 67 to 76 since 2000.• Surged up the global ankings from 59th place in 2000 to 10th

today

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Economic Freedom in Africa IV

• Mauritian government has long sought to move away from economic policies based on redistribution and state intervention towards an emphasis on private sector led economic growth

• Growth has averaged 5% annually over the past three decades making it one of the country’s most consistently successful economies.

• However correlation does not equal causation• Success of Mauritius does not answer the question of

whether it is economically successful because it is free, or whether economic success leads to economic freedom.

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