Monday, August 16, 2010



Dr. Wolassa Kumo
Dr. Wolassa Kumo.Introduction

The Wall Street Journal and The Heritage Foundation have published their 2010 Index of Economic Freedomunder the theme “The Link Between Economic Opportunity and Prosperity” covering 183 countries across 10 specific freedoms: business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom.

Each component of freedom is assigned a grade using a scale from 0 to 100, where 100 represents the maximum freedom. An overall economic freedom for each country is obtained by averaging the ten components.

Based on the results of the overall index, the global economic freedom is distributed as follows:(a) “free” with the score of 100-80; (b) “mostly free”, 79.9-70.0; (c) “moderately free” 69.9-60.0, (d) “mostly unfree” 59.9-50.0 and (e) “repressed” 49.9-0.0. The 2010 results indicate that only 7 countries in the world achieved the state of ‘free’: these countries include from the highest score to the lowest, Hong Kong, Singapore, Australia, New Zealand, Ireland, Switzerland, and Canada. The world’s four largest economies, USA, Japan, China and Germany have not attained ‘free’ state. Neither did any of the 53 African countries. Thus, economies that have achieved a great deal of economic prosperity were not necessarily fully free, but were not repressed either.

Most advanced economies fall within the category of “mostly free” instead of fully “free” as one would expect. Full economic freedom is neither achievable nor optimal. Even the most free economies such as Hong Kong and Singapore scored only about 89 out of 100 on the Economic Freedom Index. However, sustained economic prosperity is most unlikely without basic economic freedom. That is why most of the “mostly free” and “moderately free” economies are the better advanced economies in the world.

Mostly Free Economies

There are two economies in the African continent that are mostly free. These are Mauritius and Botswana, both upper middle income economies and members of the Southern African Development Community (SADC). Mauritius is the world’s 12th freest economy. Mauritius is also the only African country that is among the 30 full democracies in the world, according the democracy index 2008. The only high income economy in the continent, Equatorial Guinea, is repressed economy. Lack of key economic freedoms such as business freedom, investment freedom, property rights and freedom from corruption in the country ensured that nearly 70 per cent of the population still languishes below poverty line amid abundant oil wealth. Equatorial Guinea must address lack of economic freedom as a matter of urgency to ensure equitable distribution of the national wealth and speed up overall economic development. Given the abundant oil wealth, Equatorial Guinea has the ability to eradicate poverty within a decade of it makes an appropriate policy choice. The world is watching!2010 Index of Economic Freedom

“Mostly free” economies in the rest of the world include United States of America, United Kingdom, Bahrain from the Middle East, Japan, Germany, Taiwan and Macau, Special Administrative Region of China, among others. Chile is the only “mostly free” economy from Latin America.

Moderately Free Economies

There are about six moderately free economies in Africa. These, in the order of their rank from highest to lowest, are: Madagascar, South Africa, Uganda, Namibia, Cape Verde and Ghana. Out of the 53 countries in the continent there are only 8 economies that are “mostly” and “moderately” free. The rest of the African economies are “mostly unfree” and “repressed”. As we can see from the list the link between economic freedom and prosperity is not simple. Four of the 8 mostly and moderately free economies are among Upper Middle Income economies in the continent. These are Mauritius, Botswana, South Africa and Namibia. Among the moderately free African economies, Cape Verde is a Lower Middle Income economy while Madagascar, Uganda and Ghana are low income economies; although Uganda is among the fastest growing economies in the continent.

Among the 22 Lower and Upper Middle Income economies in the continent, only 5 economies (23%) are mostly and moderately free. About 77% of the Lower and Upper Middle Income economies in Africa are ‘mostly unfree’ economies. This is also true globally. For instance, France is only moderately free and yet it is one of the Group 7 highly industrialized economies while China is ‘mostly unfree’ economy, but it has been growing double digit for most of the past three decades and is poised to take over Japan as the world’s second largest economy very soon, if it has not already done so.

Mostly Unfree Economies in Africa

Slightly less than half of the African economies are ‘mostly unfree’ economies. These economies, from highest to lowest score, include, Burkina Faso, Morocco, Rwanda, Egypt, Tunisia, Tanzania, Zambia, Kenya, Swaziland, Algeria, Nigeria, Mozambique, Mali, Benin, Gabon, The Gambia, Senegal, Malawi, Cote D’Ivoire, Niger, Cameroon, Mauritania, Guinea, Ethiopia, and Djibouti.

The top 7 countries: Burkina Faso, Morocco, Rwanda, Egypt, Tunisia, Tanzania, and Zambia are only two points away from achieving moderate economic freedom. Therefore, if they accelerate their current reform processes, they may be able to attain this level within 2-5 years. For instance, Rwanda, was hailed as the world’s leading reformer in improving private business climate in 2010 and Tanzania is among the most consistent reformers in the continent.

On the other hand, the bottom 6 ‘mostly unfree’ economies: Niger, Cameroon, Mauritania, Guinea, Ethiopia and Djibouti are 8-9 points away from achieving moderate economic freedom. Among this group, Cameroon is a Lower Middle Income economy while Ethiopia is among the Africa’s 9 fastest growing economies. However, unless these countries urgently address the challenges of economic freedom, viz., business freedom, investment freedom, trade freedom, financial freedom, freedom from corruption and property rights, their current economic achievements are unlikely to be sustained.

Africa’s Repressed Economies

About 17 economies in Africa are repressed. These include: Sao Tome and Principe, Equatorial Guinea, Angola, Lesotho, Seychelles, Sierra Leone, Chad, Burundi, Togo, Liberia, Comoros, Guinea-Bissau, Republic of Congo, Democratic Republic of Congo, Libya, Eritrea and Zimbabwe.

This group includes 4 oil rich economies: Equatorial Guinea, Angola, Chad and Libya; 1 Upper Middle Income economy (Seychelles) and a number of mineral rich economies such as Sierra Leone, and Democratic Republic of Congo. Economic repression in resource rich economies is particularly dangerous because it not only curtails the participation of citizens in wealth creation and distribution but also is reflected in flagrant violation of government spending, fiscal freedom and freedom from corruption. The two Africa’s fastest growing economies, Angola and Sierra Leone, cannot expect to sustain their current high growth rates while at the same time practicing inimical and repressive economic policies.

Eritrea and Zimbabwe’s economic repression is directly correlated with their dismal economic growth performance of less than 1%, on average, during the past decade. Seychelles’ recent regressive economic performance is also closely linked to its increasingly repressive economic freedom.

On the other hand, Liberia was expected to speed up the economic reform processes after the Harvard educated and the first democratically elected female President in Africa, Ellen Johnson Sirleaf took over office in 2005. Understandably, the decade old civil war in the country destroyed most of the economic infrastructure and undermined economic and social institutions which poses formidable challenge to reconstruction and growth in the economy. Considering these challenges, Liberia is doing much better after she became president. For instance, in the World Bank Ease of Doing Business Index Liberia’s rank improved by 10 points from 159th out of 183 countries in 2009 to 149th in 2010.

Concluding Remarks

Out of the 53 countries in Africa, 8 countries are ‘mostly’ and ‘moderately’ free, while 25 countries are ‘mostly unfree’ and 17 countries are repressed. Data for Sudan, Central African Republic and Somalia was not available. This implies that over 42 countries in Africa limit economic freedom of their citizens in one way or the other. These countries represent about 87% of Africa’s over 1 billion population as of mid 2010.

Although the link between economic freedom and prosperity is not simple, sustained economic progress is unthinkable without minimum basic economic freedom. Lack of economic freedom stifles entrepreneurship which is the foundation of economic prosperity in market economies. Lack of economic freedom means that governments cannot be held accountable for misappropriation of public funds and incomes from export of natural resources, and royalties from natural resource exploration rights. As the poorest region in the world, Africa, particularly sub- Saran Africa, cannot afford to suppress the private business, and allow predatory kelptocracies to keep on squandering the national wealth while millions of people languish under poverty, illiteracy and malnutrition.

According to the World Bank’s newly adjusted yardstick for measuring global poverty of US $1.25 a day half of the people in sub-Saharan Africa, 380 million people were living below the poverty line in 2005, as were 200 million people in 1981.

Economic growth in sub Saharan Africa during the past decade is encouraging, but it is not enough to lift over 380 million people from absolute poverty in an immediate future. The current growth momentum must be anchored by conducive economic policy reforms if the continent is to eradicate absolute poverty in a foreseeable future.

Economic freedom does not necessarily mean governments should keep hands off the private sector and leave the economy to the mercy of the invisible hand. It is about governments creating a right balance between their regulatory responsibilities and the rights of citizens to fully participate in economic progress of nations.