IMPROVING ECONOMIC FREEDOM IN ORDER TO INCREASE UNEMPLOYMENT

“The world recovery has started but the challenge is to sustain it”, says a World Bank research article http://www.imf.org/external/pubs/ft/weo/2009/02/pdf/text.pdf . Sentiment often drives confidence which IN TURN drives actual recovery. Sentiment in South Africa has not seemed to change dramatically as can be seen from the recent business confidence index.

What policies has government put in place to ensure recovery? The Economic Freedom of the World: 2009 Annual Report has stated that South Africa has improved from 7.03 to 7.06 (out of 10). This ranks them 57 out of 141 countries. On the surface this looks good but South Africa has declined from 54th in 2008 as they were overtaken by Armenia, Botswana, the Czech Republic, Greece and Kenya. http://www.freemarketfoundation.com/ShowArticle.asp?ArticleType=Issue&ArticleId=2691

So what is it that we need to do to keep improving our rankings? The Mauritius government made a concerted effort to improve its ranking and make Mauritius more investor friendly and to reduce unemployment. It is now the highest ranked country in Africa and one of the freest in the world (ranked at 16).

How can South Africa, who has the largest economy in Africa, make improvements which I believe we can. Some of the areas that South Africa improved on from last year were:-

• Size of government: improved from 6.97 to 7.20
• Freedom to trade internationally: improved from 6.71 to 6.77
• Regulation of credit, labour and business: improved from 7.02 to 7.09

“Even though a banking crisis can be very painful, it is an illusion that they can be fully ruled out by better government regulation. In fact, a case can be made that perverse regulations in combination with the creation of too much liquidity played a key role in the creation of the current crisis,” said Fred McMahon, director of the Centre for Globalisation Studies at the Fraser Institute.

The short term response from governments after a banking crisis is to reduce economic freedom but as the experience from Norway and Sweden shows that this is not necessarily the case and in the long term governments can improve economic freedom after a financial crisis.

I believe that the South African government is on this trajectory of improving economic policies. We have no choice as South Africa has to bring in long term investment and not only money from the ”carry trade” as it is currently doing. Better policies will also improve employment as will better BEE policies. The future will give us that 20:20 vision but I feel quite positive.