Red tape tangles South Africa’s economic growth, falling behind in the race for prosperity

In a world where economic freedom leads to prosperous outcomes, South Africa finds itself lagging behind. Ranked 99th globally in the Economic Freedom of the World Index Report of 2022, the country faces numerous hurdles for entrepreneurs. Comparisons with neighboring African nations such as Botswana, Uganda, Kenya, and Rwanda reveal that South Africa’s economy is less free, hindering investment and growth. The consequences are evident in the World Bank’s growth projections for Sub-Saharan Africa, where South Africa falls behind its counterparts. With cumbersome red tape and limited market freedom, the government’s failure to address regulatory obstacles inhibits commerce and stifles wealth creation. The urgent need for embracing freedom in commerce becomes evident if South Africans are to break free from their current economic stagnation.


Economic Freedom and Prosperity

By Zakhele Mthembu*

There are multiple indices that speak to the results of having a free economy, or one wherein doing business is easy as is possible. Yet with such overwhelming evidence, South Africa seems intent on putting as many hurdles in the road for entrepreneurs as is possible.

According to data from the Economic Freedom of the World Index Report of 2022, South Africa ranks 99th globally when the freedom of our economy is measured against others. This means there are 98 other jurisdictions wherein investment for those who have the capital to do so is likely to meet better returns given the minimal interference of the state (freedom) in doing business there.

The Index considered things like business regulations, as well as labour regulations, among institutional measures like the size of the government, the soundness of the monetary system (the degree to which the central bank of a country takes inflationary actions), and the legal system, as well as private property protections. African countries like our neighbours Botswana (49th) and the Great Lakes region nations of Uganda (60th), Kenya (78th), and Rwanda(81st) ranked above South Africa in having freer economies.

Data from the Ease of Doing Business Index done by take-profit.org confirm that doing business and thus generating wealth is easier in other African countries, with Botswana, Uganda, and Kenya ranking above South Africa in that index too.

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The consequences of an environment of a restrictive and interventionist state in markets, are decreased growth. This is shown in the past and projected growth rates for Sub-Saharan Africa released by the World Bank in its April 2023 issue of Africa’s Pulse. The economic growth data and projection of the World Bank in the publication puts South Africa’s rate of growth well below the African countries mentioned above, as well as many others.

The reason for drawing comparisons between South Africa and other African countries is not due to a sense of South African exceptionalism that is seemingly not being exemplified currently. Rather it is to show that policies have consequences. Things such as secure private property rights, the Rule of Law, freedom in the market, and decreased governmental role in people’s lives, matter.

The use of data sometimes clouds a lot of people’s minds to the substantive point being made.The point being made here is that a commitment by those in power irrespective of their ideological inclinations, (Number 1 in the Economic Freedom Index is the Chinese Communist Party controlled Hong Kong Semi-Autonomous Region) to free markets, is a necessity if prosperity is to become a reality for Africans.

The recent comments made by the CEO of Chinese firm Zijin Mining about the red tape of South Africa being bad in contrast to other countries like the Democratic Republic of Congo, should come as no surprise. The presidency’s Red Tape Reduction team has delivered nothing but platitudes.

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In its report to parliament in November last year, the Red Tape Reduction program identified mining licensing, what the CEO of Zijin Mining was decrying in his comments, as one of its focus areas. Nearly 6 months later and the problem clearly is still not addressed. The presidency should not get credit for the institution of the program when the executive it heads still does nothing about fixing the problems identified by it.

The issue of regulatory hurdles that are put in front of businesses is one that is wholly within the ambit of the government to solve. Yet South Africa persists with a state that is intent on making it extremely difficult to partake in commerce within its borders. It is an indictment on political leaders and the people who elect them that something integral to wealth building like the freedom to do business is inhibited by an institution that is supposed to enhance and safeguard it.

There are consequences for economic policies. Countries like Botswana will reap the consequences of policies that better enable doing business, chief among those fruits being the improvement of the quality of life for its citizens. Meanwhile South Africa will reap the decrease in standard of living caused by a low to no growth economy like ours since our policies, and general governance, make doing business harder rather than easier.

Freedom in commerce is an idea South Africans must embrace if they are to offramp from the road of serfdom they have been on for a while now.

*Author: Zakhele Mthembu BA Law LLB (Wits) is a legal researcher at the Free Market Foundation. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation.

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