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African economies rank high in global league.

The latest Economic Freedom of the World Report, while limited in its scope, provides an opportunity to see how African economies fare in comparison with the rest of the world. As NEIL FORD reports, Africa comes out looking good.

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The Economic Freedom Network (EFN) has published its latest league table of economic freedom in 123 states, including 33 in Africa. As expected, African countries dominate the lower reaches of the table but perhaps surprisingly two states have reached the higher echelons of the global rankings, while many more African nations have moved a long way up the table.

From the outset, it should be acknowledged that most of the EFN's members, such as the Cato Institute in the US and Canada's Fraser Institute, are firmly placed on the libertarian or liberal side of the economic debate and so the survey tends to favour minimal state interference and maximum business freedom.

However, the survey does provide an indication of the general attractiveness of each of the listed countries destinations for investment.

Given that the survey considers the same countries under the same criteria each time it is conducted, it is perhaps of most use in comparing change over time and so scores and rankings have been provided for both 1990 and 2001 in the main table. The list of 33 African entries is topped by Mauritius, which also achieves an impressive global ranking of 20th along with Germany and Chile. Africa's number two, Botswana, is ranked alongside Norway, Sweden, Japan, South Korea and Taiwan, indicating that some African economies are as open as many in the West. However, at the other end of the scale African countries fill five of the bottom six places in the global table, although Myanmar comes last.

A glance at the top three African countries for 2001 indicates that the EFN survey has some validity. Any African observer would place Mauritius, Botswana and South Africa near the top of their lists of the most favourable African countries for investment.

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Similarly, any observer would have noted that Uganda's ranking in recent years has greatly improved. The land locked East African state was ranked bottom out of the 33 in 1990 and now achieves joint fifth place--an incredible improvement and a reflection of the extent to which the government has adopted economic reforms.

Namibia's higher ranking in 2001 is also to be expected, given the enormous strides made in a country that was still effectively a colony of South Africa in 1990. However, Zambia's high 2001 ranking is a little surprising given the government's current doubts over IMF reforms, but opposition to the multilateral's plans first came to light after the survey was completed.

AFRICA HAS MADE MAJOR STRIDES

The fact that only four countries--Cameroon, Central African Republic, Congo-Brazzaville and Zimbabwe--receive a worse rating in 2001 than in 1990 indicates that liberalisation and deregulation have both made progress across the continent over the past decade, at least according to the standards of the Cato Institute and the EFN.

During that period, the standard IMF rescue package for ailing economies has been taken on board by the vast majority of African nations, a process which was made more palatable by the IMF's decision to give a more human face to its structural adjustment policies of the 1980s, with increasing focus upon poverty reduction.

The fact that this is a global survey is both an advantage and a disadvantage when it comes to analysing Africa. Firstly, the criteria for determining the extent of economic liberalisation are not specific to Africa, while the survey excludes around a third of all African nations.

On the other hand, this lends the Institute's analysis some distance from the continent and enables African economies to be judged by the same standards as the rest of the world. Moreover, the global nature of the study allows comparisons to be made with other parts of the world.

As the survey looks at the long term and is based on slightly outdated statistics, it is not particularly timely. For instance, it can be expected that Cote d'Ivoire's ranking and rating would both be much lower if the survey was based on the situation in 2003.

The thinking behind the study is reflected in the five criteria that are used to calculate rankings, listed in the table. Under the first criterion, higher taxes proportionally lose points, placing the Cato Institute firmly to the right of the political spectrum. There is no doubt that many people would argue with this assumption that 'tax is bad'.

While high taxes can stifle an economy, the ability of the state to provide health, education and social support services for its citizens, plus infrastructure for business, through taxation is viewed by many people as a positive thing.

State intervention is not necessarily a bad thing but all too often the governments of poor countries have sought to boost economic growth through state control and minimal state intervention is generally perceived as being business friendly. There are, however, other criteria such as the freedom of the judiciary with which it is difficult to argue.

HOW SCORES ARE DETERMINED

The figures are calculated using five criteria:

* To what extent the government dominates the economy: state expenditure and taxes as a proportion of GDP;

* Judicial independence; the exclusion of the military from the political process; protection of property rights;

* Freedom of trade and capital movement;

* Free money flows and access to sound money;

* Regulation of business, credit and labour.

SURPRISING CONCLUSIONS

It must not be assumed that the most open economies will necessarily be the best performing--the many facets of globalisation mean that the process can have both advantages and downsides. The Algerian economy is one of the strongest in Africa and so the country's third from bottom placing might be unexpected. Yet Algeria's ability to make the most of liberalising gas and power markets in the European Union has been achieved in spite of the collapse of its liberalising hydrocarbons bill. Its success could be put at risk if Sonatrach's dual role as an upstream competitor and national regulator is not assessed. Nevertheless, the fact that the country achieved such a low position is very surprising.

It would have been useful to examine the 1990 and 2001 rankings of some of the African countries not included in the survey. Like Uganda, Mozambique would expect to have moved up many places over the past decade, and Libya, Sudan and Ethiopia have also all been excluded and presumably will not be included in future surveys, given that this would upset future comparisons.

Other African absentees include Liberia and Guinea, although fellow Mano Rivers state Sierra Leone is assessed, presumably because it was easier to access data for the country before the civil war broke out in 1991.

African states are undoubtedly opening up their economies. As the latest Economic Freedom of the World Report indicates, almost all African governments are reducing trade barriers and enabling investors to move money in and out of the continent more easily. Whether this is intrinsically good or bad for Africa remains to be seen, but a look at the table highlights the fact that most of the continent's most successful economies lie near the top of the table constructed out of EFN data.
African countries ranked by the Economic Freedom of the World survey

Country African African Global 2001 1990
 rank 2001 rank 1990 rank score score

Mauritius 1 1 20 7.3 6.0
Botswana 2 3 26 7.1 5.6
South Africa 3 9 42 6.8 5.2
Zambia 3 3 42 6.8 5.6
Namibia 5 20 44 6.7 4.7
Uganda 5 33 44 6.7 2.6
Kenya 7 7 51 6.6 5.3
Egypt 8 18 56 6.5 4.8
Tunisia 9 5 60 6.4 5.4
Tanzania 10 27 69 6.2 3.8
Cote d'Ivoire 11 5 81 5.9 5.4
Ghana 12 23 82 5.8 4.5
Mali 12 10 82 5.8 5.1
Morocco 12 15 82 5.8 4.9
Senegal 12 7 82 5.8 5.3
Benin 16 15 91 5.6 4.9
Cameroon 16 2 91 5.6 5.8
Chad 16 20 91 5.6 4.7
Madagascar 16 25 91 5.6 4.3
Niger 16 10 91 5.6 5.1
Nigeria 16 29 91 5.6 3.5
Gabon 22 18 106 5.2 4.8
Rwanda 22 13 106 5.2 5.0
Sierra Leone 22 27 106 5.2 3.8
Burundi 25 22 110 5.1 4.6
Togo 25 10 110 5.1 5.1
Central African Republic 27 13 114 4.9 5.0
Malawi 28 25 115 4.8 4.3
Congo-Brazzaville 29 15 118 4.5 4.9
Guinea-Bissau 29 32 119 4.4 2.9
Algeria 31 29 120 4.2 3.5
Zimbabwe 32 23 121 4.0 4.5
DR Congo 33 29 122 3.9 3.5

(Source: Economic Freedom of the World, Cato Institute, 2003)
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Title Annotation:Topic
Author:Ford, Neil
Publication:African Business
Geographic Code:60AFR
Date:Feb 1, 2004
Words:1516
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