The premier league of world economies

Clem Sunter – futurist, scenario planner and author of more than 14 books since 1987 – features regularly on the corporate presentation circuit. One of the themes he often trundles out is that of South Africa’s global economic competitiveness. And there’s

In the 2011/12 report, published 7 September 2011, South African crept up four places to 50^th out of the 142 nations surveyed. But it’s not clear whether this ranking is good or bad… Sunter draws an analogy between countries “playing” in a global competitiveness “league” and football teams in the English Premiership. He believes the first 54 economies on the index are in the so-called premier division, putting South Africa a few rungs above the relegation zone! Dire consequences await a country that drops out of this division.

Measuring and economy

It is no easy task assigning a single “number” to a complex economy. The WEF Global Competitiveness Index is compiled from 14, 000 respondents who provide a range of inputs in dozens of categories – after which an overall ranking is determined. South Africa has been on a bit of a rollercoaster of late. We slipped nine places in the 2010/11 report, from 45^th to 54^th, before making up some of the lost ground this year. Our recovery is almost entirely due to gains in the accountability of private institutions, strength of investor protection and technological readiness – and was no doubt helped by other premier division economies “slipping” post-recession.

The highlights from our latest report card include firsts for regulation of securities exchanges and for strength of auditing and reporting standards! We also scooped a couple of seconds, for the soundness of our banks and efficacy of corporate boards. And we earned bronze medals (thirds) for protection of minority shareholders’ interests and the availability of financial services. Also worth a mention was the fourth for financing through the local equities market, 7^th for effectiveness of anti-monopoly policy and 8^th for legal rights. “Since these factors are categorised by the WEF as sustainability issues, these superior ratings are indicative of a highly positive long-term outlook for the South African economy,” said Miller Matola, CEO of Brand South Africa.

Don’t forget, these rankings place us among the best performers from 142 countries worldwide. We can also trumpet the fact that overall we are second in Africa (behind Tunisia, in 40^th place) and second among the BRICS nations. Only China (26^th) is ahead of us, with Brazil (53rd), India (56th) and Russia (66th) lagging behind… We should be shouting from the rooftops! Alas, debates around nationalisation have gained traction – while government’s ill-thought Protection of Information Bill hovers in the background. The irony is that South Africa is poised to counter recent gains in some categories by failing in others.

Praising our strengths, and tackling our weaknesses…

It’s one thing to applaud our strengths, but another to recognise and address our weaknesses. Matola observes: “South Africa could have fared considerably better had we not lost further ground in the categories in which we scored poorly last year – labour policies, health and education!” South Africa ranks 95^th in the labour market efficiency category thanks to our rigid hiring and firing practices (139^th), a lack of flexibility in wage determination by companies (138^th) and significant tensions in labour / employer relations (138^th). It is no accident that poor performances in the survey coincide with poor performances in our economy – and the reasons for our shocking unemployment statistics are set out pointedly in the report.

Businesses have to contend with a number of macroeconomic factors too. A major concern “flagged” in the report is the health of the workforce, which is ranked a lowly 129^th due to high rates of communicable diseases (HIV Aids and tuberculosis) and generally poor health indicators. Infrastructure (we finished 62^nd) and the poor security situation are placing additional constraints on private business. South Africa ranks 136^th on the list in terms of the cost (to business) of crime and violence and there is little confidence in the ability of the police to provide protection.

Economic freedom index is another story

As the education, healthcare and labour issues slowly sink in, another iceberg looms… South Africa’s Free Market Foundation (FMF) recently issued a press release to decry the country’s ongoing slide – 48 places over the past decade – in economic freedom. The Economic Freedom of the World: Annual Report 2011 confirms that we occupy 87^th position of 141 countries surveyed – some way off the 39^th place we occupied in 2001. The report defines “economic freedom” as the right of individuals to acquire property through lawful means, and to freely use, exchange, or give away their property as long as their actions do not violate the rights of others. Why is South Africa sliding?

The FMF explains: “Government is having a greater say in the economic decisions of its citizens, both in the proportion of state involvement in the economy relative to private ownership, and in the regulation of business.” There are countless examples of this “strangulation by stealth.” The FMF sites the National Credit Act (NCA) as one example. The extensive rules about how and under what conditions creditors can lend money to debtors resulted in South Africa slipping 55 places to 107^th in the regulation of private credit category. We also slipped 27 places, to 116^th, in the government enterprises and investment as a proportion of the economy category. Should we be concerned?

Yes – if we consider the worst of the 42 categories that make up the report. We rank 113^th for size of government, 85^th for access to sound money, 84^th in terms of our freedom to trade
internationally and 63^rd for regulation of credit, labour and business! And one of our stronger performances – for legal structures and security of property rights – only earned a 51^st place.

Freer countries performer better!

The five countries defined as “most free” include Hong Kong, Singapore, New Zealand, Switzerland and Australia – with Burundi, Central African Republic, Guinea-Bissau, Republic of Congo and Chad at the other end of the scale. “There is a developing debate about what economic freedom means in South Africa today. This report is important in providing clarity to that definition through the measurement of data for the past 39 years. And the findings suggest that countries with a less intrusive state are better at generating successful outcomes than those that try to do too much”, said Neil Emerick, Council Member of the FMF. In short – the more government “interferes” the worse South Africa Inc will perform. And that’s a documented truth.

Our struggle should not be on apportioning blame for the disappointing state of affairs, but rather to target and improve on each of our failures without neglecting our successes. Perhaps cabinet should use the WEF Global Competitiveness Index as a starting point for its performance-based censure of various government departments!

Editor’s thoughts: One of the saddest things about South Africa’s performance on the Global Competitiveness Index is that many of our failings have been telegraphed for decades. We know that education, healthcare and labour policies are sinking the ship – but we’ve done nothing to address these concerns. If anything, we are more averse to taking the tough steps to address these areas than ever before! Would you like to see Ministers “rated” on an independent global measure such as the WEF Global Competitiveness Index? Add your comment below, or send it to gareth@fanews.co.za

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