How Rwanda overtook South Africa: the importance of economic freedom

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Economic freedom is strongly correlated with economic growth. There is no longer any doubt for those who witnessed the extraordinary rise of the countries of the former Eastern bloc after the fall of the former Soviet Union.

Countries like Estonia and Georgia have seen unprecedented increases in their prosperity and economic freedom, as evidenced by their rankings in the latest annual World Economic Freedom (EFW) report.

Indeed, Estonia is considered a technological hub rivaled only by Silicon Valley in the United States.

Closer to home, Rwanda is now the most popular investment destination on the African continent. He overtook South Africa in the EFW to occupy the 2nd position on the continent after Mauritius.

This has led the country to consistently rank among the five fastest growing economies in the world.

That Rwandans are even now producing their own smartphones is quite extraordinary considering that the country was experiencing the worst genocide since the Holocaust around the same time South Africa was becoming a democracy.

If we look at the graph below showing the performance of the two countries according to EFW, we see that Rwanda overtook South Africa between 2007 and 2008.

Rwanda is not only at a higher point than South Africa, but also has an upward trend while South Africa has a downward trend in terms of economic freedom.

If we look at the growth in GDP per capita for the two countries, we see that since overtaking South Africa, not only has Rwanda had higher annual growth rates, but South Africa has not had higher annual growth rates. Rwanda has not come close to matching growth.

In fact, the last time this happened was in 2003, the same year South Africa achieved its highest economic freedom score recorded under President Thabo Mbeki.

The EFW index is divided into 5 zones which contain 43 component variables. From July 17 to 19, the Free Market Foundation (FMF) will organize an audit of South Africa’s economic freedom.

There will be five sessions representing the five fields of EFW, during which South African experts in these fields will chair discussions between government officials and international researchers who compile the annual EFW Index.

We hope this will allow policymakers to see how EFW can be used in their own specific areas of expertise to achieve the broader development goals the government has set for the country.

The EFW is comprehensive, so any ministry will find variables that apply specifically to its area of ​​expertise, be it budget (Area 1: Size of government), judiciary and property rights. (Domain 2: Legal system and property rights), protection of the value of the rand (domain 3: healthy money), the attraction of FDI (domain 4: freedom to trade internationally) and the rules to which owners small businesses must comply (area 5: regulation).

If we are serious about solving the myriad development challenges facing this country, we must start thinking about adopting policies known to lead to higher levels of economic growth and prosperity.

Bonang Mohale, former CEO of Business Leadership South Africa and winner of the Free Market Luminary Award, will host the session on freedom to trade on July 18.

Former South Africa Supreme Court Justice Rex van Schalkwyk will chair the session on the legal system and property rights on July 19. These are just two of the experts who will participate in this informative and exciting seminar.

To attend, simply register on the FMF website.

If we are serious about solving the myriad development challenges facing this country, we must start thinking about adopting policies known to lead to higher levels of economic growth and prosperity.

Hope to see you at the audit event. I’ve said before that policymakers should start comparing policies to useful indices like EFW.

We saw in our comparison between South Africa and Rwanda how important this index is in predicting which economy will grow “much faster than the population”.

This is precisely what President Ramaphosa has underlined as the main objective of his government for the next five years.

Mpiyakhe Dhlamini is a data science researcher at the Free Market Foundation. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.


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