The Fraser Institute’s Economic Freedom of the World 2024 report recently revealed a disturbing trend: global economic freedom has fallen for the third consecutive year. Africa, in particular, performs poorly, with Algeria ranking 161 out of 165 evaluated economies, Libya 157, South Africa 81, and Nigeria 113.
Research reveals that African countries’ poor performance is a result of several regulatory bottlenecks hindering business innovations, development and expansion. However, the continent can still trim things around if the policymakers prioritise regulatory reforms and invest in institutional capacity building to reverse the declining economic freedom trend.
Donald Kaberuka, former President of the African Development Bank, noted that Africa is a land of opportunity that can foster global growth, but the rank of countries in economic freedom indexes over the years shows a poor expansion rate.
Economists pinpoint unfavourable regulations, lack of supportive systems, government trade intervention, and weak enforcement as key obstacles. These factors, highlighted by the Fraser Institute, hinder economic freedom.
For example, Algeria’s mixed economic system, tainted by strong government intervention and socialist influences, exemplifies these challenges. This is portrayed through monopolistic hindrances manifested through the government’s dominance over sectors like oil and gas. The country’s restrictive business environment and government-controlled sectors stifle innovation and hinder foreign investment.
According to the World Bank’s Ease Doing Business 2022 report, Algeria ranks 157 out of 190 economies in terms of ease of doing business. The World Bank’s report expresses the conducive environments or otherwise of countries to business, highlighting that the economies with a rank between 1 to 20 have simpler and more friendly regulations for businesses and countries like Algeria at the other edge have stiffer regulations.
In Nigeria, the country’s complex bureaucratic procedures for commercial activities pose significant barriers. Same with the weak enforcement of property rights, Global Law Experts, a platform for legal experts worldwide, reveals.
Several African countries have a similar habit of protectionism, especially the act of restricting imports in favour of local products. But this is at the detriment of consumers who could have enjoyed lower prices of goods.
For instance, Libya’s deliberate complex import licensing system, Nigeria’s restriction on used or refurbished goods, and South Africa’s bureaucratic processes for import and export activities, such as requiring permits from multiple government agencies for goods like pharmaceuticals, chemicals, and electrical equipment. Meanwhile, relaxing import restrictions and promoting competition can foster economic diversification.
Regulations play a crucial role in every economy’s development. In Africa, unfavourable regulations, including internal and external, are limiting growth, creating barriers to market access, and reducing competition. Specifically, regulation constraints like high tariffs and import taxes hinder inter-country trade. While countries like Algeria, Nigeria, and Libya may impose these taxes to protect local industries, this system hikes the prices of imported products, which hampers foreign investments and a seamless intracontinental trade.
To address these issues, regional initiatives like the African Continental Free Trade Area (AfCFTA), the Tripartite Free Trade Area (TFTA), and national efforts like Egypt’s Trade Facilitation Agreement express a potential to be a practical force to streamline trade procedures and reduce bureaucracy.
Raising the ranks of African countries in subsequent indexes means tackling these factors and repositioning them to cater for the region’s expansion.
How far is the AfCFTA?
The African Continental Free Trade Area (AfCFTA) is one of the frameworks positioning Africa for substantial intracontinental trade by restructuring key economic factors. It aims to mitigate trade bottlenecks by creating a unified continental market, which could address many regulatory and policy hurdles that currently inhibit trade expansion within Africa.
However, implementation remains slow, with only 47 of 54 countries ratifying the agreement. Bureaucratic barriers and conflicting continental and national aspirations hinder progress.
In a policy brief published by the Africa Policy Research Institute, the organisation reveals there is a need for increased private-sector participation to overcome the challenges in implementing the AfCFTA. Most specifically, the report reveals accelerating AfCFTA implementation requires addressing bureaucratic bottlenecks and aligning national policies with continental goals.
African countries’ poor performance in the economic freedom index is rooted in regulatory barriers, bureaucratic bottlenecks and protectionism restraining innovation and businesses. This creates a mountain of responsibility on the continent’s policymakers to introduce policies and implement international trade agreements in a way that would allow imports and protect business growth.
