Cameroon has dropped three positions in the 2006 Economic Freedom of the World Report released on Thursday by the Cato Institute in conjunction with the Fraser Institute. Although the country's score is the same as last year's (5.6 out of 10), it has nonetheless dropped from the 99th to the 102nd position (tying with Nigeria and Mali). The report surveyed 130 countries and used data from 2004, with 1970 as its base.
This year’s average country rating was 6.5. Hong Kong retained the highest rating for economic freedom, 8,7 out of 10, closely followed by Singapore at 8,5. New Zealand, Switzerland, and the United States tied for third, with ratings of 8,2. The Democratic Republic of Congo (4.1), Republic of Congo (4.1), Myanmar (3.3), and Zimbabwe (2.8), closed the list.
The leading African country was Botswana with 7.1 (35th alongside Israel and Malta) ahead of Mauritius, 7.0 (40th), and South Africa, 6.7 (53rd).
According to the report, economic freedom is characterized by personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others. In this regard, it uses five key parameters to measure the performance of the 130 countries surveyed:
(1) Size of Government: Expenditures, Taxes, and Enterprises:
This parameter measures "the degree to which a country relies on personal choice and markets rather than government budgets and political decision-making. Therefore, countries with low levels of government spending as a share of the total, a smaller government enterprise sector, and lower marginal tax rates earn the highest ratings in this area."
(2) Legal Structure and Security of Property Rights:
The report states that "The key ingredients of a legal system consistent with economic freedom are rule of law, security of property rights, an independent judiciary, and an impartial court system. … Security of property rights, protected by the rule of law, is essential to economic freedom. Freedom to exchange, for example, is meaningless if individuals do not have secure rights to property, including the fruits of their labor... If individuals and businesses lack confidence that contracts will be enforced and the fruits of their productive efforts protected, their incentive to engage in productive activity will be eroded. Furthermore, poor performance in this area is sure to deter investment. Therefore, it is highly unlikely that countries with low ratings in this area will be able to achieve and sustain high rates of growth."
(3) Access to Sound Money:
This parameter deals with "the consistency of monetary policy (or institutions) with longterm price stability" and "the ease with which other currencies can be used via domestic and foreign bank accounts". According to the report, "In order to earn a high rating in this area, a country must follow policies and adopt institutions that lead to low (and stable) rates of inflation and avoid regulations that limit the use of alternative currencies should citizens want to use them."
(4) Freedom to Trade Internationally:
This area measures obstacles to free trade such as "tariffs, quotas, hidden administrative restraints, and exchange rate and capital controls". Therefore, "In order to get a high rating in this area, a country must have low tariffs, a trade sector larger than expected, efficient administration of customs, a freely convertible currency, and few controls on the movement of capital."
(5) Regulation of Credit, Labor, and Business:
The report state that "In order to score high in this portion of the index, countries must allow markets to determine prices and refrain from regulatory activities that retard entry into business and increase the cost of producing products. They also must refrain from 'playing favorites,' that is, from using their power to extract financial payments and reward some businesses at the expense of others."
Obstacles to Economic Freedom
In explaining why South Africa slipped from 35th to 53rd position, the Free Market Foundation of Southern Africa blamed,
"... increased government spending; challenges to the independence of the judiciary and escalating crime; increased general regulation; contradictory policies on foreign trade and foreign investment; increased regulation of credit markets; continued inflexibility of labour regulations in the face of extremely high unemployment; and increased business regulation."
This analysis is even more true for Cameroon and other African countries at the bottom of the economic freedom index who are in dire need of economic reform.
Click here for the complete report.
Click here for data on Cameroon.
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