Market Freedom: Where African economies score highest – ACBR 2019

By James Hall

Analysis in brief: While doing better than other Business segments in the latest Africa Country Benchmark Report, as well as reflecting progress made away from command economies and state monopolies, Market Freedom has further to advance to properly drive economic change in Africa.

Led by the liberalisation of economies in North and Southern Africa, Market Freedom is the highest scoring segment continentally in the Business quadrant of the newly released Africa Country Benchmark Report (ACBR) for 2019. This is good news for African businesses, which contend with bureaucratic red tape and other state restrictions to their operations. Economically, Market Freedom lays the foundation for growth and is the enabler for the other four ACBR Business segments: Consumption, Labour, Production and Technology. However, the continent-wide score for Market Freedom acquired by averaging the five regional scores – Central, East, North, Southern and West Africa – whose scores are in turn averaged from their constituent countries’ scores, is a mediocre 51.34 points. If Market Freedom is the platform on which the business community of Africa rises, this is a shaky foundation. The good news is that African countries are beginning to recognise and embrace the need for deregulation and the facilitation of doing business. This is evidenced by widespread economic reforms and that no government is openly advocating Marxism like in years past.

The segments comprising the Business Quadrant of ACBR 2019.
The regional comparison of the Business quadrant – including the areas of Consumption, Labour, Production and Technology in Northern, Eastern, Western, Central and Southern Africa.

The drag that is holding back more freedom in marketplaces is governments’ predilection to over-tax and the bureaucratic inertia that keeps generations-old regulations and ways of doing things in place. Market Freedom also means freedom to conduct business in an economic system, one which should be free of corruption. Here too public transparency, made possible by social media and clean government advocacy groups, is providing helpful momentum.

Business segments reflect a continent awaiting technological transformation

Of the other segments surveyed in the ACBR 2019, poor technological resources are the least attractive part of doing business in Africa. The ACBR 2019, which amalgamates several indexes of business performance during the year passed, gives the lowest continental score in the Business quadrant to Technology. At 31.74 points, less than a third of the optimal to guarantee a thriving business community, the score reflects both the available infrastructure and current use of technology. Use is constrained by infrastructure limitations, such as inadequate energy supplies, government shutdowns of the internet for political reasons, low national internet broadband and the difficulty of importing technology from abroad. That being said, most governments seem committed to addressing infrastructure inadequacies that should boost technology consumption. However, more commitment is needed for skills training and education, these shortcomings causing businesses to struggle in finding trained and adaptable workers. The segment of Labour receives the second-lowest score in the ACBR 2019 Business quadrant: 41.59 points.

Limitations in both the labour pool and in technology are reflected in the low continental score of 45.19 points in the Production segment of the Business quadrant. The ability to produce goods is constrained by other factors as well, such as poor transportation systems for importing inputs and exporting finished products and inadequate communications systems. However, none of the issues that hobble business operations are permanent or unrecognised by governments. As these issues are addressed, business operations will be facilitated, and country scores will be incrementally increased, reflected in future ACBR regional scores and continental averages. This progress is already evident in the second-highest score achieved continentally in the Business quadrant for Consumption. The score of 48.14 points for the consumption of goods and services by the public, businesses themselves, governments and others is still inadequate but does reflect some recent trends. One trend has been the growth of electronic communication spawned by mobile phone technologies, which in turn has given birth to e-banking services, e-commerce and other electronic services.

African Continental Free Trade Area to boost Market Freedom

Among all ACBR 2019’s quadrants, Business, perhaps understandably, presents the lowest scores. Nevertheless, low as the ACBR 2019’s Business quadrant scores are, several signs point to better performances in the future – due in large to positivity sprouting from growth in Market Freedom. On a broader scale, Business activity tends to be the final area to see a rise after improvements are made in the three other quadrants – Economics, Politics and Society. Only when peaceful conditions prevail politically, a healthy and educated population exists socially, and beneficial economic policies and indicators are established does a nation’s business community find conditions favourable to function and thrive. For Market Freedom, the condition that drives the business community’s activities – vested in government commitments to deregulation and to decrease bureaucratic red tape – are already evident in several African economies.

In Ethiopia, the last African country to retain a state monopoly on their communications industry, the private sector has been invited to partner and run some of the telecommunications and internet infrastructure. Also in this past year, the new administration in Angola, that took over from the deposed corrupt former regime, is selling off state companies. Those countries that retain state monopolies, such as Equatorial Guinea and eSwatini, are the poorest business and economic performers in Africa and in the ACBR 2019. The best business climates are in countries that are long accustomed to a relatively large degree of market freedom like Botswana, Mauritius and South Africa.

The African Continental Free Trade Area (AfCFTA) will boost market freedom by accelerating competition to make the most efficient business communities within Africa. This can only be achieved by unburdening businesses from bureaucratic and regulatory constraints. Africa’s internal trade is the lowest of any continent, a situation that the AfCFTA seeks to rectify by creating a single continental market for goods and services, accelerating the movement of trade and goods by cutting tariffs by 90%, and eliminating visas. With 54 of the African Union’s 55 member countries participating, Eritrea being the only outstanding signatory, trading within the AfCFTA commences in July 2020. Countries that benefit the most will be those that can streamline their trading regimens, from customs procedures to border post operations, and improve their transportation infrastructure. Africa’s business communities have been advocates for the AfCFTA and will be pressuring their governments to make the necessary progress. Constituting a vital component, Market Freedom holds the potential to uplift businesses in Africa and, in turn, boosting continental economic growth.

Find out more about ACBR here: https://www.inonafrica.com/africa-country-benchmark-report-acbr/

Critical point

▪ Market Freedom is the highest scoring segment in ACBR 2019’s Business quadrant, although the continental average score of 51.34 is not impressive.
▪ African governments recognise the value of market freedom, and countries are gradually liberalising their economies through freeing enterprises and the privatisation of state monopolies.
▪ The AfCFTA will boost market freedom continentally by putting pressure on governments to better facilitate business and trade.