Ghana drops in 2017 Economic Freedom rankings

The ‘Size of Government’ indicator is among the five areas studied under the Economic Freedom of the World Index. Overly large government spending and taxation can crowd out other economic activity and limit people’s economic freedom. Ghana appears to do modestly well in this area as Ghana ranked 55 out of 159 countries (this rank is based on data from 2015). However, undisciplined spending threatens Ghana’s fiscal future.

2. Legal Systems (Rule of Law) and Property Rights

Though Ghana’s score is ahead of both the West African and Other Africa averages, it is well behind other African countries such as Botswana, Rwanda, and Liberia and very far behind the top 10 in this indicator. An efficient market economy is not possible without a sound and predictable legal structure that protects property rights and contracting for all, equally and fairly. Despite the relatively good rank (69 out of 159 countries), improvement here may be Ghana’s greatest challenge and opportunity. No nation, except perhaps some petro states, has achieved rich nation status without a strong rule of law.

Unfortunately, the rule of law in Ghana has been up and down, but mostly down since 1995, and this is a significant danger signal.

3. Sound money

Inflation erodes the value of rightfully earned wages and savings. Sound money is thus essential to protect property rights. When inflation is not only high but also volatile, it becomes difficult for individuals to plan for the future and thus effectively utilise economic freedom, and this also suppresses investment and job creation. Ghana scores below all the comparison groups and nations. This has resulted in persistent high levels of inflation. Unfortunately, Ghana’s score in this area has also been declining in recent years. As well as problematic monetary policy, Ghana’s score here is weakened by restrictions on foreign bank accounts which undermines people’s freedom to control their own resources. The importance of this can be seen from the fact that all top nations have a 10 for this variable, along with Botswana.

4. Freedom to Trade Internationally

Just as individuals and businesses in Ghana should be able to buy from and sell to whom they wish in their own nation, they should have the globe as their marketplace. Ghana’s score has declined in recent years and in 2015, the most recent year for which data are available, Ghana ranked 115th, creating a barrier to prosperity growth.

To become prosperous, Ghana needs to be able to sell to the 7.5 billion people on the planet, not only the 28 million citizens of Ghana. Ghana is well behind the top country of the EFW index, the world average, and Botswana and just ahead of the West and other African averages (See Table 1). Much of the problem lies in red tape and inefficiency, with Ghana getting low marks in non-tariff barriers, compliance costs, and regulatory barriers. However, formal barriers to trade are also too high. Foreign ownership restrictions and, particularly, capital controls weaken foreign direct investment, which was the engine of growth in their early years for some of the most advanced nations today.

5. Regulation

Ghana ranks 90th in the world in red tape, which limits the dynamism of the economy. Its score has been mostly declining in recent years. The regulations indicator of economic freedom studies regulations in three main areas: regulations in credit, regulations in the labour market, and regulations in business.

Source: Ghana | Myjoyonline.com | GN