South Africa now ranks 110 out of 162 as an economically free country, according to the Economic Freedom of the World (EFW) index.
The Free Market Foundation (FMF) revealed on Wednesday that South Africa had ranked 94 but an error in World Bank data, spotted and investigated by the FMF’s Eustace Davie and Neil Emerick shows that South Africa ranks far worse.
The FMF said accuracy is critical in producing a set of data which is often used by academics in their papers.
“The error lay in the World Bank’s calculation of private versus public sector investment in South Africa. Before the error came to light, SA’s ratio of private sector investment as a percentage of total investment indicated an 8/10 mark on the index,” the FMF said.
A higher score indicates a higher percentage of private sector investment while a lower score would indicate ‘crowding out’ by the public sector. The score, as presented, ranked South Africa surprisingly in the top 30 countries in the world in this investment category.
However, the FMF team realised this number did not reflect the extent of South Africa’s State-owned enterprises. Davie and Emerick found the World Bank source data erroneously added private sector investment and public enterprises together.
Where the historic ratio of private sector to government investment had been consistently around 65/35(%), the new World Bank data suggested the private sector had been responsible for 85% of all fixed capital investment and government only 15%.
The incorrect data remains available on the World Bank website.
The FMF will work with the World Bank to correct the statistics distorting South Africa’s investment data and its ranking in the Economic Freedom of the World report.
The FMF said on Thursday that this drop did not bode well for South Africa’s investment story.
“This discovery matters because economically free countries have higher levels of growth, better health, and lower levels of unemployment,” the FMF said in a statement.
The report, which is released each year by the FMF and the Fraser Institute, makes an important contribution to the analysis of economic policy.