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Hong Kong and Canada Top Economic Freedom Index

U.S. Falters, Corruption Represses Angola and Zimbabwe

Jan 14, 2014 3:42 PM   By Jeff Miller
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RAPAPORT... The freedom to conduct and operate a business has improved globally during the past year, according to The Heritage Foundation and The Wall Street Journal; however, the economic and political climate remained unfriendly to some of the diamond industry's important trading players.  

The 20th annual Index of Economic Freedom  produced a world average score of 60.3 points -- the highest average to date, with 43 countries, including Singapore and Sweden, achieving their highest scores yet. In the 2014 Index among the 178 countries ranked, scores improved for 114 countries and declined for 59, while four recorded no score change.

Index scores measured the rule of law, government spending and fiscal dependency, regulatory efficiencies and openness of the market.  Out of 100 points, The Heritage Foundation defined ''free'' economies as those scoring better than 80 points, ''mostly free'' as scoring between 70 points and 79.9 points, ''moderately free'' as scoring 60 points to 69.9 points, ''mostly unfree'' as scoring 50 points to 59.9 points and ''repressed'' as landing scores of less than 49.9 points.  economic freedom

Of the major diamond-industry economies, Hong Kong scored highest of all nations at 90.1 points. Hong Kong's ''free'' economy exhibits a high degree of market openness, as measured by trade, investment and financial freedoms, according to The Heritage Foundation. It has been complemented by a transparent regulatory environment and competitive tax regime. The top corporate tax rate for Hong Kong is 16.5 percent, it enjoys low rates of corruption and the competitive regulatory regime aids business formation and innovation. The process for launching a business in Hong Kong is straightforward, with no minimum capital requirements, the group reported.

Canada scored as the world's sixth most economically free nation with a score of 80.2 and The Heritage Foundation defined this diamond-producing country as transparent and stable with a  business climate that makes it one of the world’s most attractive investment destinations. Canada exhibits openness to global trade and commerce, the financial system has remained stable, the government vigorously prosecutes corruption and its foundations of economic freedom rest on a judicial system that has an ''impeccable record of independence and transparency.'' Canada's  top corporate tax remains  15 percent and the regulatory framework for opening up a business is efficient,  without any minimum capital requirements. Incorporating a business takes one procedure and less than one week.

The U.S. slipped half a point in its ranking from one year ago to  a score of 75.5 and as ''mostly free,'' is  the only country to have recorded a loss of economic freedom each of the past seven years. The Heritage Foundation blamed substantial expansion in the size and scope of the U.S. government, including through new and costly regulations, increasing cronyism that has undermined the rule of law and perceptions of fairness. The U.S. maintains a top corporate tax rate of 35 percent, incorporating a business takes five days on average, but the overall cost of meeting regulatory requirements has increased by over $60 billion since 2009, with more than 130 new regulations imposed. The group stated that the full effects of ''the onerous Dodd–Frank bill'' have yet to be felt and a backlog of ongoing rulemakings has prolonged business uncertainty, impeding economic growth.

On the other hand, Botswana continues to be a success story on the continent of Africa, scoring 72 points in the ''mostly free'' category as its economy has been increasingly diversified, in large part due to dynamic investment attracted by low taxes, political stability and an educated workforce. Botswana continues to set an example in the management of large endowments of natural resources, the group concluded. Botswana is the least corrupt country in Africa and it maintains a top corporate tax rate of 22 percent.

The United Arab Emirates (UAE) scored 71.4 points and The Heritage Foundation stated that it could indeed ''do better in the rule of law. Respect for the rule of law remains undermined by the judicial system’s lack of independence and vulnerability to political influence.''  However, the UAE has no income tax and no federal-level corporate tax. Launching a business requires six procedures and takes about eight days with no minimum capital required. Licensing requirements have been streamlined and are less costly, but completing them still takes more than a month the group found.

Belgium ranked just ''moderately free'' with a score of 69.9 points. Its top corporate tax rate is 33 percent.  Starting a business takes less than five days and costs about 5 percent of the level of average annual income. Bankruptcy proceedings are relatively easy. The group concluded that despite efforts to ease the rigidity of employment regulations in the past year, factors that include high sectoral minimum wages still hold back labor market flexibility.

The Heritage Foundation scored Israel with 68.4 points. The nation's  top corporate tax rate is at 25 percent, launching a business takes five procedures on average and no minimum capital is required, but obtaining necessary permits involves about 20 procedures and takes over 200 days. The labor market needs more flexibility to accommodate rapid economic transformation and prices are generally set by market forces, but the government subsidizes some political priorities such as West Bank settlement housing and green energy initiatives.

Namibia scored 59.4, placing it in the ''mostly unfree'' category due to declines in the control of government spending and business freedom outweighing improvements in labor freedom, trade freedom and fiscal freedom.  Official corruption remains a problem in Namibia, and investigations of major cases proceed slowly. The report concluded that public office is often given as a reward for political service and tribal affiliation is a factor. The rule of law remains weak and access to justice is obstructed by economic and geographic barriers, a shortage of public defenders and delays. Namibia's top corporate tax rate is 34 percent and one may start a business without minimum capital requirements, but completing licensing requirements now takes over 100 days.

Institutional shortcomings continue to undermine India’s chances for long-term economic development, according to the group. India scored 55.7 points as the government’s presence in the economy remains extensive through state-owned enterprises and wasteful subsidy programs that result in chronically high budget deficits. Another issue is that the overall regulatory environment remains burdened by administrative bureaucracy. India's top corporate tax rate is 32.4 percent, although domestic corporations pay only 30 percent and surcharges push the effective rates higher. Launching a business takes more than 25 days, on average, and licensing requirements cost almost 10 times the level of average annual income.

The Heritage Foundation defined Angola as ''repressed'' with a score of 47.7 points, citing the lack of capable public institutions and weak rule of law together that undermine the successful implementation of other critical reforms. Tariff and non-tariff barriers, coupled with burdensome investment regulations, continue to hamper development of a more dynamic private sector and interfere with diversification of the country’s economic base. Corruption is widespread among government officials at all levels and investigations and/or prosecutions of government officials are practically nonexistent. ''Recourse to the judicial system is discouraged by time-consuming procedures and the appearance of extensive executive influence on outcomes. Legal fees and property registration can be prohibitively expensive and the overall protection of property rights is weak,'' according to the group. Angola's  top corporate tax rate is 30 percent and reform measures in recent years have streamlined the procedures for establishing a business, but start-ups are discouraged by pervasive corruption and very limited access to credit.

Finally, and with a score of only 35.5 points, Zimbabwe was defined as ''repressed'' for an 18th consecutive year due to its economic instability and policy volatility. The impact from years of hyperinflation has crippled entrepreneurial activity, severely undermining realization of the country’s economic potential, the group found. ''A corrupt and inefficient judicial system and general lack of transparency severely exacerbate business costs.'' The Heritage Foundation cited  lost diamond revenue,  endemic corruption even at the highest levels of government, eroded judicial independence and continued chaos and violence as holding back economic freedom. Zimbabwe's top corporate tax rate is 25 percent and incorporating a business takes nine procedures and 90 days, with no minimum capital required. However, completing licensing requirements costs over 40 times the level of average annual income.

The world’s most-improved country on the index this year was Myanmar, which experienced a score improvement of 7.3 points, due to wider investment, business and labor freedom scores. Nonetheless, Myanmar remains a repressed economy with an overall score of 46.5. The Central African Republic’s Index score declined the most worldwide, plunging 3.7 points to 46.7.

View all rankings on The Heritage Foundation's ''Heat Map.''

 

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Tags: Belgium, Canada, corruption, diamond producing nations, economic freedom, Hong Kong, India, Israel, Jeff Miller, regulations, Zimbabwe
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