Economic freedom: Algeria in the “red zone” (study)

For much of history, people have lack of economic freedoms, which condemned the majority of them to suffer poverty and deprivation. Today, however, we live the most prosperous era in the history of mankind. Poverty, disease and ignorance are on the decline all over the world. That is why the index of economic freedom 2022 measures the principles that have fueled this monumental progress. This is an annual guide published by the Heritage Foundation, Washington’s number one think tank.

The index analyzes 12 freedoms — from property rights to financial freedom — in 184 countries. So let’s find out the score and the classification of Algeria in the Index of Economic Freedom, and check the degree of economic freedom that reigns in our country according to this index.

What is economic freedom?

According to the think tank Heritage, author of the report, “economic freedom is the fundamental right of every human being to control their work and their property. In an economically free society, individuals can work, produce, consume and invest as they see fit; governments, on the other hand, allow labour, capital, and goods to flow freely while refraining from any coercion or constraint on freedom beyond what is necessary to protect freedom itself. even. »

How does the index measure economic freedom?

Heritage measures economic freedom based on 12 quantitative and qualitative factors, grouped into four broad categories:

1. Right wing state : property rights, integrity of government, judicial efficiency.
2. weight of government : public expenditure, tax burden, fiscal health.
3. Effectiveness of legislation : freedom of enterprises, freedom of work, monetary freedom.
4. Opening of markets : freedom of trade, freedom of investment, financial freedom.

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Each of these twelve freedoms is scored on a scale of 0 to 100. A country’s overall score is calculated by the average of the twelve scores. Equal weight is given to each of the indicators.

L’Index of Economic Freedom separates the countries, according to the score obtained, into five blocks:

• Free Economy: score between 80 and 100
• Mainly economy free: score between 70 and 80
• Moderately free economy: score between 60 and 70
• Mainly economy not free: score between 50 and 60
• Repressed economy: score less than 50

The ten countries with the most free economies in the world according to the Index of Economic Freedom 2022.

It is interesting to note that of the 184 countries studied, only one country in Africa ranks as a “mostly free” economy. This is Mauritius. Seven other African countries fall into the category of “moderately free” economies. These countries are:

1. Mauritius: 70.9
2. Cape Verde Verde: 66.7
3. Botswana: 64.8
4. Ivory Coast: 61.6
5. Seychelles: 61.1
6. Republic of Benin: 61.0
7. Sao Tome & Principe: 60.3
8. Senegal: 60.0

These 16 African economies that have “repressed economies”

The Algerian economy is one of the most “closed” on the African continent.

The Index of Economic Freedom gives 16 African countries a score of less than 50 points. These then fall into the category of nations with “suppressed economies”. It is in this group that we find Algeria.

1. Chad: 49.8
2. Ethiopia: 49.6
3. Egypt: 49.1
4. Zambia: 48.7
5. Republic of the Congo: 48.5
6. Lesotho: 48.1
7. Liberia: 47.9
8. Democratic Republic of the Congo: 47.6
9. Equatorial Guinea: 47.2
10. Guinea-Bissau: 46.0
11. Algeria: 45.8
12. Central African Republic: 45.7
13. Eritrea: 39.7
14. Burundi: 39.4
15. Zimbabwe: 33.1
16. Sudan: 32.0

Category of countries with a “repressed economy” according to the Index of Economic Freedom. Algeria is in the last places of the ranking.

Reading in the score of Algeria

Algeria’s economic freedom score is 45.8. Our country thus occupies the 167^e place in the world rankings. Algeria comes in second to last place (13^e out of 14 countries) in the Middle East and North Africa region. It is also the 6^e “most closed” African economy. Its overall score is below the regional and global averages.

Algeria’s economic growth slowed between 2017 and 2019; in 2020 it was negative, then rebounded in 2021. A five-year trend of increasing economic freedom has been broken. Algeria’s declining score in property rights and fiscal health has led to an overall loss of 0.7 points in economic freedom since 2017. According to Heritage Foundation analysis, monetary freedom remains strong in Algeria, but the rule of law and the opening of markets have weaknesses.

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In addition, the rigor of the Algerian government’s response to the covid-19 crisis ranks 106^e rank of the countries included in this index. The national economy contracted by 6.0% in 2020.

Weight of taxation in Algeria

The maximum personal income tax rate is 35%. That of corporation tax is 26%. The overall tax burden constitutes 37.2% of total national income. Public spending has accounted for 37.8% of total output (GDP) over the past three years. Budget deficits averaged 5.9% of GDP. Public debt is equivalent to 53.1% of GDP.

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Moreover, Algeria has two preferential trade agreements in force. The trade-weighted average tariff rate is 13.8%. In addition, layers of non-tariff barriers significantly impede dynamic trade flows. Government policies, such as restrictions on foreign ownership levels, continue to limit foreign investment. Access to credit is difficult and the equity market is underdeveloped, with capitalization below 5% of GDP.