The 2012 Index of Economic Freedom continued assigning unfair ranking to the Gulf Cooperation Council (GCC) with regard to the level of economic freedom. The only exception is Bahrain by virtue of clinching 12th ranking globally, down by two notches from the earlier report.

Yet the survey assigns 25th ranking to Qatar and 35th to the UAE. Still, the report shows further unfairness towards Oman, Kuwait and Saudi Arabia by granting ranking numbers 47, 71 and 74, respectively.

The Heritage Foundation and The Wall Street Journal stand behind the annual report, in turn noted for their conservative ideologies and embracing of private sector initiatives. Among others, the report regards governmental involvement in the economy as something negative for causing displacement of scarce resources.

Undoubtedly, the arguments for such thinking are notable, as the authorities could cause crowding out by competing with private sector investors such as banking facilities. By contrast, private sector investors have no choice but to offer the best possible prices and services thanks to rivalry.

Ten variables

At any rate, the index uses results of ten variables in assigning points to reviewed economies. These variables are business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labour freedom. In turn, each variable carries 10 points on the 100-point maximum scale. Interestingly enough, the gap of ranking among Bahrain, Qatar and the UAE is not justifiable, as the three countries share positions on numerous variables. This is particularly true of fiscal and monetary policies reflecting near absence of taxation and interference of interest rates.

Still, it seems the report has conveniently overlooked consequences of socio-political and socio-economic problems that Bahrain experienced in 2011. In reaction to the crisis emerging in mid-February, the authorities had strengthened involvement in economic activities including the decision of firing and reinstating nationals working in public and private sectors.

Trouble is the Index of Economic Freedom provides little useful information on the methodology used in assigning grades for 10 variables used in developing the index. Questionably, the index relies on results of other studies or secondary sources designed for other purposes. Arguably, the absence of a primary study represents a major shortcoming of the index.

Politically motivated

Another shortcoming of the report relates to being somehow politically motivated. North Korea, Zimbabwe and Cuba are considered the least economically free countries in the world. Other countries at the bottom are Venezuela and Iran, all not friendly with the US.

Conversely, findings of the report contradict other indices, notably the Global Competitiveness Report 2011-2012, published by the World Economic Forum

The report assigns ranking number 37 to Bahrain, the worst among GCC countries, certainly a marked contrast to that of the 2012 Index of Economic Freedom.

In addition, Bahrain performs poorly versus other GCC economies on the foreign investment variable. According to the World Investment Report 2011, issued by the World Conference on Trade and Development (Unctad), Bahrain received a mere $247 million (Dh906 million) worth of foreign direct investment (FDI) in 2010. The figure is considerably behind FDI amounts of $28.1 billion in Saudi Arabia and $5.5 billion in Qatar.

Worldwide recognition

Nevertheless, GCC countries have no choice but to pay attention to the findings of the Index of Economic Freedom report, which enjoys worldwide recognition.

As a rule, GCC countries need to streamline laws and business practices in order to foster competition in diverse economic sectors for the benefit of consumers to ensure proper use of scarce resources.

 

The writer is a Member of Parliament in Bahrain.