SOUTH Africa has maintained its position at number 70 in the 2012 Index of Economic Freedom, rated below the world average for investment freedom.

The index, compiled by the Heritage Foundation, a Washington-based think-tank, in partnership with The Wall Street Journal, describes South Africa as "moderately free".

The country receives a high rating for government spending, fiscal freedom and business freedom, but scores low in other aspects, including investment freedom.

The index says the South African financial sector is modernised, with a sound banking sector.

Anthony Kim, senior policy analyst at the Heritage Foundation, said South Africa had become a "more open and flexible economic system" thanks to restructuring in the past decade.

"While maintaining macroeconomic stability, the country has made considerable progress in income growth and poverty reduction," he said. "A relatively competitive trade regime, supported by an increasingly efficient regulatory framework, has encouraged the development of a growing entrepreneurial sector."

Mr Kim said South Africa needed to continue reforms to strengthen its economic freedom but warned that corruption made business operations expensive.

"Lingering corruption and the weak rule of law add to the cost of doing business and erode overall economic competitiveness," he said.

"Concerning South Africa's investment freedom, it remains below the world average. Despite progress over the past decade, private investment in South Africa continues to be hindered by nontransparent regulations and persistent bureaucracy."

Asian and Oceanic nations dominated the top five positions, with Hong Kong rated as the freest economy, followed by Singapore, Australia, New Zealand and Switzerland, in that order.

Leon Louw, executive director of the Free Market Foundation in South Africa, said contrary to views of South Africa as the gateway to the continent, in reality the country was "the brick wall of Africa", scaring off investment with its restrictive laws.

Jasson Urbach, economist at the same foundation, said some industries were being selectively protected via trade tariffs.

"The average trade-weighted tariff masks significant variations in tariff protections where the government has cherry-picked certain industries to protect," he said. "So although the overall average trade-weighted tariff may appear low, it masks some very high tariff peaks in certain industries."

Mr Urbach said the clothing, textile and automotive industries were heavily protected in South Africa, with import duties of up to 40%.

"Our trade score could be improved if we reduce nontariff barriers to trade and ultimately eliminate all barriers to free trade," he said.

Mr Urbach also said low scores in freedom from corruption, labour and investor freedom were not surprising given "uncertainties" caused by government policies.

. View the full index at www.heritage.org/index/ranking

magubanek@bdfm.co.za