Based on the Washington think tank, Heritage Foundation’s Economic Freedom Index (EFI), the first ranking as the freest economy in the world goes to Singapore, as the country overtakes Hong Kong in the 2020 ranking of EFI — the city that has been number one for the past 25 years.
According to the EFI report, the investment freedom component for Hong Kong has declined, thus allowing Singapore to take the first ranking.
Singapore’s overall score has not changed since last year, as the small decline in government integrity score is offset by the small improvement in the business freedom score. Ranked first among 42 nations in the Asia-Pacific region, Singapore’s score is well about world and regional averages as well.
The special administrative regions (SAR) has been ranked as the best place to do business globally by the Heritage Foundation since 1995, but factors like the exposure to the mainland and last year’s social unrest have led to a decline in its overall score.
According to the Index of Economic Freedom report 2020, “Its (Hong Kong’s) overall score has decreased by 1.1 points due primarily to a decline in the investment freedom score…The ongoing political and social turmoil has begun to erode its reputation as one of the best locations from which to do business, dampening investment inflows.”
The report also highlights that Hong Kong’s traditionally open and market-driven economy has “become increasingly integrated with the mainland through trade, tourism, and financial links” and as such the “risks to Hong Kong’s economic freedom have grown correspondingly.”
In addition to this, the “independence of Hong Kong’s judicial system was seriously imperiled in 2019 by a government proposal for an extradition law (since withdrawn) that could have permitted political dissidents to be arrested and transferred to the mainland,” the report stated.
Even though corruption is generally low, the report added that “Hong Kong residents perceive the government as lagging in the fight against corruption”.
However, the report acknowledged that Hong Kong is endowed with a high degree of openness and competitiveness as a dynamic global financial centre but cautioned of that its “sense of risk is also heightened”.
Singapore’s overall score, at 89.4 remains the same as last year.
There is no other nation in the world except Singapore which is considered economically free in each Index category. However, the report states that a concern does remain ongoing restrictions on civil liberties which does not directly affect the country score, but may indirectly affect economic freedom.