Business Environment Macroeconomic Outlook Capital Market Banking Sector Privatization and Investments Economic Freedom Business News In the Spotlight Coming up...
Economic Freedom of the World In last edition of the Montenegro Business Outlook (MBO) magazine we presented the basic results from the 2011 Economic Freedom in the World report, published by the Heritage Foundation and the Wall Street Journal. Our report focused of the result obtained by Montenegro. In the last report, Montenegro’s economic freedom score was 62.5, making its economy the 76th freest in the 2011 index. The score was 1.1 points lower than last year, primarily because of an explosive level of growth in government spending. A Montenegro rank 34th out of 43 countries in the European region, and its overall score is above the world average.
In this issue we will cover Hong Kong, the top performer for the last couple of years in different areas, and will compare it with Montenegro. Hong Kong’s economic freedom score is 89.7, making its economy the freest in the 2011 index. Its overall score has not changed since last year, but it did experience a small decline in its score in the areas of government spending and labor freedom which were offset by improvements in the areas of fiscal freedom, monetary freedom, and freedom from corruption. Hong Kong is ranked 1st out of 41 countries in the Asia–Pacific region.
Business freedom (Montenegro ranked 66th, Hong There are no limits on foreign ownership, nor are there any Kong 3rd). Business freedom in Hong Kong is well protected screenings or special approval procedures to set up a foreign firm within an efficient and regulatory framework. Transparency encourages entrepreneurship, and the overall environment is conducive to the formation and operation of start-up businesses in various sectors of the economy.
Trade freedom (Montenegro ranked 53rd, Hong Kong 1st). Hong Kong’s weighted average tariff rate was 0% in 2009.
Restrictive pharmaceutical regulations, market access restrictions for some services, and food and energy labeling regulations add to the cost of trade. Ten points were deducted from Hong Kong’s trade freedom score to account for non-tariff barriers.
Fiscal freedom (Montenegro ranked 24th, Hong Kong 13th). Hong Kong’s effective tax rates are among the lowest in
the world. Individuals are taxed either progressively, between 2 percent and 17 percent on income adjusted by deductions and allowances, or at a flat 15 percent of gross income, depending on which liability is lower. The top corporate income tax rate is 16.5 percent. Unincorporated businesses enjoy a lower rate of 15 percent. Excise duties on beer and wine were removed in 2008. In the most recent year, overall tax revenue as a percentage of GDP was 13 percent.
except for in certain legal services and in broadcasting, where foreign entities may not own any more than 49 percent of local stations. There are no controls or requirements on current transfers, access to foreign exchange, or repatriation of profits. Bureaucracy is efficient and transparent.
Financial freedom (Montenegro ranked 70th, Hong Kong 1st). Hong Kong’s financial regulatory and legal environment focuses on ensuring transparency and enforcing prudent minimum standards. Overall, the system has weathered the global financial turmoil quite well, and the banking sector remains well capitalized. Hong Kong has further solidified its competitive status as a dynamic international financial center. In terms of initial public offerings, it topped other competing global financial hubs for the second year in a row in 2010. Banks are overseen by the independent Hong Kong Monetary Authority. Credit is allocated on market terms. There are no restrictions on foreign banks, which are treated the same as domestic institutions. The Hong Kong Stock Exchange remains one of the world’s most capitalized and vibrant.
Property rights (Montenegro ranked 73rd, Hong Kong Government spending (Montenegro ranked 160th, 2nd). Contracts are strongly protected. Hong Kong’s legal system Hong Kong 20th). In the most recent year, total government is based on common law, and its constitution strongly supports expenditure, including consumption and transfer payments, amounted to 18.6 percent of GDP. Sound fiscal management has helped Hong Kong to weather the global downturn. Altogether, discretionary stimulus measures taken since 2008 total an estimated 5 percent of GDP. The government has tried to maintain a balanced budget.
private property and freedom of exchange. Despite government public awareness campaigns, pirated and counterfeit products such as CDs, DVDs, software, and designer apparel are sold openly, and pressure has been building for changes in the Copyright Ordinance. The government controls all land and, through public auctions, grants renewable leases that are valid up to 2047.
Monetary freedom (Montenegro ranked 82nd, Hong Kong 30th). Inflation has been low, averaging at 1.6 percent
Freedom from corruption (Montenegro ranked 79th, Hong Kong 12th). Corruption is perceived as minimal.
between 2007 and 2009. Since the Hong Kong dollar maintains a fixed exchange rate with the U.S. dollar, interest rates and currency movements follow trends in the United States. Hong Kong has efficient clearing and settlement systems. The government regulates the prices of public transport and electricity and some residential rents. Five points were deducted from Hong Kong’s monetary freedom score to account for measures that distort domestic prices.
Investment freedom (Montenegro ranked 75th, Hong Kong 2nd). Foreign capital receives domestic treatment, and foreign investment is strongly encouraged.
4
Hong Kong ranks 12th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. Giving or accepting a bribe is a criminal act.
Labor freedom (Montenegro ranked 4th, Hong Kong 17th). The labor market is supported by flexible labor regulations
and a highly motivated workforce. The labor Law is strictly enforced but not burdensome. The non-salary cost of employing a worker is low, and regulations on work hours are flexible. Hong Kong’s first minimum wage law was passed in July 2010 and is expected to come into effect in 2011.