2009 Index of Economic Freedom

Quick Facts

Population:

• 1.7 million

GDP (PPP):

• $1.9 billion
• 6.5% growth
• 4.4% 5-year compound annual growth
• $1130 per capita

Unemployment:

• 10.0%

Inflation (CPI):

• 5.0%

FDI Inflow:

• $69.9 million

The Gambia's economic freedom score is 55.8, making its economy the 112th freest in the 2009 Index. Its overall score is 1.1 points lower than last year, reflecting in particular the deterioration of the labor freedom score. The Gambia is ranked 15th out of 46 countries in the Sub-Saharan Africa region, and its overall score is lower than the world average.

The Gambia's highlights are above-average scores in labor freedom and government size. The labor market is relatively flexible. However, the government remains significantly involved in the economy through state-controlled enterprises.

Like other developing nations, The Gambia faces significant challenges; but it also inflicts economic stagnation on itself, deterring outside investors with restrictive trade policies, an unstable and politically influenced judiciary system, and widespread disrespect for the rule of law. Both property rights and freedom from corruption score more than 10 points below the world average. Inefficiency and bureaucratic corruption are common threads that weave through most commercial activities.

Background Back to the top

The Gambia, a small African country tracking the banks of the Gambia River, has few natural resources. Agriculture, which employs an estimated 80 percent of the labor force, accounted for 33 percent of GDP in 2005 with peanuts as the largest export crop. The infrastructure is improving but remains inadequate, with frequent power shortages and poor roads. President Sir Dawda Kairaba Jawara ruled the country for almost 30 years until 1994, when he was ousted by a military coup led by Lieutenant Yahya Jammeh. Jammeh won the presidential election in 1996, was re-elected in 2001, and won a third term in 2006.

Business Freedom 59.9 Back to the top

Despite some progress, the overall freedom to conduct a business remains limited by The Gambia's regulatory environment. Starting a business takes an average of 27 days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. However, the starting cost of opening a business remains very high, and closing a business can be burdensome and relatively costly.

Trade Freedom 59.6 Back to the top

The Gambia's simple average tariff rate was 15.2 percent in 2007. Inefficient and sometimes corrupt regulatory administration, restrictive licensing arrangements, sanitary and phytosanitary prohibitions on a few products, and a large informal trade sector add to the cost of trade. Ten points were deducted from The Gambia's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 71.9 Back to the top

The Gambia has moderately high tax rates. The top income and corporate tax rates are 35 percent. Other taxes include a capital gains tax, a sales tax, and a road tax. In the most recent year, overall tax revenue as a percentage of GDP increased slightly to 18.9 percent as a result of improvements in revenue collection.

Government Size 74.4 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 29.2 percent of GDP. A consistently high fiscal deficit makes sound public finance management increasingly critical to economic growth. Most leading companies are still controlled or majority-owned by the government.

Monetary Freedom71.9 Back to the top

Inflation is moderate, averaging 4.3 percent between 2005 and 2007. The government influences prices through a large public sector, and most leading companies, including those in agriculture, water, electricity, maritime services, public transportation, and telecommunications, remain in government hands. Fifteen points were deducted from The Gambia's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom50.0 Back to the top

Foreign and domestic investments generally receive equal treatment. There are limits on foreign ownership or control in television broadcasting and defense-related activities. Joint ventures are encouraged, though foreign investors may invest without a local partner. Repatriation of profits is permitted. Addressing regulatory barriers, including the absence of a transparent competition law, would help to attract foreign capital. Residents and non-residents may hold foreign exchange accounts. Some capital transactions are controlled.

Financial Freedom50.0 Back to the top

The Gambia's small financial system is dominated by banking. The banking sector is not fully developed but is relatively sound despite a moderate level of non-performing loans. Credit to the private sector has increased in recent years. Supervision and regulation of the financial system remain deficient due to weak institutional capacity, and the central bank is subject to government influence. There are 10 banks, including an Islamic development bank. Almost all commercial banks are majority-owned by foreign banks. The largest commercial bank is a locally incorporated subsidiary of the U.K.-based Standard Chartered Bank and is 25 percent Gambian-owned. The insurance sector is small in terms of assets but growing. Two commercial banks have recently entered the microfinance industry. The central bank has established prudential guidelines aimed at reducing barriers to the entry of new non-bank financial institutions. Capital markets consist only of government securities; there is no stock exchange.

Property Rights30.0 Back to the top

The judiciary, especially at the lower levels, is subject to pressure from the executive branch. Intimidation of lawyers, a lack of independence, and a lack of technical support severely undermine the administration of justice. Lack of judicial security is one of the main deterrents to doing business. The Supreme Court has not functioned since 2003. Gambian law provides adequate protection for intellectual property, patents, copyrights, and trademarks.

Freedom From Corruption23.0 Back to the top

Corruption is perceived as widespread. The Gambia ranks 143rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption among senior government officials is a serious problem, and the few prosecutions of high-profile politicians have not been conducted in a way that would signal a serious intent by the government to deal with it.

Labor Freedom67.0 Back to the top

The Gambia's relatively flexible labor regulations enhance employment and productivity growth. Restrictions on the number of work hours are relatively flexible. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relatively easy.