Why secure property rights matter
Your correspondent once asked a Somali nomad how much his house cost. The nomad found the question slightly baffling. He explained that he had built it himself, with materials he had to hand. The walls were made of sticks, woven together and curved into a dome. For protection against rain and sandstorms, he had laid animal hides over the top and lashed them down. He could not say how much the dwelling was worth, because it would never have occurred to him to sell it. When he moved away in search of better pasture, he simply dismantled his house, loaded it onto a camel’s back and took it with him.
Such a lifestyle requires a lot of space. When their cows have stripped one area of grass, nomads simply move on. But as Africa’s population grows and farmers encroach upon nomads’ traditional grazing grounds, the wandering herdsmen are being squeezed into ever smaller and more arid pockets of territory. They will be able to defend themselves for a while—young male nomads in Somalia, Ethiopia and Kenya all seem to carry submachineguns—but in the long term, their lifestyle is probably doomed.
For settled Africans, however, there should be more than enough land to go around. The continent is only one-25th as densely populated as East Asia. But Africans find it hard to use what they have to best advantage because they lack secure property rights. Very few can prove that they own their land or their homes, because they do not have title deeds. This matters, because without a reliable system for ascertaining who owns what, assets cannot be used as collateral.
In rich countries, if a farmer wants to invest in better seeds or bigger tractors, he can probably borrow the necessary cash using his land as security. If he fails to honour his debt, the bank takes the land. If all goes well, however, his easy access to credit allows him to make his land more productive, which in turn increases its worth. Asset-backed lending is a crucial element in the dynamism of advanced capitalist countries. In America, for example, the most common way for an entrepreneur to raise start-up capital is by mortgaging the family home.
In Africa, this is much harder. Less than 10% of the continent’s land is formally owned, and barely one African in ten lives in a house with title deeds. Farmers and urbanites, unlike nomads, usually have a clear idea what their homes and maize-plots are worth. For example, in Mtandire, a Malawian slum, a sturdy brick bungalow costs about $300. That is a large sum by Malawian standards: nearly twice the average annual income. But home-owners in Mtandire have enormous trouble making their assets work for them.
One explained that she wanted to borrow $200 to expand her goat-slaughtering business to meet a ravening demand for goat stew, but no bank would accept her house as collateral. Like the other houses in Mtandire, it was built on “customary” land. She had bought it from peasants who had farmed it for generations. The only proof that they had owned it was the say-so of the village chief. Banks need more surety than that, so the home-owner’s butchering business seems likely to stay small for the foreseeable future.
Multiply this story by several million, and it is clear that Africans are sitting on a colossal stock of underexploited assets; what Hernando de Soto, a Peruvian economist, calls “dead capital”. Mr. de Soto estimated that the total value of Africans’ informally owned houses and farmland in 1997 was roughly $1 trillion. That is nearly three times sub-Saharan Africa’s annual GDP, and more than 70 times the amount of aid the continent receives each year.
Sound property rights have great advantages. When people are confident that they will not suddenly be dispossessed, they are more inclined to make long-term investments, such as extending the family home or buying a new plough. Property rights promote flexibility, too. They allow peasants who want to move to the city to look for work to sell their land, or to rent it out without fear of being unable to get it back later.
In rich countries, property registries provide a wealth of commercially useful information. They show who owns a piece of land, where the boundaries are, and whether it is legal to build a factory on it. Such information makes it easier to spot commercial opportunities, and gives strangers confidence to do business with each other. Buyers know what they are buying. If someone cheats them, they know where to send the bailiffs.
In most African countries, by contrast, registries cover only a small fraction of fixed assets. Most Africans, being outside the formal system of rules and paper, prefer not to risk buying anything they cannot see. So farmers have to take their maize crop physically to market and usually have to sell it straight away, even if the prices are low, because they cannot afford the truck fare back. Western farmers can sell promises to deliver crops they have not yet planted, which is less cumbersome and better for the cashflow.
Many African peasants are aware that they lack property rights, and resent the fact. A survey in Zambia found that, despite the country’s low population density, nearly half the farmers questioned felt that their land tenure was insecure. These farmers said they were willing to pay an average of $40 for more secure tenure. Several African governments have also realised that better property rights would help their citizens prosper, and have passed laws seeking to formalise customary tenure. This is a good first step.
Obviously, secure property rights cannot be established overnight. In the West, they evolved over centuries. And Africa cannot simply adopt rich countries’ rules, because its governments do not have the expertise to enforce them, except perhaps among small enclaves of their better-off citizens. For example, other things being equal, it is desirable for land to be accurately surveyed before being registered. But there are never enough surveyors in Africa, and their services are too expensive for the poor. In Zambia, surveyors’ cartels artificially restrict the number of surveyors who may practise, leading to backlogs of up to seven years. So if property rights are to be extended to the maximum number of people, the system has to start rough and cheap; it can always be polished later. And if it is to be accepted by ordinary people, it must build on arrangements they know and trust.
Mozambique’s story is instructive. During the 1970s and 80s, property rights did not exist there. A Marxist government had abolished them in theory, and a vicious rebel movement had destroyed them in practice in all the areas it ravaged. Some 5m people—a third of the population—were driven from their homes, and their fields were sown with landmines.
After the war ended in 1992, however, the (now ex-Marxist) government was able to resettle those 5m people astonishingly quickly. Land records were rudimentary or non-existent, so the government relied on local institutions to resolve the inevitable disputes. The state still owns all the land, but families’ occupancy rights were codified in law in 2000, and investors can now buy long leases. Those who want to lease unoccupied land, of which the country has a lot, have to negotiate with neighbouring communities, which reduces the likelihood of anyone being unjustly dispossessed.
The system is far from perfect, but it is not bad for a country where the average citizen earns only $200 a year. Better property rights have fostered confidence, and therefore investment. Economic growth in Mozambique has been in double digits in four of the past six years. Such successes have been too rare, however. A recent study of 19 African countries that had passed laws to upgrade customary tenure found that eleven had done absolutely nothing to put these laws into practice.
Overall, since independence, African governments have tended to weaken property rights rather than strengthen them. The European colonists, for the most part, had preferred to leave customary land arrangements alone, except in areas where they themselves wanted to live or establish plantations. After liberation, however, several African governments declared a state monopoly over the ownership or allocation of land. This took power away from local chiefs and bestowed it on bureaucrats. In the absence of checks and balances on central power, this proved disastrous.
Ethiopia provides an illuminating example. Within living memory, the country has suffered both feudalism and Marxism. In the 1970s and 80s, peasants were forced at gunpoint into giant collectives, causing production to collapse and paving the way for the great famine of 1984, in which 1m people died. Since 1991, when a less oppressive regime seized power, harvests have been up again and droughts less lethal. But the feudal system of imposing heavy taxes on subsistence farmers remains, as does the Marxist notion that the state should allocate all the land.
Peasants’ rights over the ground their families have tilled for generations are conditional on them living on or near it. Owners who have not cultivated their farm for two seasons risk having it confiscated. This ties them to a location and a way of life that offer little hope of advancement. Even the most ambitious think twice before seeking their fortune in the city, because if things do not work out they may have nowhere to return to.
Establishing sound property rights is a long and tricky process, but dismantling them is quick and easy. Think of Zimbabwe, which until the late 1990s had a large and sophisticated formal sector. Since Robert Mugabe started gleefully tearing up title deeds, Zimbabwean industry has all but collapsed.
A qualified welcome
Another, less remarked example is Côte d’Ivoire. Under the fairly benign dictatorship of Félix Houphouët-Boigny, migrants from neighbouring countries, such as Burkina Faso, were welcome to come and grow cocoa in Côte d’Ivoire. They arrived during an economic boom, when many young Ivorians were migrating to the cities to take up paid jobs. But when the boom turned to bust, many of the city-dwellers lost their jobs and went back to their villages looking for land to cultivate.
In the absence of clear title, squabbles erupted. Tensions between native Ivorians and Burkinabe planters were already high when a law was passed in 2000 under which all customary land not converted to full title within ten years would revert to the state. It was obvious from the outset that most claims would not be processed in time. Burkinabe planters feared that they would lose their land. Many did: land grabs became common, often with the connivance of the police and officials. Within two years, these and other quarrels had snowballed into civil war.