It has been raining non-stop since yesterday. The air has acquired a barely palpable chill --a subtle hint of the season to come. I am one of those people who loves the fall, maybe because of its exciting link with back to school, or for the comfortable personal memories of the Wet Coast's "winter" --a 6-month-long extension of this season that hangs around for only a few explosively colourful weeks in the rest of the world.
Surprisingly (!) I have strong autumnal associations with food: in parts of Japan, they create special fall tempura using chrysanthemum leaves; last September, Belgrade's Kalenić market featured piles of plums and mountains of hand-shelled walnuts on sale for less than $1 a bucket. I saw eggplant-sized porcini mushrooms at our Bergamo market last Wednesday --I'll ask around for favourite recipes at this Sunday's usual family dinner, then spring for a pound or two next week.
But the real subject at hand is my exam preparation: three weeks to go, and still too much to read. Must get back to property rights, which it turns out are more crucial to economic stability and prosperity than my little brain ever could've imagined...
Why secure property rights matter
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 per cent 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 of 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 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 do 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.
The Economist (2004)
Breathing life into dead capital: why secure property rights matter.
In How to make Africa smile: a survey of Sub-Saharan Africa