How Slack Property Rights Enforcement In Nigeria Suppresses Growth Lax

Without the enforcement of the right functioning property laws, it is practically impossible for the free-market economy to thrive. Even the most ardent of free marketers accede to the fact that we need governments to enforce legal property rights, without which, according to Adam Smith, arguably the father of modern economics, there would be the danger of anarchy.

In the free market economy, people need to be secure in the knowledge that if they own something it will not be arbitrarily confiscated. Capitalism is highly reliant on that confidence.

Daron Acemoglu and James A. Robinson point out in their ‘must read’ book, “Why Nations Fail” that one of the prime reasons Britain pioneered and thrived throughout the Industrial Revolution was because its legal system was regarded as highly dependable. This was in stark contrast to many of its European counterparts, where war and disputes often threw property rights into question, to the extent that landowners could never be sure whether they really had full ownership to their property, and could not rely on the state to back them if they were wronged.

Edmund Conway argues in his book, ’50 Economic Ideas You Really Need to Know’ that poor or insufficient property rights can greatly damage an economy. He says granting people legal ownership rights free them to invest more in their property, in the hope of adding to its value.

A person is far more likely to spend some cash and time painting his apartment if he owns it, as opposed to squatting in it. The alternative situation is what Conway calls the ‘tragedy of the commons’, a situation where people abuse a resource because they do not own it.

During the communist era in the former Soviet Union, there were scenes of vast fallow lands even during the years the country was suffering major food crises. Farmers would allow their fertile land to lie fallow and crops to waste in the fields and warehouses because under communist system Russians had no direct property rights over their crops, hence far less incentive to work the fields harder and produce more food.

Nigeria is not much different in that regard. Millions of hectares of farmland in Nigeria are lying fallow or unattractive to plow because their perceived owners charge too much rent to carry out such activities.

Peruvian economist Hernando de Soto has argued that many of the world’s poorest families are so merely because they do not have legal rights to their property.

According to him, a family may live in the same small shack in the favelas near Rio for years, but because only informal property and legal rights have been developed among the poor they are at the mercy of criminals and vigilantes (who may attempt to steal or destroy their home) or the government (which may attempt to drive the shantytown dwellers elsewhere).

De Soto argued that the solution is to give those poor people legal rights to their properties. In that way, they will not only have the incentive to take more care of them, but will also be able to borrow cash by using their homes as a guarantee. He said that the total value of homes owned by the poor in the developing world is more than 90 times the total foreign aid given to these poor countries in the past 30 years.

It can be argued that Nigeria’s poor also face the tragedy of the commons. For example, one of Nigeria’s dailies recently reported that 95 percent of properties in Edo State had no certificate of occupancy, a document issued by the state government to landowners and property buyers as a legitimate proof of ownership. The document also spells out what the land can be used for, residential, commercial or mixed development.

It is sad to note that free lands (general or globally acquired lands, with limited future interest from government), as well as acquired lands (committed lands, usually in urban areas with government interest) are traded by so-called Omoliles, and usually tainted with fraud, many times sold to multiple buyers with attendant disputes. Such scenarios usually discourage people from developing their land and/or using their land as guarantee to get loans from banks.

By the 1978 Land Use Act of Nigeria, the onus is on state governments to ease the process of getting certificates of occupancy.

On average, a certificate of occupancy costs N40,000, which is fairly in the reach of every landowner. But the process is usually clogged with officialdom, and could require many discouraging years to achieve.

Lagos erstwhile governor, Akinwumi Ambode showed leadership and innovation in that area by going digital and giving out at least 500 certificates of occupancy every month at a time in Lagos. That feat is worth emulating.

Many Nigerians will likely exit the poverty loop if they can have guaranteed property ownership rights.

It is heartwarming that Nigeria improved in the last World Bank annual ‘ease of doing business’ ranking in the ‘Registering Property’ index, albeit marginally.

By all means, with the right legislation in place and better enforcement, that should be a low hanging fruit.