Hernando de Soto famously asked: although cities across the developing world are teeming with entrepreneurs, why do those countries seem unable to become prosperous market economies? The answer, he argues, is that they hold “resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them.”
CIPE and partners Association for Foreign Investment and Cooperation in Armenia, Unirule Institute of Economics in China, Institute of Economic Affairs in Kenya, Institute for Solidarity in Asia in the Philippines, and Saratov Chamber of Commerce and Industry in Russia set out to explore this crucial question in more detail, identifying the barriers small entrepreneurs face in urban property markets using the International Property Markets Scorecard.
The Scorecard provides a methodology for property market system analysis to investigate the six core elements necessary for sustainable market development: property rights laws and enforcement, access to credit by small businesses, efficiency of governance, rational dispute resolution, financial transparency, and appropriate regulations. This approach not only illustrates the linkages between property market elements but also helps identify gaps and advocacy priorities where some of those important institutions remain weak, either due to a lack of proper legal and regulatory framework or its weak implementation.
Following an in-depth analysis of the available secondary data such as international indices and national statistics, CIPE partners conducted fieldwork in two select cities to localize the results. This work was tailored in each country through a mix of focus groups and interviews to obtain the most accurate snapshot of the conditions entrepreneurs face in dealing with the government, banks, and professional services providers in the property sector. These views from small businesses have a unique power to illustrate key problem areas because of the real, personal experiences they reflect.
Property markets are multi-dimensional institutional frameworks that touch upon issues key for all citizens but particularly vital for small businesses. As such, property markets are a microcosm reflecting the state of a country’s institutions that build democracies and market economies alike.
This Feature Service article summarizes key findings – both shared and country specific – as well as reform recommendations for the next advocacy-oriented stage of our efforts. You can also read full country reports here (China coming soon): Armenia, Kenya, and the Philippines.
Article at a Glance
- Understanding of property rights often remains limited to property titles, without deeper appreciation of the underlying and interconnected institutions that make property rights meaningful and allow property markets to function.
- Although private property rights are legally protected in most countries, that protection varies greatly in practice because the implementing regulations and institutions that build property markets remain weak.
- The development of competitive and transparent property markets for small businesses requires not only legally protected rights but also strengthening of the broader institutions of good governance and market economy.
Participants discuss property market barriers at the Nairobi roundtable (Photo: CIPE)
Picture the following situation: In 1990, a prime piece of beach real estate was given with a title deed by a country’s then-president to one of his officials. In 2003, an investor obtained the same piece of property and had it entered in a local land registry. The investor then sold the plot to a developer in 2004 with the transfer also noted in the local registry. The developer proceeded with making improvements to the plot until… the town council ordered to demolish the erected structure on the grounds that the plot was really public land, citing city development plans dating back to 1980. The developer sued the town council in response. The official, who asserted that he had never sold the land and in fact used it as collateral for a loan, also protested the decision and demanded that the second title issued to the investor and then transferred to the developer be nullified.
What is the setting and who are the actors in this complicated story? The location: Kilifi, a resort town north of Mombasa, Kenya; the official: Kenya’s Education Minister Samson Ongeri; the investor: Kazrad Agencies; the developer: Greenbays Holdings. The case was finally decided by the local High Court which recently ruled the plot as public land after all, nullifying all the competing private titles. This high profile case poignantly illustrates the problem that Kenyans – from ministers to street vendors – continue to struggle with: property rights.
CIPE has been working with the Institute of Economic Affairs (IEA) in Kenya to find out what barriers small businesses face in urban property markets. IEA has conducted focus groups and interviews with small entrepreneurs and real estate professionals in Nairobi and Mombasa. On May 12, property market experts gathered at a joint CIPE-IEA roundtable in Nairobi to discuss preliminary findings. The discussion pointed to many existing challenges and CIPE and IEA are using a property markets scorecard to illustrate not just the problem areas but also institutional linkages between them.
For instance, the disarray and unreliability of the land registry – illustrated by the story of the disputed plot in Kilifi – translates into many other problems for ordinary businesses. If a business doesn’t have a registered property title to the land it is using, or the title it has is considered insecure, that business cannot obtain a bank loan to operate and grow. And if several competing titles exist for the same piece of property, businesses depend on courts (which in Kenya are inaccessible and unaffordable for many entrepreneurs) to rule on which title is the legitimate one.
As one of the participants in the roundtable discussion said, “the status of the land registry is a hindrance to property ownership because conducting searches is costly and unreliable.” Somebody else put it in even stronger terms, “the sanctity of a property title has been lost.” Kenya’s National Land Policy and Chapter 5 of the new Constitution passed last year are supposed to tackle this and many other land-related issues. But as reforms are being designed to overcome the decades of what is often euphemistically called “irregular public land allocations,” the decision-makers must keep in mind that resolving complex property problems requires more than passing new laws or digitizing land records. It is above all an institutional reform challenge that touches on many aspects of how the state institutions function – or fail to function.
If you’re working in global development and you have just been tasked with increasing toilet usage and improving personal hygiene in East or Central African slums, your new best friend might be one who is deeply motivated to advance your cause: the local toilet paper company.
Family-owned Chandaria Industries Limited (CIL) is the leading tissue, paper, and hygiene products manufacturer in East and Central Africa, according to the African Business Review. Besides fronting some of the cost of water and sewage infrastructure in the Ruaraka neighborhood of Nairobi where CIL’s headquarters is located, Chandaria Group companies have also fought for provision of decent water and sewage infrastructure for all, with an eye toward market expansion for CIL-produced goods, according to the company website.
Ushahidi map for Haiti after the earthquake
What do Kenya, Haiti, and Chile have in common? Socially-devastating events – whether they are man- or nature-made – and the need the help people in a desperate situation.
When ethnic violence spread across Kenya following the presidential election in 2008 not only the country, the whole region was shocked over the magnitude of the disaster. More than a thousand dead and more than a hundred thousand displaced – a real human catastrophe. The real problem faced by those seeking to restore peace was documenting instances of ethnic violence and figuring out where help is most needed.
A post on one of the forums by a Kenyan national suggested the development of an online mapping system, that would allow citizens to report instances of violence using the most common technology available – cell phones.
When it comes to global agriculture, you can taste a hint of the African continent’s powerhouse potential in every sip of tea. Kenya is the world’s largest producer of black tea; through its port city of Mombasa flow Kenya’s and almost all the rest of East Africa’s tea. Mombasa’s vast dominance of worldwide tea exports puts it on par with the New York City Mercantile Exchange, Chicago’s Board of Trade, or London’s Metal Exchange. It’s a place where global benchmark prices are set. Kenya’s resilience as a global market for tea is reflected in the fact that even in today’s global recession Kenya’s tea growers were able to capture record revenue for their crops.
Posted in Africa
Tagged Africa, business, business associations, democracy, development, economy, institutions, kenya, market economy, poverty, private sector
Private sector engagement in conflict resolution is increasingly relevant as many fragile democracies are struggling to break the vicious circle of socio-economic underdevelopment and the resulting political instability. In this Feature Service article, CIPE’s Abdulwahab Alkebsi and Aleksandr Shkolnikov discuss the role of the private sector in conflict resolution using the example of Kenya. The violence that followed December 2007 elections was widely blamed on ethnic tensions. Yet, the underlying reasons were more than that: ethnic tensions were the manifestation of deep-running democratic governance failures and unequal access to economic opportunity.
Alkebsi and Shkolnikov emphasize the role that the private sector can play – and in the case of Kenya did play – in ending the crisis that threatened the future of the nation. They point out that by focusing on tangible outcomes, such as providing jobs, creating wealth, delivering goods and services, and promoting stability, the private sector can move countries away from political bickering to the design and implementation of concrete policy priorities and visible improvements in citizen’s quality of life.
Article at a Glance
- The roots of Kenya’s post-electoral violence go beyond ethnic divisions – they have much to do with a lack of effective political representation and broad economic opportunities.
- The private sector in post-conflict settings has an important role to play in brokering peace agreements.
- Building the institutions of representative democratic governance and a stable, competitive market economy is a key element of conflict prevention.
When the Kenyan President Mwai Kibaki and opposition leader Raila Odinga reached a power-sharing agreement after dramatic weeks of violence, the world breathed a collective sigh of relief. A coalition government was finally formed following protracted horse-trading to divvy up the key ministerial portfolios.
The outcome is indeed a Grand Coalition, but not necessarily in the best sense of a national unity government. While certainly this peace-securing agreement was an important step in Kenya’s recovery from the post-election turmoil, the grandest feature of the newly formed government is its very size. Kenya’s old cabinet had 17 members. The new one has… 40 – plus 50 assistant ministers. The new ministries were established or carved out of the existing ones in order to secure the balance of power between Kibaki and Odinga loyalists. But regardless of the rationale, these numbers are simply staggering!
First, how can this bloated government hope to get things done? The logistics of coordinating between so many ministers seem nearly unworkable. Second, the cost of supporting this behemoth bureaucracy is crushing. As the Economist notes, nearly half of Parliament’s members now have some ministerial position, which comes with extra salary, security expenses, cars, etc. What’s the total tab? An estimated $1 billion a year, or about one-eight of the expected government revenue!
And finally, this anything-but-lean government is likely to exacerbate Kenya’s corruption problems. If nothing else, mismanagement and resource misallocation seem unavoidable given the overlapping competencies of so many ministers and little in a way of checks and balances.
Mr. Odinga defended his new government saying, “Don’t look at the size of this cabinet, look at its products.” Now his great challenge is to prove to the Kenyan people, 60 percent of whom live on less than a dollar a day, that the Grand Coalition is capable of delivering equally sizable reforms.