Part of the terms of reference of the presidential technical committee on Land Reforms is to determine individual possessory rights using best practices and the most appropriate technology for the identification of locations of title holdings. The beauty of the land reform as part of President Yar’Adua administration’s Seven-Point Agenda is its promise of releasing land for commercial use coupled with reducing the encumbrances in obtaining approvals and transfer titles. The gains of this move cannot be quantified more so when some emerging economies have reduced their reliance on external finance— another lesson from the past crisis. We agree with Hernando de Soto, a renowned economist, who says that with titles, shares and property laws, people could suddenly go beyond looking at their assets as they are (houses used only for shelter) to thinking about what they could be (security for credit to start or expand a business).
As Nigeria therefore, grapples with expansionary stimulus packages geared towards inducing domestic demand, it must not consider those packages in isolation. It is our belief that good property rights have a multiplier effect and so, to extract more growth and enhance competitiveness, there is need for improved property laws in the country to encourage budding entrepreneurs. This is because such laws build confidence, finance private consumption and investments by old and new firms. In other words, small businesses, mostly in the informal sector, will access formal sector finance when their property can be credibly offered as collateral.
It is remarkable that Capitalism has triumphed in the West because legal rights over assets such as land, backed by information on who owns what and the rule of law, has hugely enabled their economies to thrive. The recent increase in the number of capital rich countries and companies buying farmlands in Africa to grow crops and export the produce back home coupled with the fact that export-dependent economies are prone to, not decoupled from, external shocks make land reform imperative.
It is on record that emerging economies, from Mexico in 1994 to Argentina in 2001, swallowed bitter IMF pills to survive past crisis while saving for a rainy day– one of the post-crisis lessons– led to the accumulation of large foreign reserves. Similarly, as the economies (and reserves) of China and India grew, commodity prices climbed steeply. Earnings of resource-rich African countries swelled. They in turn, after years under the burden of debt overhang, stashed dollars for the future. Expectedly, a savings glut ensued, filling the gaping current-account deficit of a spendthrift US economy. Cheap manufactured goods from China and similarly priced IT and back-office services from India held down real wages and boosted corporate profits in developed countries.
The positive side of this is that rather than spike inflation, the excess liquidity produced was funneled into house prices, bringing about subsidised home-ownership.
It is expected that the Land Reform and improved property rights will bolster the growth and development of the nation’s fledgling mortgage industry. As a system which involves securing a loan by offering property as collateral, mortgage is an important source of wealth accumulation and for the US before the sub-prime crisis, it was a source of finance for entrepreneurs.
Pre-sub prime crisis saw dodgy mortgage-backed securities being packaged, rated triple A and sold off to disperse risk. Trading in these complex securities dwarfed the underlying financial claims. Things turned awry when borrowers began to default. The collective hubris of the erstwhile lords of finance overlooked the laxness of informational preconditions for sub prime loans. Securitisation of mortgage loans induced sloppy lending standards.
In spite of all these, we believe that the benefits of private-ownership of say, a business, house or intellectual property, cannot be gainsaid.
