Property an essential component of economic success IN AFRICA

Property an essential component of economic success IN AFRICA


Karl Marx predicted the imminent collapse of capitalism. As the rich got richer, and the poor got poorer, he claimed the increasing staring on society would ultimately lead to a convulsion that would bring a new socialist order. Marx couldn’t have been more wrong. Since he died, capitalism in the West has led to more affluence: child labour is a thing of the past, women are free to support themselves, and manual labourers considered death as deliverance can now holiday on the sun-kissed beaches of Ibiza.
Although, capitalist ideas have supporters mainly in the Western world and in the emerging economies of South-east Asia, it has not travelled well in most of the Third World countries, especially in Africa. As majority of the world’s poor can readily testify, the solutions nurtured in Western corridors of power do not necessarily work in the villages in which they live. Reason being is that capital, the most essential component of economic success has received little or no attention. As the world famous Peruvian economist Hernando de Soto’s study shows, the poor actually have a substantial amount of savings which if it were put to good use, no wealthy nation would ever write a cheque in the form of “aid”. But unfortunately, most of this capital is “dead” capital- it is not being put into any use so the poor remain poor.

How can capital be used to generate wealth?
Capital is born by representing in writing- in a title, a security, a contract and other such records- the most useful qualities of an asset. This is where potential value is described and registered. The moment you focus your attention on the title of a house and not the house itself, you have already stepped out from the material world into the conceptual one- one in which capital resides.
This representation releases the house from its purely physical form; it can be used as a collateral for a loan, as equity exchanged for investment and so on. Thus in the West houses are multi-purpose- apart from providing shelter, they carry out various tasks. Moreover, formal and legal ownership of property facilitates its acceptance as an asset. A third benefit is that it makes people more accountable since any breach by a citizen is recorded, jeopardising his reputation.
The lack of legal property in many poor countries explains why citizens there cannot make profitable contracts with strangers, cannot get credit, or insurance By contrast, citizens of richer nations can enter a contract for virtually anything that is reasonable, provided they show a commitment. And commitment is better understood when backed by a pledge of property, be in the form of a mortgage, or any other security. The most important function of a formal property system however, is that it transforms assets so that they can do additional work. It is in essence, as Soto describes “fungible”, that is, fashioned to suit any transaction. Fungible capital offers its owner a wide variety of option and potentials.
With such characteristics, property does so much more than keep the rain and cold out: it acts as a mediating device that facilitates prosperity.
The poor of the continent own many billions of dollars worth of property but it often has no recognisable legal title. A man may live in a house worth $500, considerably more than any micro-finance institution lends but he cannot walk into a bank with a deed as security. In most poor countries, the procedures for owning property legally are usually so tortuous and corrupt that the poor just give up unable to tap into the wealth they already have so they remain poor. This phenomenon was exactly the same in the Western world approximately four centuries ago. The US was at that time a Third World country. One of its major impediments to development was lack of a clear legal framework with which settlers could use the land they appropriated to generate more wealth. It was only with the formalisation of property rights in the late 19th century that American capitalism really took off; within a generation it had overtaken Britain.
With property rights in place, property becomes far more than a roof and four walls- it becomes a tool for generating wealth. If only “dead” capital could be put into good use, the governments of poor countries would forever put away their begging bowls.
There therefore is an urgent need for an effort to give legal legitimacy to properties that an individual owns. Property must be considered as something easily convertible into cash. The way forward lies in a call for action by legislators in parliament, combined with a more imaginative approach to business from the banking sector. Most countries in the continent have an extremely conservative banking sector obsessed with security. The outcome is prohibitive bureaucracy that knows no end and high interest rates resulting from non-performing loans.
In most African countries, there is usually a gaping hole between the very small and very large businesses. At micro-level, many NGOs and lending trusts are ready to offer loans to rural folks to start small enterprises. At the other end, there are large multinationals that lend to multinationals and the likes. But how do the middle-sized businesses begin? This is where majority of poor countries are miserably missing out- in the areas of farm mechanisation, irrigation, food processing that need neither a very small nor a large amount of start-up capital.
And another thing, it is high time Africa discards the mindset that allows them to rely on the international dole called “aid” and other Keynesian carrots dangling in front of her every hungry maws. These are but the latest sop in the post-colonial intensification of the 500-year old plunder. The West continues to strengthen the neo-colonial mentality among Africans that everything is hopeless unless aid is coming, that there is nothing they are capable of accomplishing through their own bootstraps.
The future of Africa lies in learning to generate wealth from within the continent through homegrown solutions. African leaders have for too long blamed the continent’s miseries on its colonial masters. The success of the Southeast Asian tigers blows this argument away. It took Indonesia less than a generation to cut the level of poverty from 60% to 20%. Today, Singapore, a developing nation with no natural resources is the most competitive economy in the world, beating the USA to second place.
The point is that it is possible as a matter of sustained policy effort to reduce the incidence of poverty and create an affluent continent within a relatively short time. Compared to Singapore, it should be a piece of cake for Africa, a continent so rich. Africans must realise that the rest of the world does not exactly love them; they may be poor but are not juvenile truants to be patronised. Nor are they imbeciles to be merely tolerated on the world stage. They are full players; it is a pity that they have to pay for sheer survival.
Africa is a rich and prosperous continent that still has its dignity. It may be a sleeping giant but wake up one day it will.