|PETERSIDE ECONOMIC REVIEW|
|Chamberlain S. Peterside, Ph.D||Wednesday, November 30, 2005|
New York, NY, USA
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TRIUMPH OF OWNERSHIP
UNLOCKING AFRICA’S ECONOMIC POTENTIAL THROUGH LEGAL OWNERSHIP
arl Marx and Vladimir Lenin (arrowheads of modern socialist doctrine) would turn in their graves if they saw how free-market has gained ground around the world over the last two decades. Even communist China has made such enviable economic shift with limited political freedom under free enterprise. The demise of the former Soviet Union proved that Marxist ideologues never imagined that capitalism could be so resilient and capable of reinventing itself. In my view, the tripod of economic prosperity is freedom, ownership and personal initiative. Be it ownership stake in public companies, ownership of small businesses or home/real estate ownership. Historically the driving force for prosperity has been the right to ownership and access to capital. The democratization of capital in advanced countries was the sine qua non for empowerment and sustainability.
As African countries continue to transform, a key element of their reform agenda should be to legitimize property rights and entrench ownership across the broad spectrum of society. So far the reverse is the case. Unbalanced income distribution has bred severe inequality and abject poverty in Africa. The need for urgent remedy couldn’t be overemphasized. You can analyze this ownership concept from the following perspectives:
…Ownership of Securities
This includes owning stocks, bonds, mutual funds and other financial instruments in investment accounts, stock options or retirement accounts in the capital market wherever they exist – so far there are 20 stock exchanges in the African continent. Statistics show that more than 50% of US households own a stake in publicly quoted companies as opposed to just 3% of the populace in Nigeria that participate in the stock market.
This form of ownership is as old as mankind. Looking through our early history, it could be argued that survival instinct was a motivating factor for private enterprise, albeit in a rudimentary state. Granted that traditionally African societies are communal, that doesn’t necessarily negate individual ownership. The experiment to replicate utopian communal practices on a macro-scale in Eastern European or some African countries like Tanzania, Ethiopia, Angola, and Mozambique failed woefully, because of the encroachment on that inalienable right – ownership.
Command economy and lack of opportunity underminds the inherent human craving to strive harder and leads to laziness, corruption, and impoverishment. Thanks to technology and increased productivity in a flexible corporate environment, ordinary people around the world are now taking matters into their own hands to become self-employed. Even African peasants and artisans possess this mindset and if offered the right support could improve their lot.
After all, Small and Medium Enterprises (SME) are the predecessors of large corporations. So far SME constitute the critical growth driver of most economies. They account for over 80% of new job created in the US during the last decade, yielding more than 75% of the Gross Domestic Product (GDP) and employment in most African countries. That 70% of wealthiest individuals in the US are business owners (based on published report) is an indication of the “ emancipating effect” inherent in entrepreneurship. Ownership of the means of production and access to capital, not aid should be the focus of poverty alleviation efforts in Africa.
The experience of Grameen Bank (_www.Grameen-Info.Org_ (https://www.grameen-info.org/) ) in Bangladesh through the last two decades reveals that poor people could actually be “responsible borrowers” capable of freeing themselves from the clutches of penury through micro-credits. Grameen Bank was formed to cater to the need of poor rural women and peasants. Ironically these people have had a 98% repayment rate – much higher than most conventional African banks. Thankfully the facts are becoming well-known around the world, leading to rapid growth in micro-lending scheme.
…Home and Real Estate Ownership
In communities with high proportion of home ownership, statistics show that crime rate is low, standard of living higher and families feel more secure and confident about their future. The current state of hopelessness experienced by people in Africa is partly attributed to their inability to aspire, acquire or own one of the basic necessities of life - shelter. The volume of housing deficit in most African countries is simply alarming.
In the US with over 68% home-ownership, reports show that home equity (difference between the loan and value of a home) constitutes the bulk of wealth for most low to middle income families, which explains the concerted effort by government to increase the level of home ownership. The aspiration to home-ownership by low-income immigrants and ethnic minorities has helped support a strong real estate market in the US during the last 5 years.
In developing countries, unfair wealth allocation pattern often results in a few people expropriating the bulk of resources meant for the larger population. A UNDP report stated that despite a stellar economic performance, the richest 10% are 83 times well-off than the poorest 10%, giving Brazil the fourth highest level of inequality globally.
In Africa, the situation is exacerbated my incessant plundering of the treasury by the top echelon of society. Home ownership in such circumstance becomes an exclusive preserve of the wealthy and a pipe-dream to the poor. Most home purchase transactions are on “cash and carry basis”. Hence no sub-Sahara African country except South Africa has a vibrant mortgage industry that offers loans beyond 5 –7 years duration to a few middle-income families. Most urban dwellers in Africa are still considered squatters who illegally occupy land in large cities like Nairobi, Lagos, and Johannesburg etc. These squatters could be dislodged at a moments notice without adequate alternative.
…Toward a Middle Class
According to Africa Investor magazine, only 1% of sub-Sahara Africa land is officially registered, yet the value of informally owned houses and farmland measured in US dollars is about 1 trillion, based on research by famous Peruvian economist - Hernando de Soto.
Current land tenure laws are archaic and inimical to socio-economic progress consequently, the ability to modernize property rights and title could unlock value within poverty-stricken communities in Africa. Such properties can be pledged as collateral for business loan, sold or leveraged to raise money for other pressing needs. None of that is possible under current conditions.
With a potential reserve of wealth hidden in real estate holdings in Africa, unless the laws are updated and home-ownership expanded through broad-based long-term loan programs, it is unlikely that you could nurture a robust middle class or make a serious dent in the living standard of the masses. Effective measures should include standardizing loan underwriting, packaging secondary market instruments and enhancing credit quality through government guarantees. The long-term impact of such policies would be well worth the effort.
Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.