The recent move by local commercial banks to offer housing loans and other mortgage financing products such as recently announced by Stanbic and Standard Chartered banks is a welcome development in Uganda. It has been argued by economists that one of the reasons why Africa is poor is because most Africans are unable to turn their assets into liquid capital. In the west, taking a mortgage against one’s house is typically the first line of credit. If you want start-up capital for a new business or a new vehicle you usually borrow from a bank against your house.
Many development specialists have observed that most Africans who own their homes do not have the title deeds to prove it and therefore they cant use their property such as houses to acquire more money hence ‘dead capital’ since these properties cant be deployed to create wealth. Many argue that even when banks give loans without collateral, the loans would be bigger and on fairer interest rates if there were secured with property such as land titles. The World Bank estimates that between 70-80% of loans in the developing world require some form of property rights or collateral.
Many Ugandans hold huge assets in the form of houses, buildings, land and small businesses which if brought into the mainstream of the economy through property rights registration would constitute a massive source of capital for investments and further capital accumulation.
Peruvian economist, Hernando De Soto, author of The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else has estimated the total value of dead capital, which includes land that is unregistered in Africa and the rest of the developing world and puts it at US $ 9 trillion dollars. This is mind-boggling considering that a trillion dollars is roughly three times Africa’s entire annual gross domestic product.
Tales of difficulties in processing a land title in Kampala are legendary with many saying the processes involved are exceedingly burden some which in effect means Ugandans are losing out in terms of missed capital for investment. Banks are constrained lending to clients with unregistered land which constitutes lost revenue in interest earnings. It has been estimated that only one African in ten lives in a formal house with title deeds. A research study would I am sure conclude that over the years Uganda has lost millions of dollars due to difficulties in property registration.
The ‘dead capital’ land includes homes and land without valid title or registry, with legal irregularities or restrictions for its transfer. It has been argued that failure to extend property rights to the bulk of the population is a feature of many poor countries and is one distinguishing factor between wealthy and poor nations.
Although land titling per se is not a magic bullet for poverty eradication, it has tangible benefits as research has shown in Ethiopia where land value increased by 5% after a mass land titling initiative which cost US$ 3.50 per household. In Peru, a World Bank study revealed that US $ 4 billion was realised as additional income for poor people as a direct result of legalizing dwellings and small enterprises between 1990 and 1996.
Robert Guest author of the 2004 book The Shackled Continent: Poverty, Corruption and African Lives reckons that in most African countries the informal economy is larger than the formal one and he estimates that one African in ten holds a formal job. Hence the matatu driver at the old taxi park, the barber at your salon, the matooke trader at your local market all operate outside the formal economy in Uganda and hence they don’t file income tax returns yet these are the majority Ugandans.
Uganda’s dependence on donor support would be diminished further if these businesses that are not registered or operate without full legal permits are brought into the fold of the formal economy.
As things stand, Uganda has a small middle class that is shouldering the nations’ tax burden yet the net can be widened to include the larger informal sector.
As Africans we need to unlock the wealth trapped in informal property because clearly the alternative is to remain poor.