Restore property rights on agric land

Politicians, during recent upbeat and optimistic presentations, have often repeated the statement that Zimbabwe will never go back on land reform. They appear to be suggesting that whatever arguments might have existed, we should all accept that they have all been settled and there is nothing left to debate. 

John Robertson,Economist

Despite warnings that any attempt to restart debate on the subject will be treated as an irreverent intrusion on hallowed ground, I want to see the debate re-opened. To start the discussion, I want to dismiss the claim that an attack on land reform is an attempt to defend colonisation. I would rather argue that acceptance of property rights is a way to promote prosperity.

Those colonisers certainly introduced the property rights that were set aside by land reform. However, the chosen response, which was to simply take back the land, overlooked a vital fact: it was only one of many ideas that the colonisers introduced at the time. A wide range of other readily acceptable ideas began to revolutionise the country at the same time. But for all of them to function properly, respect for the idea of individual property rights had to be in place.

To measure the importance of this idea properly, its worldwide dimensions have to be recognised. The idea of individual property rights formed the foundation upon which the economy of every prosperous country in the world has been built.

Giving land a commercial and market value is this idea’s core feature. Land with a market value also has collateral value, so money can be loaned to every landowner who can work well enough to pay back the lender. This unlocks the imagination and resourcefulness of borrowers. Those with the best ideas and the ability to put them to work then transform every country that offers protection to property rights.

In this country, traditional chiefs did not want to see individual ownership rights introduced in their areas. The early colonial administrators gave them what they asked for: the right to continue allocating land in their designated tribal areas and protection against the buying power of the colonial settlers.

In the areas designated for land ownership, the buyers needed to borrow money. For their own protection, the lenders of that money needed the backing of laws and regulations that would guarantee the security of tenure of those borrowers. For their further protection, the lenders also required detailed property registers and strict, legally enforceable, change of ownership procedures to be in place. When property rights and obligations were fully respected, the banks had all the confidence they needed to finance development and to support wealth-creating activities.

But, because the traditional powers of the chiefs were not changed, land ownership rights for individuals were recognised in only about half the area making up Zimbabwe. That was soon the more prosperous half. Working as well as it did, that half was successful enough to make Zimbabwe the second-most prosperous country in Africa.

But, after the agricultural property ownership rights were cancelled in the land reform programme, which led to that land being allocated free to resettlement farmers, Zimbabwe became one of the poorest countries on Earth.

Political imperatives often drive the decisions that have to be made. Taking the land back might be described as one of these. However, government had no need to take the land off the market. By destroying the collateral value of a vitally important national asset, government removed billions of dollars worth of collateral value from Zimbabwe’s economy. This inflicted enormous harm on the foundations upon which a large part of Zimbabwe’s productive sector had been built.

Yes, the idea of putting land onto the market was one of the many ideas the colonisers brought with them. Whatever resentful thoughts might be held against colonisation, it was respect for property rights that made Zimbabwe’s investment climate attractive. It was attractive enough to attract a wide range of manufacturing investors. The majority of them went ahead with a very wide range of investments because successful farmers could be relied upon to sustain steady deliveries of raw materials and export revenues.

But when agricultural land was disabled by government’s decision to cancel its collateral value, the flows of previously dependable raw materials slowed or stopped. Factories had to downsize, or close. Exports of an extensive list of consumer goods fell sharply and the deliveries of the same goods to local stores declined. More and more of the nation’s needs had to be imported. These had to be paid for with increasingly scarce foreign exchange. As a result, not enough was left to repay outstanding foreign debts.

Other downstream consequences of land reform included the loss of 400 000 jobs, the emigration of thousands of people with technical and managerial skills, the collapse of the Zimbabwe dollar that took with it the nation’s savings and pension funds, the near-collapse of National Railways of Zimbabwe and Air Zimbabwe and for more than half the country’s population, the growing dependence on informal sector activities.

With our new leadership choosing to defend policies that imposed such enormous costs on all of us, but now inviting critical comment on its performance, we have no option but to question its motives. Property rights and access to bank loans made all the previous development possible because they placed within reach the necessary finance. The damage that we now have to overcome was caused by government’s decision to reject these very same property rights.

Government keeps saying that the problem will be overcome by the adoption of 99-year leases. However, every attempt to generate a lease document that gives the banks the absolute security needed has been rendered un-bankable by government demands that diminish the rights of the lessee and interfere with the marketability of the property.

Government claims that leasehold arrangements are extensively used in other countries, but it always carefully omits the fact that the lessors, or landlords in those countries, are usually individuals. In Zimbabwe, the intention is that the primary landlord will always be the government. This is a limiting factor that we do not need.

Leasehold arrangements run a very poor second-best to freehold title. The collateral value of the remaining years of an existing lease is never clear, but the market value of a freehold property from which a bank can determine the amount it can lend is easily calculated.

Transactions on the property market, handled by real estate agents who are bound by law to work through conveyance and registration procedures, offer the banks additional security.

Leasehold arrangements have less collateral value because of difficulties and uncertainties, but the real question to ask is why government is demanding that a second-best option be adopted in preference to the readily available best option?

Does government want Zimbabwe to always be a nation of tenants renting their farmland from government? If the answer is yes, it will self-impose limitations on performance, commitment and conduct, as well as on new investment inflows will be the result. The risk that government, as landlord, will interfere with any bank’s attempt to recover unpaid debt will be enough to keep those limitations in place and will keep Zimbabwe poor.

For the banks, collateral in the form of fixed and easily marketable assets is the most favoured form of security. Every borrower has to agree to the banks’ requirement that, if the loan is not repaid, the banks have the right to sell the collateral to recover the money. This powerful motivational force generates among the borrowers an enormous determination to do well in their businesses.

Put that force to work in tens of thousands of businesses and it generates goods and services, export revenues, tax revenues and jobs. And these are the measure of the success of the whole country. Or they would be, if Zimbabwe were to restore respect for freehold property rights on agricultural land.

Robertson is an economist. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society, email: [email protected], cell +263 772 382 852.