Yonas Biru, PhD
The debate on whether democratic or autocratic political systems foster sustainable economic development remains unsettled. There is no question that almost all high-income countries in Europe, North America, and Asia and Oceania (Japan, Singapore and Australia) are democratic.
However, there are examples of autocratic governments that have registered extraordinary economic development. China is the most familiar example. Similarly, Taiwan’s economic miracle was achieved under a one-party state martial law and South Korea’s economic miracle was registered under General Park Chung Hee, after he seized power by way of coup d’etat.
Where there is no debate or ambiguity is regarding countries where there is no robust property rights protection. The absence of a well-defined and protected property rights hamper prosperity and foster a culture of corruption. Most of the world’s poor nations fall in this category, Ethiopia included.
Though politically autocratic during their miraculous economic growth, Korea’s and Taiwan’s economies were market led with reasonably robust property rights protections. Similarly, China’s astounding growth was triggered by the nation’s constitutional reform that revived property rights in the late 1970s.
With particular focus on the industrial sector, Deng Xiaoping (“Architect of Modern China”) transformed China, from command economy (undergirded by government ownership of capital) to market driven economy where the means of production are increasingly privately owned. One notable exception is that land is owned by the government. The same is the case in Singapore that is otherwise fully aligned with western market economic principles.
As part of the economic transformation policy, Xiaoping reformed the nation’s property rights laws. In 1976, China had fewer than 3,000 lawyers. One of Deng’s policies was producing more lawyers to help facilitate the newly adapted market economy and property rights laws. Currently, “230,000 candidates on average sit for the bar exam annually, and more than 600 schools offered degrees in law.”
China’s experience is unique to the extent the enigma of the invisible hands of the market tango with the visible hands of the government more than that is customary in western countries. However, the difference is in degree, not in kind. There is no government that does not have its hand and footprint in the economy. Deng called China’s policy “Capitalism with Chinese Characteristics.”
The success of China’s development is largely due to its property rights protection. The following two images show private structures standing in the middle of newly built roads as the owner refused to move because of dispute about compensations. The two images are in different provinces of China.
With China’s, Korea’s, Taiwan’s and Singapore’s development experiences as a backdrop canvas, this article aims to examine Ethiopia’s position across the global property rights protection spectrum.
The most widely used source for property rights protection is the International Property Rights Index (IPRI) published by Property Rights Alliance (US and Peru). It scores the extent to which a country’s legal framework and law enforcement apparatus safeguard physical capital and intellectual property rights. IPRI data shows a strong positive correlation between high IPRI scores and high economic prosperity. Countries in the top quintile of IPRI are 19 times richer than their counterparts in the bottom quintile where property rights are not well-defined and judicially protected.
Ethiopia At a Glance
According to the International Property Rights Index, Ethiopia is among the third worst property rights violators in Africa out of 27 countries for which there is data. The only two countries who fared worse than Ethiopia are Chad and the Democratic Republic of Congo. At the global level, Ethiopia is the sixth worst violators in the world out of 125 countries. Even worse, the violation is getting worse every year since Prime Minister Abiy took power as the below table shows.
On paper, Article 40, Section 1 of the Ethiopian Constitution guarantees “The right of every Ethiopian citizen to own private property.” Section 8 Promulgates “Without prejudice to the right to private property, the government may expropriate private property for public purposes subject to payment in advance of compensation commensurate to the value of the property.”
In practice, the government destroys tens of thousands of legally owned private properties without adequate notice or compensation. Thousands of businesses large and small are grazed to the ground without compensation to open space for the Prime Minister’s vanity projects misnomered as “corridor development.” In the rare cases where compensation is offered, it is far below the property’s fair value.
Citizens and investors have no legal recourse against property theft by the government or politically connected oligarchs. The case of Awad Sultan, a prominent real-estate developer, epitomizes the state of the crisis.
Awad is a principal partner of the Imperio Real Estate company. In 2012, his company entered a joint real-estate venture with an owner of a land in a sought-after area of the capital. The legally binding agreement stipulated the landowner would contribute her land, and Imperio would pay for and manage the construction of an 18-story building. Accordingly, the landowner transferred her land to a jointly held Limited Liability Company (LLC) that divided the equity between the two parties in proportion to the value of their contribution to the joint venture.
After Imperio poured in hundreds of millions of birrs in the construction, the landowner appropriated the property in a brazen violation of their legally binding agreement. Currently, she is renting the property and keeping the proceed to herself. Six courts ruled in favor of Imperio, to no avail. The owner of the land happens to be a member of the nation’s Oligarchic economic mafia. Awad tells the story in his own words in media interviews. See here and here.
The crisis has reached to a point where bank clerks transfer money from business and private accounts with impunity. In a saddening case a poor mother deposited 1 million birr that was given to her by a businessman to help pay for her daughter’s surgery. One of the Bank clerks transferred the money and told her he has spent the money. When she reported to the Bank’s management, they told her there is nothing they could do. They advised her to take him to court, since he has admitted to her.
The mafia exists above the reach and reproach of the law. The Prime Minister was forced to quietly disband his Anti-Corruption Commission because of it. Dogged by the menace of the mafia, the Prime Minister complained about an armed group sabotaging his Anti-Corruption Commission. Nonetheless, he announced on national TV that his government will not go after them. He sheepishly asked them to put their loot to a good use – opening a bakery, for example. All the bank clerk who robbed the poor woman needs to do is open business with the money he criminally transferred to his account, and he is free.
Furthermore, businessmen have become targets of an organized ransom kidnapping enterprise. Truck drivers and cross-country bus drivers are routinely kidnapped in the middle of nowhere. They are often held up for days until their companies or families mobilize enough resources to pay ransom.
The Guardian flagged the problem with a headline: “‘This is a pandemic’: Ethiopia’s Oromia region gripped by surge in kidnappings.” The newspaper reported in October 2023, “several Chinese citizens working for a cement factory were abducted in the Oromo region. According to News Central, in 2022 gunmen kidnapped 20 workers at another cement factory owned by Nigerian billionaire Aliko Dangote. It is widely reported across the Ethiopian media that ransom payments are transacted through the Banking system.
The economy is dissolving from inside out. Earlier this year, a member of the Parliament revealed civil servants with university degree could not afford to eat lunch and spent their lunchtime in close by churches to pray. Today, the government feeds teachers and some civil servants as shown in the picture below.
Unfortunately, rather than addressing the risk of an impending economic collapse, the PM peddles false data about the state of the economy. Two days ago, he told the Ethiopian Parliament “In this year’s budget year, 30 million hectares of land is expected to produce 4 billion quintals.” Ethiopia’s total land area is 110,430,000 hectares. Its arable land currently is 16,314,000 hectares, according to the World Bank and the UN-FAO. Ethiopian Statistical Agency shows 38, million, including meadows and pastures. Meadows and pastures are not considered arable lands.
It is no wonder why Ethiopia is categorized among Africa’s and the world’s most fragile nations, along with Chad, the Democratic Republic of Congo, Somalia, South Sudan, Sudan and Central African Country.
