Francisco A. Laguna & Richard Shu
Property rights are recognized as a driver of economic development. Today, we explore the evolution of property rights in the West African nation of Ghana, and how they have contributed to development.
Traditionally, rural land rights in Ghana generally fell under “communal” land tenure systems. A customary authority, usually a local tribal leader, would approve or dictate all land transfers within a given region. That placed most land distribution responsibilities in a single authority. In the late 1980s, the major agricultural regions of Ghana (the coffee growing region of Wassa in the west, and the shallot growing region of Anloga in the southeast) started moving away from these communal systems in favor of giving individuals greater control over the right to transfer their land.
The effects of Ghanaian land liberalization on farming investments resulted in more plants and better capital, and, in turn, farming output. Findings suggest that, as individuals attained more control over their land, investment in that land increased and resulted in increased productivity and yield. Ghana stands as a strong case for the role of legal protections in economic development—a stable government and a growing economy go hand in hand.
In theory, there should not be an inherent causal link between land transfer rights and greater production efficiency: the same investments could easily have been made under a communal land tenure system. However, transfer rights make investments safer by protecting the investor from expropriation. If an agent is constantly worried about having her profits taken away, whether by a tribal authority or an autocratic government, she is much less willing to invest and develop that land simply because there is less chance that she will actually reap the benefits. By guaranteeing that profits go to the rightful owner, property rights can eliminate some of the uncertainty of investing, prompting agents to invest more.
Another important characteristic of property rights is that they allow for land to be used as collateral. For many underdeveloped nations, where resources are scarce and often inadequately tapped, land is often the most valuable asset that an ordinary person can have—and, more importantly, sell or mortgage. Land can be used as a good for trade, and it can also be used as collateral to establish lines of credit. Allowing people to control their parcels of land allows for the growth of finance, which, in turn, allows for investments in capital that increases production.
But none of this is possible without a functioning legal system in which those property rights are protected and enforced. A deed means nothing without a court to recognize that deed. And here is where most of the troubles lie. Ghana’s economic prospects began to improve only as the government started working more adequately for the people. Ghana, and other underdeveloped regions, still have a long way to go in that regard. The governments of developing nations are beset with their own unique problems. Warfare, corruption and bureaucratic inefficiency all hamper a government’s ability to function, while some governments are more focused on maintaining power and military dominance than serving its people.
A properly enforced system of property rights depends on a stable foundation of governance, dedicated to protecting individual rights. The construction of a stable legal foundation, then, cannot be ignored when discussing economic development. In nations without prudent governance and well-protected property rights, the law plays an essential role in protecting profits, incentivizing investments and cultivating growth.
Ghana has made great strides in both areas, and it should be applauded.
TransLegal has offices in Accra, and we are available to answer questions related to agricultural and other investments in Ghana.