The red book of Revolutionary Democracy considers land not as a factor of production only. It rather is regarded as the very basis of the developmentalism the EPRDFites envision to establish in the nation they have been governing since 1991. The ruling party itself is a result of communal discontents on the long overdue feudalistic land tenure system.
By virtue of their very struggle to power and the nature of their political base, therefore, the ruling Revolutionary Democrats do strongly relate with land resources. Yet, they have not always been effective in managing the resources. It is especially so in urban areas.
A case in point is the latest bubble in the land lease price in Addis Abeba. A price that had been crawling around 10,000 Br per square meter for years has now gone through the roof. The latest land lease auction has seen an offer of over 300,000 Br for a square meter, almost 300pc, and sent a shock through the spines of the nation’s business and policy circles. It was a rare proof for the Revolutionary Democrats that they are sitting on a time-bomb of asset price bubble that could burst at any point in time to eventually wipe out the hard-earned developmental results of the past two decades.
The offer, made for a 449 square meter plot in the middle of the capital, was a manifestation the systemic flaws of the urban land management system of the Revolutionary Democrats. Even if there is a tendency to take it as an isolated case, especially within the power circle, a systemic analysis of the fundamentals shows that it is not. There is strong correlation between the abrupt offers that auctions are witnessing and the flaws of the very system the EPRDFites command.
In the years before the split within the EPRDF, the Revolutionary Democrats were rational enough to consider land as a factor of production. Their focus was on deploying it within the economic matrix of the nation, along with capital and labour, and bringing about wholesome economic progress. All the policy documents of the transitional period argue in favour of this equation.
It is under this economic rationale that the land redistribution of the 1990s was undertaken. It all goes as if fundamental economics was the guiding principle of Revolutionary Democracy.
After the end of the Ethio-Eritrea war and the subsequent ideological stability of the ruling party, however, things took a different shape. Developmentalism becomes the guiding principle of the ruling elite. Its contrast, named as Bonapartism, was condemned to be the number one enemy of the nation.
Pronouncements about the pros of Develpmentalism and the cons of Bonapartism became the orders of the day. It all went as if the world is a dichotomy of political lines determined by the lines of political theories only.
But it was in 2000 that the policy green books of the Revolutionary Democrats hit the shelves. It, then, became clear that the whole debate between Developmantalism and Bonapartism was not only about political puritanism. It was rather about a change in the model of political economy envisioned by the ruling EPRDF.
The change also brought a shift in attitude towards key economic factors of production, especially land resources. Under the new model, which later become dubbed as Democratic Developmental State model, the state is considered as a rent maximising unit with a major focus on developmental redistribution of rents. Thus, control over key factors of production, including land, ought to be used as means to tap maximum rent from resources to invest in other engagements.
With such a shift in attitude, then, land becomes a key means of optimising the state’s rent seeking endeavour. This brought wholesome change in the very economics of land. Sadly, though, what followed is a destructive competition to get more of the limited resource.
The change in the economics of land brought opportunistic behaviours to the sphere. Speculation became rife. Land related corruption grew to become the number one threat to the political economy that the ruling Revolutionary Democrats to build. In the words of the late Meles Zenawi, an army of flexible, sophisticated and well resourced speculators emerged to challenge the establishment in a way that has never been seen before. Even regulatory instruments, such as the latest urban land lease proclamation, could not reduce their disruptive impact.
It may not be possible to question the intent of the ruling EPRDFites in all this. After all, policy changes are natural precedents of shocks. But they could not skip scrutiny on the subsequent political and economic outcomes.
From the latest spike in urban land lease price, it could be seen that the rent maximising state is playing the central role. Instead of deploying land as an economic factor of production, based on direct or substitutive pricing, the rent maximising state is hoarding it in its land banks and initiating a build-up in expectation. This not only imposes huge forgone benefit on the economy, but leads to exorbitant lease pricing.
Economically speaking, then, the action of the state is brewing a property bubble that is sure to burst anytime. It is also bleeding the economy of scarce capital, as the excessive pricing is followed by unfair distribution of capital within the economy.
But the nature of the state is not the only culprit. Feeding the land lease bubble are the opaque land information system of city administrations and the deliberate lag in supply.
Even if the constitution states that land is owned by the people, there is little information about it that the people could use to make informed decision. This is even worse in urban areas where there is huge competition for the resource.
Integrated land information is a luxury. There is no publicly available land information database.
Whatever information available about urban lands is disproportionately owned by city administrations. Though run by elected officials, the administrations feel no responsibility in releasing this information to the public. It seems that they enjoy both the asymmetric privilege they have and the very market leverage they buy through the same.
Without information, then, the whole land lease system works under speculation. Market are so disempowered that basic rules do not work. There is no predictability at all. The result, therefore, is an abrupt pricing system that is feeding a bubble ready to burst anytime.
It does not end there, though. The rent maximising state, under the leadership of the Revolutionary Democrats, seems to also enjoy the windfall rent it is collecting from urban lands. Hence, it deliberately lags the supply of land. The rationale, according to the Revolutionary green books, is to allocate the resources effectively and productively.
But this is only the superficial reason. The substantial one is that the state also wants to collect maximum rent from the resources it commands, even if it means through high forgone benefits, lagging supply and longer lead time.
At the end of the day, though, it all boils down to expectations. Prices are denominations of economic expectations. Policies and actions that impact expectations positively would reduce prices, while those that impact them negatively would increase prices. If one is to be honest with what is happening to the land lease price of urban centres in Ethiopia, then, it is easy to see that the expectations could be reversed with few policy actions.
For the EPRDFites, then, what the time requires is to shift the urban land management system from its long overdue focus on rent maximisation to economic efficiency. This, in a way, entails creating transparent land information system, pegging land supply to aggregate demand and monitoring expectations. By doing so, speculative forces could be avoided and the markets could be empowered to act rationally.
It is obvious that it is high time for taking decisive action on urban land management. The cost of passivity and inaction, in this case, would certainly be huge.
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