• Tuesday, April 16, 2024
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Reinvigorating Nigeria’s economic potential with Dead Capital

How Nigeria can unlock economic growth potential with dead capital

Trillions of Naira lie dormant in idle assets across Nigeria, representing a significant drain in terms of underperformance on the nation’s economic potential. The evolving phenomenon of “dead capital” encompasses everything from underutilised infrastructure and machinery to unproductive land and unclaimed financial instruments. In a nation striving for sustainable growth and development, unlocking the value trapped within these assets is no longer an option but has become a necessity.

In Nigeria’s potentially dynamic economic landscape, the concept of reviving and breathing life into the vast array of dead capital, especially in the real estate sector, has emerged as a pivotal discourse. This article delves into the untapped potential of dormant assets, exploring strategies to revitalise and maximise their contribution to economic growth and prosperity.

Unfortunately, the Nigerian real estate sector is anchored on informal property holdings worth close to one trillion dollars, according to a 2020 study by PwC, a global professional services firm. Paradoxically, for Nigeria, a country with this much potential and vibrant energy, these resources are dormant, untapped, and unproductive. A targeted effort to harness the potential of the sector could yield a major boost for the economy and propel it forward.

In a nation striving for sustainable growth and development, unlocking the value trapped within these assets is no longer an option but has become a necessity.

Dead capital, a term coined by Peruvian economist Hernando de Soto, refers to assets that hold potential economic value but are locked away and unable to contribute to the formal economy. Imagine a treasure chest full of gold buried deep in the ground; it has value, but it’s useless if it cannot be accessed.

De Soto’s motivation stemmed from his observations of the informal economies prevalent in developing nations, particularly in Latin America. He observed that despite individuals owning assets such as land and homes, the lack of legal recognition made it challenging for them to leverage these assets for economic opportunities. His ideas have had a significant impact on discussions about property rights, informality, and economic development globally.

These assets (dead capital) are not utilised or cannot generate economic value due to factors like unclear property rights, inefficient legal systems, or a lack of access to financial resources. This concept is often associated with underutilised or informally owned assets that hinder economic development. It will then be good to say that it is an economic term that refers to informally held, not legally recognised, property or assets that cannot be exchanged for financial capital.

A good example is a man or family that owns a house or land without a proper title or registration. It remains there and cannot be used as collateral for a loan or sold in the market when there is a need. And even when it is indeed sold, the value obtainable is much lower than the market value because of a lack of valid documentation. The value of the property is lost or ‘dead’.

As an informally held or legally recognised property, dead capital cannot be exchanged for financial capital. As a result, the uncertainty of ownership drains its value, making it difficult to lend or borrow against it.

Dead capital is particularly impactful in developing economies, like Nigeria, where a large portion of the population might hold assets informally. This can create a significant barrier to development by limiting access to capital for entrepreneurship, infrastructure investment, and poverty alleviation initiatives.

Conversely, unlocking dead capital holds the potential for significant economic growth. By addressing the legal and institutional challenges that prevent the formal recognition of these assets, their value can be activated. This can lead to increased investment, credit availability, and overall economic activity.

For instance, de Soto estimated that over 70 percent of the global population holds dead capital, representing a potential value of $9.30 trillion, with Nigeria accounting for close to $1 trillion of it, according to a PwC study in 2020. For Nigeria, this manifests in residential real estate and agricultural land, particularly. This leaves Nigeria’s dead capital staggering at an estimated between $300 billion and $900 billion in vast stretches of land, homes, and properties. The potential here has been stifled by bureaucratic inertia and a lack of clear ownership. The high-value real estate market alone is worth between $230 billion and $750 billion. The middle market accounts for an additional $60 billion to $170 billion. These could make a big impact if the country could breathe life into them, propelling them and their owners towards economic growth, poverty reduction, and prosperity for all.

Nigeria, with about 10 percent of its entire land assets having titles, fares better than Mozambique and Zambia, which have an estimated 3 percent freehold land. But Nigeria is far behind Namibia with 44 percent freehold land and South Africa with the highest proportion of 72 percent of land under freehold ownership.

In Africa, the percentage of land covered by formal title varies across countries. The system of land ownership and the prevalence of formal titles can differ significantly from one country to another. The African Development Bank estimates in a study that while approximately 64 percent of the total land area in Africa is owned by the state and other institutions, 36 percent is privately owned.

Beyond the work done by PwC, estimating the exact worth and volume of Nigeria’s dead capital is still challenging due to various factors, including the lack of clear property rights and informal land ownership, as earlier pointed out. The issue is complex and varies across regions. It involves factors like unregistered land, disputed boundaries, unclear land titles, and the absence of a formal property market. In general, addressing dead capital issues could unlock substantial economic value, but specific quantification is difficult without comprehensive data and analysis.

The Nigerian situation appears to be a bit more complicated and complex, with its vast land mass of over 923000 square kilometres vested in state governors through the Land Use Act. With less than 10 percent of this area of land titled, the state governors tend to see land more as a revenue-generating item and political weapon than for economic development.

Interestingly, the Land Use Act will be 45 years old (March 2024), and by all intents and purposes, having served some of the earlier proposed objectives, it is now overdue for a major review in line with the prevailing realities of our land assets. There is an urgent need for it.

There are many things that are required to be done, and a multifaceted approach is advocated for resolving the issue of dead land capital in Nigeria.

Key strategies would include:

Land titling and registration:

Implementing a comprehensive system for clear land titles and registration helps formalise property rights, reducing uncertainty and unlocking economic potential. Linking land titling with access to credit can incentivize formalisation and empower landowners. Land registration and documentation processes should even be decentralised to the local government levels, where rural people could easily have access. The stress and cost of travelling to the state capital for land matters will also be reduced.

Legal reforms:

Strengthening and streamlining legal frameworks related to land ownership can provide a more secure environment for property transactions, encouraging investment and development.

Public awareness and education:

Raising awareness about the importance of formal land ownership and educating the public about its benefits can promote a shift towards recognised property rights.

From all indications, the people (the governed) are always suspicious that the government never means well for the bruised and battered citizenry, and as a result, they are usually hesitant to cooperate with the government. The government has to assuage their feelings and fears by way of intense public awareness campaigns and education.

Technology integration:

Leveraging technology for land administration, such as digital mapping and blockchain, can improve transparency, reduce fraud, and enhance the efficiency of land registration processes.

Lagos State government, one of the few states that understands the role of land in economic development, continues to be a frontrunner in this area. In early 2024, the state launched an e-portal for land transactions, which simplifies every form of land transaction so that most can be undertaken from the comfort of one’s home or office.

Access to finance:

Facilitating access to financial resources by using formalised land as collateral can encourage investment and entrepreneurship. Microfinance and alternative lending models can also be developed for loan products that utilise informal assets as collateral, such as community guarantees or land rights with potential for formalisation.

Community engagement:

Involving local communities in decision-making processes related to land management and ownership can foster a sense of responsibility and ownership and contribute to sustainable solutions.

Government initiatives:

Implementing government programmes that address land tenure issues and promote land reform can play a crucial role in tackling dead land capital.

Capacity building:

Enhancing the capacity of institutions responsible for land administration and governance ensures the effective implementation of reforms.

Customary land recognition:

Addressing customary land tenure systems and integrating them into the formal framework can respect traditional rights while promoting formalisation.

Public-private partnerships:

Partnering with private companies and NGOs can leverage their expertise, resources, and technology to accelerate land titling and financial inclusion initiatives.

Other strategies can include promoting alternative dispute resolution mechanisms for land-related conflicts. Incentivizing private-sector investment in land development and infrastructure can also be added to the grill.

While some initiatives are already underway, like the Ministry of Finance Incorporated Committee (MOFI), set up by President Buhari and recently reenergized by President Tinubu, addressing such a complex issue requires sustained commitment from the government, communities, and the private sector. By implementing these strategies holistically, Nigeria can unlock the vast potential of its landless capital, boost economic growth, and empower its citizens.

However, it is important to remember that success will rely on addressing the specific context and challenges within different regions and communities. Dead capital represents a vast, untapped resource with the potential to boost economic growth and empower individuals. By addressing the challenges and implementing solutions, we can unlock its potential and create a more inclusive and prosperous world.

Nigeria needs a comprehensive and collaborative approach involving government, communities, and various stakeholders to address and ameliorate the issue of dead land capital in Nigeria. This is an essential need. It is very evident that Nigeria’s economy is underperforming, and unlocking dead capital is a major, critical route to reverse the trend and move it in a positive direction.

In conclusion, “dead capital” acts as a hidden brake to economic growth in many developing countries, including Nigeria. While it represents wealth on an individual level, its informal status prevents it from contributing fully to the broader economy. Addressing this issue through legal and institutional reforms can be a powerful tool for unlocking economic potential and promoting inclusive development.

Governments at all levels need to stop paying lip service to land reforms if they truly want rapid economic development. The land and its role in development cannot be overlooked. The only thing that gives life to land is a valid and easily transferable title clearly stating the details of interest.

Attempts to amend sections of the Land Use Act 1979 at the National Assembly must be encouraged. It should not be aborted for political exigencies. These efforts should be sustained. It should not be a cosmetic or academic exercise but should be far-reaching with amendments that reflect current political and economic realities. It would help leapfrog our landholding system and infrastructure into the technological age.

A simple 25 percent increase in titled land in Nigeria, for example, would potentially boost GDP by enhancing agricultural productivity, attracting investments, and fostering economic development. An increase in titled land will have a significant impact on Nigeria’s economy, particularly as it will lead to increased agricultural productivity, urban development, and investment.

In real estate and construction, urban development and infrastructure projects would boost economic activity. For investment and business expansion, investors would utilise the additional land for commercial purposes. New opportunities could arise from land development and utilisation, resulting in job creation.

Ubosi is the Principal Partner at Ubosi Eleh + Co, a firm of Estate Surveyors and Valuers