7.3.3 Real Property Law
Real property law is crucial in a market economy; it provides the legal environment for a business to own, use, and sell land and buildings as well as to use them as collateral to obtain credit. Good property law is especially critical in transition-economy countries; a good law enables entrepreneurs to acquire land freely to produce goods and services in a secured ownership environment, which is a necessity in planning for the long term. A good property law must also be accompanied by an objective and standardized titling system.
Under Ethiopia’s Constitution, all land is owned by the State, a circumstance which is hardly conducive to a free market in land transactions. Furthermore, Ethiopia has never had a widespread system of land survey and titling. At the same time, however, the Constitution and other laws support extensive private use and quasi-ownership of land by Ethiopians and, in limited cases, by foreigners. This includes the right of private persons to own buildings and fixtures on the land, their right to lease land from the State on a long-term basis, farmers’ right to continue using rural land permanently for agriculture and in limited cases to lease it to investors or otherwise develop it commercially, and the State’s right and frequent practice to expropriate urban or rural private land use rights and sell those to private investors. Further, the city of Addis Ababa has a working cadastral titling system, and survey and titling projects have just begun with donor help that in several more years could cover much of the significant commercially desirable land in Ethiopia.
Through these limited rights, there is an active market in land transactions although that market is much more politically controlled and opaque, and the rights are less secure and predictable, than in market-economy countries or than should be the case for optimal economic development in Ethiopia.
The main features of Ethiopian land law and the governing federal laws are described below. It is important to note that although overall land policy is set at the federal level (in the laws cited below), administration of the law has been delegated almost entirely to innumerable local authorities which include municipalities (in urban areas) and regions, woredas, and kebeles (in rural areas). A kebele is a group of villages forming an administrative unit, and a woreda is a group of kebeles forming a larger administrative unit within a region .
Private Landholding Rights: the Federal Constitution (Proclamation
These competing concepts are in the Constitution itself, which states that ownership of land “as well as of all natural resources, is exclusively vested in the State and in the peoples of Ethiopia…and shall not be subject to sale or other means of exchange” (Article 41/3), but also states that “Every Ethiopian shall have the full right to the immovable property he builds and to the permanent improvements he brings about on the land by his labor or capital” (Article 40/7); that the “government shall ensure the right of private investors to the use of land [on] the basis of payment arrangements established by law” (Article 40/6); and that the “government may expropriate private property for public purposes subject to payment in advance of compensation .. .” (Article 40/8). Private land ownership was recognized in imperial times but was abolished during the Communist Derg period. The Constitution’s current prohibition of private ownership continues that latter state of affairs.
Private Landholding Rights—Urban versus Rural
Ethiopian law treats urban and rural land separately. The underlying conditions are different; in urban areas, especially Addis Ababa, there is growing commercial development and a recognized need for an active market in commercial and residential real estate; in rural areas subsistence farming and continuous subdivision and fragmentation of plots are often the rule and there is a desire to encourage farmers to remain on—and invest in—their land rather than migrate to crowding cities. In practice (and oversimplifying somewhat), the urban land law results in a real estate market and substantial income for the State through leasing of land rights to private persons; the rural land law results in substantial control by the State in agricultural areas. (Ethiopia also has pastoral/communal lands not falling into either of these categories or covered by the laws below; this Report does not deal with those.)
Urban: the Urban Land Law (Proclamation 272/2002)
The main urban land law, Proclamation 272/2002, is mostly concerned with leasing from the State, and most privately held land in Addis Ababa and other cities is held by such leases. Leases of improved (built) land can be privately sold or mortgaged, and space within buildings can be privately leased to tenants on a negotiated basis. In Addis Ababa there is a fairly active market in leasing, sales of leases, and even bank mortgaging of buildings on leased land.
The leases themselves tend to be short documents whose contents are determined by State agencies, and often require construction by the lessee as a condition of maintaining a lease (and all construction is subject to approval by the State). The method for determining rent for land leases is determined by the State—it can be through auction, by direct negotiation, or by other dealing with or without public notice. The leasing is done (and the land is owned) at the municipal or regional level, not at the federal level (in Addis Ababa the agency that leases the land is the Municipal Land Administration Department).
Proclamation 272/2002 is overly detailed on matters that are determined by the market in a market economy, and it provides for State control and discretion at every step. For example, leases are permitted “in conformity with the law which [the] Region or City government makes” and may be offered through auction, negotiation, or “according to the decision of [the] Region or City government” (Article 4); a leasehold title deed shall be conferred on a person to whom urban land “is permitted,” the details of the deed “to be specified by Region or City Government” (Article 5); there is a highly detailed schedule of maximum permissible lease terms for separate categories of use and location, examples being up to 50 years for commerce in Addis Ababa and up to 70 years for commerce in lesser towns (Article 6); there are formal requirements for lease renewal and renewal “as per the agreement to be reached, unless the urban land is wanted for public interest”—“public interest” being defined simply as “that which an appropriate body determines as a public interest” (Articles 2 and 7)—and rent amounts “shall be stipulated by regulations to be issued by [the] Region or City Government (Article 8); the leased land must be used for the prescribed activity within a period of time to be specified by the authorities and any change in use must be approved by them (Article 12); and in any event the authorities “may clear and take over urban land [whether leased or otherwise held] which is necessary to commit for a public interest” (Article 16).
Rural: The Rural Land Administration and Use Law (Proclamation 456/2005)
This Proclamation provides for granting land “holding rights” free of charge to farmers already on the land, for issuance to them of a title certificate identifying the plot concerned, and for survey and cadastral registration of the title (a process now in its beginning stage). This is all done at the woreda and kebele levels. For a farmer who is farming “for a living,” this right has no time limit but is not entirely secured; it can be taken away if the farmer leaves the land for 2 years (perhaps to try city life) (see Article 9) or if the land gets damaged as determined “in the land administration law of the regions” (Article 10).
A farmer’s holding should be of a minimum size which provides for his family’s “food security” (Article 2/10), and it may be transferred by inheritance to members of his family who are also engaged in farming, but may not be freely sold (Article 8/5). For non-farmers, including private investors, the duration of a rural landholding right is not perpetual but “shall be determined by the rural land administration laws of regions” (Article 7). Regarding commercial development, a farmer may lease to an investor land “of a size sufficient for the intended development…for a period of time to be determined by rural land administration laws of regions” (Article 8/1); and a holder “may undertake development activity jointly with an investor” under a contract “which shall be approved and registered with the competent authority” (Article 8/3). These provisions can be used to facilitate private investment, but their language makes clear that it will be subject to close State regulation and control.
Expropriation, Urban or Rural: the Expropriation and Compensation
Law (Proclamation 455/2005)
This Proclamation grants governmental bodies at all levelssweeping powers to expropriate land for business purposes. Recent examples were citedinvolving floriculture and coffee farms, urban office building and hotel expansion, and
planned commercial development in “para-urban” areas where cities are expanding and taking over formerly rural land. The broadness of the authorizing language speaks for itself: the State may “expropriate rural or urban landholdings for public purpose where it believes that it should be used for a better development project to be carried out by public entities, private investors . . . or other organs, or where such expropriation has been decided by the appropriate higher regional or federal government organ for the same purpose” (Article 3).
If a landholder refuses to hand over the land when required, the “administration may use police force to take over the land” (Article 4/5). The Proclamation also requires that displaced landholders showed be compensated and it has much detail (again, in highly discretionary language) on valuation of their holdings and resolution of disputes with them. Needless to say, disputes often arise. Cases were cited in which they have gone on for years without court or other resolution; on the other hand, cases were cited—especially in sparsely populated, forested, or grazing areas—in which persons displaced were agreeable to the process and received employment from the newly established business. The issues which have been raised by displaced holders include lack of notice, inadequate or no compensation, delays, rough eviction procedures, and no provision for resettlement.
When land rights are expropriated, the Government may sell the rights to the new investors for prices which are unrelated to—and may far exceed—the compensation paid to displaced landholders. The theory behind this is that the land and its value belong to the State whereas compensation is owed only for the value of the buildings considered separately. The sale prices can also be set at a level which effectively subsidizes the new investment if the investment produces jobs or other social benefits. In any event, the sales represent a revenue source for the government. One of the most important features of the expropriation process from investors’ viewpoint is that it is managed entirely by the government without need for direct investor involvement.
Landholding by Foreigners: The Civil Code, the Investment Law (Proclamation 280/2002),and Regulation 84/2003 Implementing the Investment Law
The Imperial-Era 1960 CivilCode (which is still in effect) states that “no foreigner may own immovable property situated inEthiopia except in accordance with an Imperial Order” (Article 390). That is currentlyinterpreted to prohibit direct holding of land use or leasehold rights by foreign individuals andforeign-registered companies. It is not, however, deemed to apply to diaspora Ethiopians whohave returned to invest in Ethiopia eventhough they retain foreign citizenship, including, in manycases, U.S. citizenship. Further, it was stated in interviews that it does not apply to Ethiopian registeredcompanies in which both foreigners and Ethiopians are investors and to which anEthiopian makes an investment in the form of a beneficial contribution of land rights to thecompany. This may apply even in cases where the foreign investors own a controlling interest inthe company.
For residential property, the Investment Law has a specific exception from the
Civil Code, providing that a foreign investor may “own a dwelling house or other immovable property requisite for his investment” (Article 38).
The Investment Law does not cover landholding as such but, in combination with its implementing Regulation 84/2003, it importantly specifies business areas which are reserved exclusively for “Ethiopian nationals,” including banking, insurance, and broadcasting; and areas exclusively reserved for “domestic investors,” which it defines to include foreign nationals permanently residing in Ethiopia and having made an investment there. (These include a long list of business areas including retail trade; most wholesale, export, and import trade; hotels; and construction.)
Although local legal advice should be sought in interpreting these laws, it is clear that they do not foreclose all landholding opportunities for foreign investors. Several persons interviewed pointed out that the government is encouraging foreign investment. That purpose would be advanced by expanding and clarifying these laws.
Survey, Titling, and Registration of Title
A major factor inhibiting land markets in Ethiopia has been the absence of a reliable, standardized survey and titling system. Uncertainty and disputes over ownership and boundaries continue to be a serious problem and there has been no efficient way to resolve them in the absence of good title records.