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4.1 Land Institutions in Selected Sub-Saharan African Countries
Po L i C ies A n D i nstitutions th A t Distor t r esour C e A LL o CA tion in s ub- sA h A r A n Afri CA 53
Distortions in farm size can hamper agricultural productivity and discourage the uptake of modern technologies. Farm size in low-income countries can be distorted by a wide variety of institutions and farmlevel policies. For instance, many countries (including Bangladesh, Ethiopia, and the Philippines) have imposed ceilings on land holdings, partitioning any farms that exceed those ceilings. Others (Indonesia and Zimbabwe) have established both maximum and minimum size constraints. Several countries have also levied progressive land taxes (Namibia and Zimbabwe) or steep progressive income taxes (Ethiopia) on farmers (Restuccia 2016).
In addition, institutional mechanisms for allocating land are tightly linked to inheritance norms and redistribution. They tend to restrict access to land in underdeveloped rental and sale markets. Insecure property rights or inefficient land allocation mechanisms may lead not only to resource misallocation but also to (a) distorted incentives for technological adoption (Aragón and Rud 2018; Chen, Restuccia, and Santaeulàlia-Llopis 2017); and (b) distorted occupational choices by individuals between farming and nonfarming activities—because individuals opting to work in nonagriculture sectors may have to forfeit their untitled land (Chen 2017).
Aggregate Consequences of Inefficient Resource Allocation across Farms
There is a strong relationship between the depth of land markets and the degree of output loss attributed to misallocation. In other words, resource misallocation across countries in the region is greater among farmers without rental markets than those with developed rental markets—as shown in Ethiopia, Malawi, and Uganda (box 4.1). This disparity is captured by the greater dispersion in
Malawi: Dominance of Customary Land Tenure
Most of the land tenure in Malawi is customary, with user rights assigned locally by village chiefs.a The country’s Customary Land Act (No. 19 of 2016) grants the village head (or superior chiefs administering several villages) the power to allow or ban land transactions and to resolve disputes across villages associated with land limits (Kishindo 2011; Morris 2016). Although the Malawi Land Bill (also passed in 2016) looks to reduce these powers, it has not yet been enacted.
Most household farms in Malawi (83.4 percent) do not operate any marketed land (rented-in or purchased). Of the 16.6 percent of household farms that do operate part of their land from the market, 3 percent rent-in land informally (borrowed for free or moved into without permission); 9.5 percent rent-in land formally (through leaseholds, short-term rentals, or farming as a tenant); 1.8 percent purchase land without a title; and 1.3 percent purchase land with a title (Restuccia and Santaeulàlia-Llopis 2017).
Ethiopia: State Ownership of Land
From 1974 until the early 1990s, the Ethiopian government expropriated and uniformly redistributed the country’s rural land and legally prohibited land transactions. Although land ownership still resides with the state and many of the restrictions to land transactions remain in place, some reforms were implemented in the 2000s to grant land certificates to farmers and to allow rentals of the use rights (up to a certain limit). Because land sales are prohibited in Ethiopia, land rentals are the only channel for reallocating farms’ operational scale, and hence they constitute a measure of the depth of land markets.
However, the extent of land rentals began to differ substantially across subregions as these reforms were decentralized to local governments (Deininger, Ayalew Ali, and Alemu 2008). For instance, the percentage of rented land varies from 0 percent to more than 73 percent among the 69 zones (with available data) across the country. Among 234 woredas (districts), the percentage of rented land varies from 0 percent to 91 percent. These large differences in
54 Boosting Productivity in s u B - s aharan a frica
land rentals across zones and districts reflect substantial heterogeneity among local land market institutions.
Despite the comprehensive land certification reform intended to provide tenure security to farmers, land markets remain highly underdeveloped. Among Ethiopian household farms, 67.6 percent neither rent-in nor rent-out any land; 24.3 percent formally or informally rent-in some land for production; 10.6 percent rent-out land; and 2.5 percent either rent-in or rent-out some land. For a more extensive institutional background on the allocation and use of land in Ethiopia, see Chen, Restuccia, and Santaeulàlia-Llopis (2017).
Uganda: Multiple Land Systems
Uganda provides four types of land tenure: freehold, leasehold, Mailo (a form of freehold), and customary land. The first three systems offer some degree of formal and secure property rights, while customary systems are less secure and lack formal land registries (Coldham 2000; Place and Otsuka 2002).
The Mailo territory (8,000 square miles) was allocated to chiefs and notables after an agreement between the British government and the Kingdom of Buganda (Central region) in 1900. Although Mailo landowners hold their land in perpetuity and have similar rights to freeholders, tenants have security of occupancy as in common-law arrangements (sometimes backed by a certificate) and can only be removed if the land is unattended for at least three years (Coldham 2000).
In regions where noncustomary tenure systems are more prevalent, 47 percent of land holdings have been marketed (purchased or rented). In regions where customary land tenure is more common, 27 percent of land holdings have been marketed. These tenure systems are spatially concentrated as follows: (a) more than 90 percent of land holdings are under customary land tenure in the Northern and Eastern regions, and (b) noncustomary systems are mostly found in the Western and Central regions.
Finally, differences in land tenure appear to matter for economic activity in Uganda: customary land is associated with lower agricultural investment (Place and Otsuka 2002).
Sources: Aragón and Rud 2018; Chen, Restuccia, and Santaeulàlia-Llopis 2017; Restuccia and Santaeulàlia-Llopis 2017. a. “Customary” land tenure (as opposed to “statutory” tenure) refers to ownership by indigenous communities, administered in accordance with their customs. Common ownership is one form of customary land ownership.
total factor productivity revenue (TFPR) and in the marginal product of land for farmers who cannot rent land (table 4.2).3 For instance, evidence from Ethiopian farmers confirms the following (Chen, Restuccia, and Santaeulàlia-Llopis 2017): • The dispersion of TFPR is greater for farmers without rental markets (1.10) than for farmers with rental markets (0.96). • The standard deviation of the marginal product of land is also significantly lower for farmers who rent-in or rent-out land (0.86) than for those who cannot do so (1.05).
In sum, firms with any portion of market land tend to display less resource misallocation.
The output gains from eliminating distortions in land allocation would be larger among farms operating on nonmarketed lands. Evidence at the household farm level in Ethiopia shows that the efficiency gains from reallocation for farmers who do not participate in rentals are larger than those of farmers who rent land (table 4.2). The same finding is obtained for farms in Malawi: the output level of farms without marketed land (about 84 percent of the sample) would be 4.2-fold, compared with the 3.6-fold output gains for the entire sample of farmers in Malawi (Restuccia and Santaeulàlia-Llopis 2017).4
The degree of association between farm size and farm TFP is higher among farms operating with marketed land than among those operating without marketed land: these correlations amount to 0.30 and 0.14, respectively, among Malawi farmers (Restuccia and Santaeulàlia-Llopis 2017).
