Harnessing Rural Capital For Rural Development

Undoing the damage done to Ghana’s economy is like untying a knot. It is difficult to find where the knot begins and where it ends, sometimes. First you try your nails, then a pin and when you still can’t do it, you try your teeth. Sometimes, you need a two-pronged approach - your nails and your teeth simultaneously. And if you are not careful, you may get the knot even tighter than it originally was. But try, you must.

The just ended launching of the Foundation for the Building of Capital of the Poor that took place in Accra on September 23, 2002 has given me great hope that finally the knot will be untied. Until this event, I had never heard of Dr. Hernando de Soto, the economist from Peru, who is credited with the idea - an idea that the former President of the United States, Bill Clinton, describes as “the single most important economic idea on the planet today.” However, I accept his model in its entirety. My only hope is that it is not just another attempt to untie a complicated knot, only to be cast aside to try yet another.

Dr de Soto’s model, as far as I can gather from the pieces I have read so far, simply recognizes the huge, largely untapped capital every rural community has – land.

In the advanced world, the single most important asset that can be used as collateral for a loan is Real Estate. And by Real Estate, I mean land and buildings. The land component of Real Estate is even more important because without land you cannot have its appurtenant called buildings. Without land, you cannot have farms or any business for that matter.

Our people have recognized, for centuries, how important land is. We have fought and died for land since the beginning of time. The traditional system of land ownership has been handed down to us from the generations. Along the line, valuable family land has been lost because a stronger family can literally usurp a weaker family’s land with impunity. In the modern Ghanaian economy, rural lands have been appropriated for mining, timber and other commercial ventures without regard as to who owns the land, and the arrangement to pay ongoing compensation for such use. This scenario has rendered many families destitute.

Rural Ghana – Problems and Opportunities

Dr. de Soto’s model is of interest to me particularly because having been in the mortgage lending business for the past 14 years, I have become immensely interested in land as the most important asset for collateral for a loan. In fact, in the year 2000, I toyed with the idea of starting a Rural Mortgage Company with the sole aim of using rural land and property as collateral for a mortgage loan. I gave up on the idea when I realized that it would be impossible to put a lien on a rural property because you really don’t know why owns the property.

Rural Ghana presents uniquely challenging problems and opportunities. According to the 2000 national census, rural Ghana constitutes some 65% of the population – that is almost 12 million people out of the nation’s 18 million people. It appears that Ghana operates two distinct economies – urban and rural. People in the rural areas appear not to be part of what constitutes Ghana’s mainstream economy. If we can bring them to be part of the mainstream economy, they will constitute a significant market for goods and services produced in the country.

While the country has an overall per capita of $400, rural Ghana has only $50. This income has to improve considerably in the shortest possible time. If we can bring per income in the rural areas to even $200, people in the rural areas would command as much purchasing power as those in urban centers. Ghana cannot be said to be a developed nation until we have been able to increase rural incomes considerably. However, it cannot and should not be achieved with handouts. It will take entrepreneurship backed by loans secured by their own God-given properties. And that is why Dr.de Soto’s model makes so much sense.

Rural Ghana constitutes a very significant segment of the economy. Their sheer numbers alone make them very significant. They are hardworking people. With simple tools and sheer desire to survive, they have fed the nation over the years. They produce the country’s major export commodity – the cocoa bean. It is also significant to note that all the mining lands are in the rural areas. On November 26, 2000 the then Governor of Bank of Ghana revealed that at the end of June, 2000 rural banks deposits stood at C181billion. Rural Ghana, then, is really not as poor as we may think. Dr. Kwabena Dufuor lamented that those savings, however, did not directly benefit the rural folks who contributed the funds in the first place. The funds were invested in Government of Ghana’s treasury bills. The main reason why deposits of rural banks could not be lent to rural dwellers was the risk. Rural folks have no collateral for such loans and hence a prudent loan manager would consider a loan to such people as highly risky.

A distance of five miles from an urban center would be considered rural. Ghana is a small country. The distance between the East and West points is only 280 miles; North and South - 400 miles. To me therefore, Ghana has no rural areas. Every part of the country is within reach in a few hours, if we had good roads. To those who may think that rural land is valueless should think again. On the contrary, I believe that rural lands are undervalued assets. My own village, Pakyi, is only 11 miles from Kumasi, half way between Kumasi and Bekwai. Until recently, one could buy a plot of land there for C300,000. After the rehabilitation of the Kumasi-Obuasi road, land values shot up considerably with room for further increments. A few nice houses in my village will bring value to the once valueless land as it is within commuting distance to Kumasi.

Most Ghanaians in the cities have their routes in the rural areas. Even some of the people who have walked the corridors of power are from the rural areas. And yet, for years, there has been no meaningful effort made to bring rural life at par with urban life. You can imagine a Presidential campaign trail doing the rounds in the villages and some of these top men and women having to attend to nature’s call; where would they go? It is in our interest, then, to find a permanent workable solution to the problems in rural Ghana.

Political Will

Dr de Soto’s model is a great idea whose time has come. If implemented with care, it could be the most single method to untie the economic knot that has been so difficult undo for so many years. But, there are grave challenges ahead. As President Kufuor alluded to, it is not going to be easy to implement the model. It poses a great challenge. It requires a complete overhaul of the system of land ownership that we all know as Ghanaians. It can be seen as an affront to our cultural norms and traditions. It is almost a cultural revolution. The stakeholders will debate the merits of Dr. de Soto’s model for a long time to come. Rural people will be fearful of the change. The new system will even affect inheritance laws in the country. We may even have to change the definition of what a family is. Chiefs, the custodians of traditional lands, will pose the biggest challenge. They could see it as a threat to their traditional authority. The entire country has to undergo a new cultural orientation and education. If care is not taken, traditional landowners will misconstrue the Governments efforts as a way to take their lands away from them. Family units could be embroiled in fist-fights as family lands are demarcated and/or parceled into units. If care is not taken, rural lands will suddenly belong to rich urban dwellers to the detriment of the rural poor whom Dr. de Soto’s model is intended to help.

Hon. Akuffo-Addo and President Kufuor will have to marshal the political will needed to see the programme through. It could be a blessing or a political nightmare for the Kufuor administration. Hon. Akuffo-Addo’s hands will be full over the next few years. Maybe, it is time for him to stop pursuing people who have caused financial loss to the state and concentrate his efforts on drawing the legal framework needed to implement Dr. de Soto’s model. The gains to be realized in implementing the model far exceed any funds that could potentially be recouped by pursuing such people. I wish them luck..