Legislative Protection of Property Rights in Ethiopia: An Overview

Author:Muradu Abdo
Pages:165-206
SUMMARY

There are ambiguities, inconsistencies, gaps and outdated features in the legislative protection of some property rights in Ethiopia. Moreover, there is the bestowal of wide and undue discretion to various administrative authorities without judicial scrutiny. These problems clearly lead to discretionary and arbitrary administrative decisions and inconsistent court rulings thereby posing... (see full summary)

 
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165
Legislative Protection of Property Rights
in Ethiopia: An Overview
Muradu Abdo
Abstract
There are ambiguities, inconsistencies, gaps and outdated features in the
legislative protection of some property rights in Ethiopia. Moreover, there is
the bestowal of wide and undue discretion to various administrative authorities
without judicial scrutiny. These problems clearly lead to discretionary and
arbitrary administrative decisions and inconsistent court rulings thereby posing
insecurity in the protection of property rights. Well-specified property rights
stimulate private investment by encouraging property rights holders to invest
on their property and they further facilitate the transfer of property to its most
efficient user in the context of win-win equitable exchange. There is thus the
need to enhance the clarity and coherence of Ethiopia’s property law regime
that especially regulates land use rights, expropriation, intellectual property,
share purchases, and the transfer of business premises.
Key words
Property rights, land law, expropriation, intellectual property, Ethiopia
DOI http://dx.doi.org/10.4314/mlr.v7i2.1
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Introduction
The assumption that a strong positive correlation exists between well-defined
property rights and economic development is backed by prominent economists,
philosophers and jurists. Well-specified property rights stimulate private
investment by encouraging property rights holders to invest on their property,
LL.B, LL.M, PhD Candidate; Assistant Professor of Law, School of Law, Addis
Ababa University; e: muradu1@yahoo.co.nz
This article is an improved version of the first chapter of the research titled
“Property Rights Protection and Private Sector Development in Ethiopia” which was
submitted to Private Sector Development Hub at the Ethiopian Chamber of Commerce
and Sectoral Associations. The author is grateful to Private Sector Development Hub
for sponsoring the research in partnership with SIDA (Swedish International
Development Cooperation Agency). The author is also grateful to the two assessors
for their feed-back. The article, in earlier and present forms, has also benefited
from the editorial work of Dr. Elias Nour, for which the author extends his
heartfelt appreciation. The usual disclaimer applies.
166 MIZAN LAW REVIEW Vol. 7 No.2, December 2013
using their own resources or seeking credit through collateralization or
transferring it to a more efficient user.1
Clearly defined property rights stimulate capital formation as a key device to
raise capital for a poor country.2 Such clear delimitation of property rights fixes
the economic potentials of assets, integrates dispersed information into one
system and makes individuals accountable and assets fungible. It also facilitates
networks between individuals, and duly protects and enforces transactions
involving property rights through legislative, judicial and administrative
mechanisms.3 De Soto claims cause-effect relationship between effective title
over a piece of property (which allows long term investments using one’s own
capital, through capital generation and easy transfer), on the one hand, and
productivity (and hence general economic development), on the other.4
Well-defined property rights involve clear and comprehensive legal
specification of who the holder of a given property is, singling out and
characterizing the object of the property, the nature of the property right (e.g.,
ownership or usufruct), manner of its transfer, restrictions thereof, institutions
which are mandated to enforce the right upon infringement and specific
remedies attendant to property right violations.5 Legislative specification of
property rights should avoid significant gaps, ambiguities, vagueness and
contradictions. That is why they should keep abreast of national and
international developments.
On the contrary, ill-defined property rights breed insecurity. Besides, poorly
defined property right cannot solve the undercapitalization of developing
countries, inter alia, because:
… a lender must make the same costly investments as a purchaser in order
to make sure that the property right is under the borrower`s control and that,
in the event of a default, the property can be obtained with the same rights as
those enjoyed by the present owner. This increases the interest rate charged
by lenders for loans guaranteed by an expectative property right [i.e., ill-
defined property right] or its equivalent; worse still, it may simply prevent
such transactions from taking place.6
1 Harold Demsetz (1967), “Toward a Theory of Property Rights”, The American
Economic Review 57(2); Douglas North (1990), Institutions, Institutional Change,
and Economic Performance (New York, NY: Cambridge University Press); Hernando
De Soto (2000), The Mystery of Capital: Why Capitalism Triumphs in the West and
Fails Everywhere Else (New York, NY: Basic Books).
2 Id, De Soto, p. 5.
3 Ibid.
4 Ibid.
5 Customary or informal practices over property rights are not envisaged here.
6 Hernando De Soto (1989), The Other Path. (New York, NY: Basic Books) p. 162.
Legislative Protection of Property Rights in Ethiopia: An Overview 167
Poorly defined property right produces an economic behaviour featured by
short-termism; holders of ill-defined property invest in mobile assets; avoid
long-term investments in fixed assets. As De Soto observes, holders of such type
of property sell ‘from barrows rather than from stalls made with proper building
materials.’7 Thus, ill-defined property right regime, which is prevalent in poor
nations, cannot be the basis for capital formation vitally required for
development.
Empirical evidence proves the nexus between clearly specified property and
economic productivity, which is based on the experience of western societies in
which well-defined (i.e., legal clarity in the contents of rights in a thing held by
persons, registration of such rights and effective enforcement upon breach)
property right supported by universal titling is widely believed to be correlated
with economic advancement. Moreover, the data from World Development
Indicators and International Country Risk Guide support the existence of a
strong positive correlation between well-defined property rights and (a) the level
of development expressed in terms of GDP per capita, (b) access to credit,
measured as domestic credit to the private sector as a percent of GDP and (c)
capital formation.8
This article offers an overview of legislative protection of property rights in
Ethiopia relying on Ethiopian laws as primary resources augmented by
scholarship, court cases, and some empirical evidence. It has five parts. The first
part describes Ethiopia’s property rights legal regime generically. The next
portion identifies and discusses aspects of the Civil Code of Ethiopia (the Code)
with the objective of identifying and explaining obsolete provisions,
incompatibilities, ambiguities and gaps. The third part considers problems with
regard to Ethiopia’s land law and expropriation regimes. The fourth segment
sketches transfers of shares and of business premise under the Commercial Code
of Ethiopia. Finally, the shortcomings in Ethiopia’s intellectual property law are
treated. The concluding remarks emphasize the correlation between weak
legislative protection of property (i.e., lack of implementation of clear
provisions, gaps, ambiguities and vagueness in the law, lack of specificity,
existence of outdated legal provisions and bestowal of unrestrained
administrative discretion), on the one hand, and property right insecurity, on the
other. The need for a separate research that assesses administrative and judicial
enforcement of legislatively defined property rights is also suggested.
7 Id., p. 67.
8 Claudia R. Williamson (2010), “The Two Sides of de Soto: Property Rights, Land
Titling and Development”, The Annual Proceedings of the Wealth and Well-Being of
Nations, 2009-2010, Volume II (Beloit College Press) pp. 99-101.

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