1FIAS

Land Policies as an Impediment to Investment:

Evidence from FIAS Case Studies

Land Policies & Legal Empowerment of the Poor

November 2-3, 2006, Washington DC

regional training

1

2

Why do we study land?

Urban/Rural Development

Environment and Natural

Resources

Social

Development

Financial Sector

BUT limited focus on land from PSD

perspective (Especially, limited

discussion based on developing countries

experience)

Many interest groups are looking at land through specialized lenses and work towards the implementation of particular land policies.

Land PolicyLand thematic Group

3

Securing property rights encourages private investment

Doingbusiness 2007: large economic benefits can be reached from protecting property rights

Investor surveys: access to land is a major constraint to operations

McKinsey (1991-2004): land market issues are major barriers to investment and competition in more than half the economic sectors (e.g. retail, housing and tourism)

4

Land has been a major obstacle to investment in many countries

89.3

81.3

72.9 71.0 69.2

58.254.9 53.8 52.0 50.6

44.141.5

32.7 30.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Percentage of respondents claiming that procedures for accessing the land are an obstacle for their business operation and growth

Percentages are calculated on the base of respondents giving an answer to this question. Respondents had an option not to answer, which usually means that they had no experience with land obtaining or no need for land. Overall the share of non responding businesses is 41.4%. Source: ARCS

5

Harder to register property in poor countries

34

51

54

56

62

133

116

OECD: High income

East Asia & Pacif ic

Middle East & North Africa

South Asia

Latin America & Caribbean

Europe & Central Asia

Sub-Saharan Africa

4.8

4.2

6.8

6.1

5.6

3.2

14.4

Days Percentage of property value

Source: Doing Business database

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1. Is land available and at what price?

3. Time and cost of land related procedures?

2. What are my rights? Are my property rights secure?

Land rights

• Titling system

• Registration process

• Collaterals

• Transfer of property rights

• Dispute resolution mechanisms

Land availability

• State owned land

• Tribal Communal land

• Ownership/use restrictions

• Zoning/planning

• Property tax (rate & coverage)

Land development procedures

•Location permits

• Construction/building permits

• EIA

• Utility connections

• Property tax (administration)

Examples illustrating reform efforts to overcome land obstacles

Selected Case Studies

• Shenzhen (China) • Red Sea (Egypt)• Hong Kong•Vietnam

• Ngamiland (Botswana)• Makuleke (SA)• Mozambique

• Peru• Thailand

• Novgorod (Russia)• Cape Town (SA)

Concerns:Issues:

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Application to the Department of Economy and Planning

Application to the Department of Economy and Planning

Head of Municipal AdministrationHead of Municipal Administration

Construction PassportConstruction Passport

Head Directorate for Architecture and City

Planning

Head Directorate for Architecture and City

Planning

Preliminary technical specifications for preliminary approval of project design and connection to engineering infrastructure

Preliminary technical specifications for preliminary approval of project design and connection to engineering infrastructure

State Fire InspectionState Fire Inspection

Head Directorate for Architecture and City PlanningHead Directorate for Architecture and City Planning

Sanitary-Epidemiological InspectionSanitary-Epidemiological Inspection

Preliminary lease contactPreliminary lease contact

Sketch of the location of the structureSketch of the location of the structure

Department of Economy and PlanningDepartment of Economy and Planning

State Judicial CommitteeState Judicial Committee

Committee for land resources and land use planningCommittee for land resources and land use planning

Project cost estimateProject cost estimate

Draft of the Approval of the Local Administration Head for the

construction/reconstruction permit

Draft of the Approval of the Local Administration Head for the

construction/reconstruction permit

Lease agreement for the land plot for the period of construction/reconstruction

Lease agreement for the land plot for the period of construction/reconstruction

Document

Head of Municipal Administration

Head of Municipal Administration

Department of Economy and Planning

Department of Economy and Planning

Issuing Authority Approving authority

Registration of the land lease contract in the Book of Land Registry

Registration of the land lease contract in the Book of Land Registry

Draft of the Approval of the Local Administration Head for the Leasing contract on the Lease of

land plot

Draft of the Approval of the Local Administration Head for the Leasing contract on the Lease of

land plot

Obtaining of the proof of lease and the lease contract (a.k.a. registration of the lease in the

Book of Land Registry)

Obtaining of the proof of lease and the lease contract (a.k.a. registration of the lease in the

Book of Land Registry)

Committee for land resources and land use

planning

Committee for land resources and land use

planning

Flowchart of the procedure for allocation of land plot for business use (Nizhny Novgorod)

Russia: Getting access to land can be extremely time consuming and costly

Source: FIASTotal time: 273 days

8

Russia: Longer bureaucratic delays are associated with fewer privatizations

Time required to complete procedure (log scale)

No. Sales

9

Low costHigh cost

Low complexity

High complexity

0.25

0.39

0.00

0.12

0.00

0.10

0.20

0.30

0.40

Le

ve

l of

un

off

icia

l pa

ym

en

ts

Official costs of procedures per stage

Complexity of procedures

Effect of procedure cost and complexity of the level of unofficial payments

Russia: Higher complexity and higher fees are associate with more frequent bribes

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Vietnam land program

Background• Vietnam is in a protracted

period of economic transition after 1986 ‘Doi Moi’ reforms

• Relatively good investment climate but land remains

problem

Basic Land Issues• Land market a field of tension between growing private

sector and state ownership of all land

Following land issues impede PSD:

•Limited availability •High prices•Unclear security of tenure•No market-oriented, long

term leases

IFC study of informality showed that 80% of firms surveyed would expand if land were available

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Vietnam land program

What are the obstacles?

• Strict and complex land administration system

• Land difficult to obtain / poor allocation by state

• Formal process costly and time consuming

• Unclear that formal registered possession confers security benefits

What is being done?

• Land Law, 2003 aims for efficiency of a true land market despite all land being state owned – not fully acheived

• Gov VN has asked FIAS to assess the impact of Land Law on PSD

• FIAS implementing a multi-year program to strengthen the Land Law and the administration of business access / rights to land

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Three Southern African case studies

• Employment• Income• Social development• Cultural preservation

• Long-term investment• Efficient process• “Good citizen” status

• Strategic sector growth• Sustainable development• Environment protection• Social development

Tribes/Local Community

StrategicInvestors

The State

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Shenzhen - China’s “incubator” for land market reforms

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1. Land related constraints present a major impediment to investors.

2. Land problems are complex and country specific; they need to be dealt with accordingly.

3. Fundamental land system reforms require sustainable efforts over time. In the meantime, countries should and could explore practical and interim solutions to help overcome the difficulties in providing land to investors in the transitional period.

4. There is a further need to fill the knowledge gap on reform experience in developing countries.

5. Final solution design requires collective efforts of all relevant departments within the WBG, and with our clients.

To Conclude: