Professional Documents
Culture Documents
Introduction
Since independence, Tanzania has come are not held accountable for their commit-
a long way in its efforts to empower its ments; assets are not liquid and cannot
people. Tanzanian citizens now have the be used to create credit or capital; people
right to own things, to operate business- are not interconnected, and transactions
es, and to reside wherever they wish. They cannot be tracked from owner to owner;
have been emancipated by policies and business organizations do not have stat-
laws that bring management down to the utes that allow members to work under
village level, allowing people to make deci- one point of control; they do not have the
sions for themselves. In the last four dec- means to divide labor and control risks
ades legislation has been reengineered through limited liability and asset par-
and written law has been thoroughly mod- titioning, or associate in standard forms
ernized. Nevertheless, President Benjamin such as corporations, cooperatives, and
Mkapa has recognized that there is still other collectives; people cannot be iden-
much to be done to unleash Tanzania’s tified, and contracts are unable to reach
economic potential. Poverty still prevails. a market outside the limited confines of
The legal tools created to enable citizens family and acquaintances.
to cooperate on a nationwide basis are not Under these conditions of widespread
being used: assets cannot be fixed in such extralegality, wealth continues to elude
a way as to be economically useful or be the majority of the nation’s people; women
pulled together from their dispersed local have yet to be empowered. How to change
arrangements into one consistent network that? To find the answers, President Mkapa
of systematized representations; people decided to reach into the grassroots of
The Challenge of Connecting Informal and Formal Property Systems page / 19
Tanzania to find out what obstacles re- (and do not connect) with the government
mained and what tools were available for – the basic stuff of economics. My under-
Tanzanians to lift themselves out of pov- lying assumption is that it is impossible to
erty. To that end, the Government of Tan- build a modern economy without includ-
zania commissioned me and my not-for- ing most of the nation’s economic activity,
profit organization, the Instituto Libertad and in Tanzania we found that well over
y Democracia (“ILD”) based in Lima, Peru, 90 % of economic activity takes place out-
to shed light on the shadows of Tanzania’s side the law. There is no way that Tanza-
extralegal economy to learn as much as nia can escape poverty if the overwhelm-
possible about the many local, informal ing majority of its citizens do not have the
practices that people use to do business legal tools to create wealth: organizations
among themselves. The Government felt that enable them to cooperate productively
that among those informal rules might lie with each other, a property system to pro-
the building blocks of the kind of formal tect their assets and build capital if they so
legal system required to build a prosper- wish and legalize identity and contracts,
ous modern economy, rooted in the beliefs allowing people to gain access to all the
of the majority of Tanzanians and, there- markets in their own country.
fore, legitimate and enforceable. What my team of 42 Tanzanians and
From October 2004 to October 2005, 20 ILD researchers – with the help of 932
ILD researchers traveled deep into the key informants throughout Tanzania and
world of extralegality in Tanzania in an Zanzibar – found is nothing short of ex-
all-out effort to trail, find, compile, and traordinary. First (what Tanzanians them-
diagnose the kinds of documents, rules, selves are generally not aware of) is that in
and other social devices that Tanzanians the process of creating solutions for oper-
have spontaneously generated for organ- ating outside the law, they have built their
izing their production and assets. We al- own economic model. This model is under-
so tried to identify the legal and admin- pinned by 17 solid and well-documented
istrative obstacles that uselessly get in- “archetypes” – patterns of social interac-
to people’s way. Our overriding goal was tion whose further development is funda-
to get as complete as possible a picture of mental to the creation of a legal economic
how Tanzania’s extralegal economy actu- order rooted in Tanzania’s indigenous cul-
ally operates and how the official legal sys- ture. Second, we have identified what are
tem interacts with it. probably the most important bottlenecks
We focused on how Tanzanians in the in the legal system – 67 of them that are
extralegal economy connect with each responsible for the exclusion of the poor
other, how they cooperate and collabo- and account in part for their inability to
rate, how they make their deals and se- create wealth. The ILD then put together
cure their contracts, how they organize some preliminary indications as to what
themselves inhouse and between sepa- the Government of Tanzania might do to
rate organizations, and how they connect integrate its enormous extralegal economy
Realizing Property Rights page / 20
The situation
The Government of Tanzania has contin-
ued to make significant progress in terms
of macro-economic indicators: annual GDP
growth rates are over 5 %, inflation is down
to a single digit, and international reserves
have been rising for a number of consec-
utive years.
Tanzania has also designed most of
the policies and laws that are required
to build a market economy. Norms are in
place to allow Tanzanian entrepreneurs to
register and incorporate a business, es-
tablish guarantees (using movable or im- disputes through appropriate institutions.
movable assets), obtain credit (at micro- In short, the legal mechanisms needed to
finance institutions or commercial banks), start up, operate, expand, and eventually
carry out international trade, participate close a business appear to be in place.
in public procurement tenders, advertise, Unfortunately, most Tanzanians do
take out insurance, resolve disputes, and not use this legal system: 98 % of all busi-
withdraw a business from the market vol- nesses operate extralegally (a total of
untarily or through bankruptcy. On the 1,482,000); 89 % of all properties are held
property front, citizens have legal access extralegally (1,447,000 urban properties
to rights over land and buildings in urban and 60,200,000 rural hectares, of which
areas, as well as access to occupancy only 10 % is under clan control – mainly
rights in rural areas. Also, the law provides Massai pastoral land), and the rest is pri-
that they can inherit these rights and resolve vately held.
The Challenge of Connecting Informal and Formal Property Systems page / 21
The crucial question then is: Why don’t economy has assets worth US $ 29 bil-
Tanzanians want to benefit from all the se- lion. This is 10 times all foreign direct in-
curity, organization, information, finance, vestment accumulated since Independ-
capital, and the expanded national mar- ence and 4 times the net financial flows
ket that Tanzanian law can provide? The from multilateral institutions in the same
usual Western explanation refers to a period. Putting it simply: what the poor of
general defect in the culture of Africans. Tanzania already have is much more than
The academic commentators in the “cul- what foreigners can ever give them.
ture counts for everything” camp, such as
Huntington, Landes, and Harrison, say 2. It is virtually impossible for 90 % of
that African societies are “steeped in tra- Tanzanians to enter the legal economy.
ditional cultures and are unsuited to mar- The obstacles that Tanzanians would have
ket-oriented development and are, thus, to overcome to access the legal system and
fundamentally hampered in their pursuit obtain organizational structures, credit,
of growth.”1 A number of academics “as-
sign hopelessness to countries that are
seen as having the ‘wrong’ kind of cul-
ture for development.” 2 Some have char-
acterized African cultures as “regressive
and tribal.” 3 Others are kinder and blame
it on Europe: “Africa’s traditional struc-
tures were destroyed by colonialism.” 4 And
while many do not dare to say it out loud,
they are still stuck on prejudices as old
as David Hume, who, in the 18th century,
declared that the main problem with the
Africans is that they don’t have what it
takes to get organized. “There never was
a civilized nation of any other complexion
than white … no ingenious manufacturers
amongst them, no arts, no sciences …”5
The findings
What we have found in Tanzania totally
contradicts all of the above contentions.
Here are three massive facts for why that
is so:
Registry Clerk
Registrar of High Court/Respons. Magistrate
Cashier Clerk
Court of Court Process Server
Law Court Clerk
Seal of the Court
Judge / Magistrate for trial
Chief Justice / Responsible Magistrate
Biders
Purchaser
Court broker
Police Officer
Witnesses
Lawyer
Defendant (judgment-debtor, Civil Prisoner)
Plaintiff (decree-holder)
Stage 1 Stage 2 Stage 3 Stage 4
Minister
Land Commissioner
Land
Land delivery section
Development
Services Division Legal section
Land rent and records
Director
Cadastral surveying
Surveys and Topographic Survey
Mapping Division Geodesic Survey
Hydrographic Survey
Mapping
Director
Human Urban Development Policy
Min-
Settlements
istry of Area planning and record keeping
Development
Land Urban strategic development plans
Division
Housing Policy
Registrar
Registrar of Title Assistant Registrar
Agency Cashier
Reception
Chief accountant
Accounts Unit Internal auditor
Cashier
Chief appraiser
Property
Assistant appraisers
Valuation Agency
Cashier
Reception Frontdesk
Chairman
Director
Council Land Allocation Committee
Area Planning Committee
Town Planning Committee
Directorate of Human Settlement Development
Infrastructure and Survey and Mapping
Human Settlements
Land Develop. Depart. at Municip. (Authorized Land Officer)
Munici- Planning and Town Planning Section
pality Coordination Architectural Section
Department Surveying and mapping unit
Health DepartmentHealth Officer
Fire Office
Cashier
Municipal Board Office
Ward Executive Officer
Chairman of street/village
Ten-Cell leader
Official Gazette
Newspaper
Architect
Landowner (occupier)
Applicant for Plot
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
The Challenge of Connecting Informal and Formal Property Systems page / 23
Stage 5
Judge in Charge
Appointed Judge
Registry Officer
Registrar
Commercial
Officer of the Court
Court
Cashier
Commercial court assessors
Summon servers
Auctioneer
Witnesses
Advocate of the Plaintiff
Advocate of the Defendant
Receptionist
Newspaper
Accountant
Purchaser / Buyer
Plaintiff / Applicant
Defendant
Stage 1 Stage 2 Stage 3 Stage 4
(a) (b)
Stage 7 Stage 8 Stage 9 Stage 10
Stage 6
Realizing Property Rights page / 26
capital, markets beyond their immedi- (land, businesses, cattle) and intangible
ate families, and legal property rights, (ideas); and second, the reality of struc-
are insurmountable. If a poor entrepren tures of relationships, physically captured
eur throughout a 50 year business life in written documents that are the natural
obeys the law, it will require him/her to habitat of advanced economic and social
make cash payments of US $ 91,000 to relationships.
the State for the requisite licenses, per- That is why, with the active participa-
mits, and approvals, and to spend 1,118 tion in the field of hundreds of key infor-
days in government offices petitioning mants operating in or familiar with the
for them (during which he could have extralegal sector, we searched all over
earned US $ 9,350). The same entrepren mainland Tanzania and Zanzibar, in rural
eur would have to wait another 32,216 as well as urban areas, to see if we could
days for administrators to resolve all his/ find extralegal documents that would
her requests, and during that time lose help us understand the nature of Tan-
another US $ 79,600 in potential income. zania’s underlying order. We needed to
The grand total of these costs: almost know what tools this order has created to
US $ 180,000 – enough money to create 31 enable poor people to make economic de-
additional small enterprises. cisions, cooperate with each other, struc-
ture their collaboration, resolve problems,
These numbers are based on the obstacles and protect their values.
documented in 67 flow charts contained We found thousands and thousands
in the full report to the Tanzanian gov- of extralegal documents. And what are
ernment. Here are four prime examples they like? As Wittgenstein said about
of what ordinary Tanzanians are up intellectual tools, “they are no different
against: than the tools in a carpenter’s toolbox:
there is a hammer, pliers, a saw, a screw-
3. Tanzanians in the extralegal econo- driver, a ruler, a glue-pot, glue, nails, and
my have actually created a self-organ- screws.” However, Tanzanian document
ized system of documented institu- ary tools, instead of bringing pieces of
tions that allows them to govern their wood together, bring people together to do
actions. The extralegal economy is the re- particular things such as: creating prop-
sult of the local interactions of millions of erty, extracting credit and liquidity from
Tanzanians who, in spite of only being able physical assets, and structuring entrepre-
to deal among themselves at local levels, neurial associations where they can di-
have nevertheless created an abstract or- vide labor internally and trade externally.
der to govern the way they relate to each The extraordinary thing about the docu-
other. In other words, like all other people mented tools that are used in the Tanza-
in the world, extralegal Tanzanians live nian extralegal economy is how complete
in at least two levels of reality: first, the they are. Some examples:
reality made up of things, both tangible
The Challenge of Connecting Informal and Formal Property Systems page / 27
/
/
01 Systems of records to establish institutional
memory
02 Agreements to have principals represented
by proxies
01 02
Realizing Property Rights page / 28
/
/
03 References that testify to the trustworthiness
of economic agents
04 Consensuses that recognize the rights of people
to their land, business or chattel
05 Informal mechanisms that safe-keep and
retrieve information
03 04
The Challenge of Connecting Informal and Formal Property Systems page / 29
05
Realizing Property Rights page / 30
/
/
06 Authorizations that empower enterprises
to operate in certain areas
07 Titles that assign responsibilities and rights
to business organizations
08 Mechanisms that establish prices
09 Extrajudicial mechanisms that settle disputes
06 07
The Challenge of Connecting Informal and Formal Property Systems page / 31
08
09
Realizing Property Rights page / 32
/
/
10 IOUs to bear witness to debts
11 Ways to lay out statements of account
12 Means to ascertain qualifications
13 Maps to identify claims and possessory
arrangements
10 11
The Challenge of Connecting Informal and Formal Property Systems page / 33
13
12
Realizing Property Rights page / 34
/
/
14 Charts that illustrate the organization of extra-
legal business
15 Agreements that establish partnerships and
other forms of association
16 Systems of declaration that convey
knowledge
14
The Challenge of Connecting Informal and Formal Property Systems page / 35
15 16
Realizing Property Rights page / 36
and cannot structure a complex relation- ization, while documents that create busi-
ship with other people, except through ness associations and property give them
documents. They enable society to work as opportunities for economic improvement.
a whole because they allow people to deal Like all developing people, Tanzanians are
with things at different points in time, and slicing their world into separate pieces so
in different places, even when they are not as to better organize themselves in an in-
physically present. creasingly complex world.
What impressed me the most were the The third principle that particularly
five principles that I surmise underlie the impressed the ILD researchers – as they
extralegal order in Tanzania. First, how observed village meetings, adjudication
carefully even the poor of Tanzania take processes, and administrative acts at the
care of the documents that represent their extralegal level – was how the whole pro
budding order. Though they are impover- cess of creating documents resulted from
ished, lack legal professionalism, and have rational deliberation. Tanzanian docu-
little or no appropriate infrastructure, they ments are not being born through appeals
are taking care of their documented tools to brute force or to magic; instead, they
quite well: they have people who create the come from village meetings and day-to-day
documents (drafters), sign them (contract- practice. We have been witnesses to the
ing parties), stamp them (elected authori- fact that Tanzanians have a strong com-
ties), fill them out (facilitators), revise them mitment to process and accept the out-
(elected elders), file them (Mwenyekitis/Vil- come of their deliberations.
lage Chairmen), realize actions mandat- The fourth impressive principle is how
ed by them (citizens), deliver them (village similar the Tanzanian extralegal evolution
self-defense through Mgambo and Sungu- is to what once happened in the developed
Sungu groups), and declare them active or nations of today before their governments
inactive (adjudicators). wrote out, codified, and gave articulated
The second impressive principle is how form to extralegal practices. While extra
the extralegal effort to create the market legal Tanzanian devices are not yet artic-
economy is being carried out in harmony ulated, they do govern the action of Tan-
with the rest of Tanzanian society, fami- zanians on the ground and are binding.
lies, clans and tribes. Like in other coun- These rules are the ius gentium of Tanza-
tries, Tanzanians are organizing in sepa- nia that has yet to be compiled into norma-
rate social bodies that overlap each other, tive rules, as the Americans and Europeans
even though they have been created for did in the 19th and 20th centuries.
different reasons and have different sur- The fifth underlying principle I noted –
rounding environments. Each group gives common to all the documents we found –
Tanzanians a different role to play and is that they exist essentially to empower
allows them to manifest themselves in dif- citizens over limited resources by giv-
ferent ways: Families, clans, and tribes ing them the tools with which to govern
offer Tanzanians opportunities for social- property, to manage collective cooperation
Realizing Property Rights page / 38
1. Adjucation 1.1
/
1.1 Council of Elders in Kisongo, Arusha holds
dispute resolution sessions
1.2 Two pages of the 30-page report by the
Kisongo Council of Elders settling a boundary
dispute. By documenting the resolution in
writing and with a map, the elders have deter-
mined who owns what and what the
boundaries are.
2. Documentation 2.1
/
2.1 Document recording the transfer of property
in Ilkerin Village. The contracting parties
have described not only the boundaries of the
land being sold but have also included a
hand-drawn map with the property bounda-
ries measured in steps.
Realizing Property Rights page / 40
3. Registration 3.1
/
3.1 The record-keeping office of a democratically
elected Village Council Chairman (Mwenyekiti)
in Dar es Salaam
4. Fungibility 4.1
/
4.1 Property title document of a right of occupan-
cy in an area of the Mtwara marketplace
in the south of Tanzania – given as a guaran-
tee for credit by an extralegal micro-finance
organization.
The Challenge of Connecting Informal and Formal Property Systems page / 41
5. Collateral 5.1
/
5.1 A “rehani” type of guarantee that uses land
as collateral for a money loan.
The debtor transfers to the creditor a parcel of
land – on the condition that it shall
be returned on the payment of the loan.
6. Testament 6.1
/
6.1 Example of a testament containing a list of
goods to be willed, the beneficiaries, and the
signatures of the witnesses – officially
certified by a Mwenyekiti in the Kibaha area.
Realizing Property Rights page / 42
7. Association 7.1
/
8.1 A Dar es Salaam furniture showroom, office,
lumber supplier, wood working shop, door
factory, bed and cabinet manufacturer,
and fabric supplier – all independent entities
operating under the business license of
the showroom owner.
The Challenge of Connecting Informal and Formal Property Systems page / 43
9. Management 9.1
/
12.1 Document in which a Mwenyekiti from the
Kibaha area certifies the identity of an
individual from his village by imprinting both
the photograph and signature with his
official stamp.
12.2 Marks used to identify ownership of the cattle
at an auction market in Dodoma.
Such branding serves as the basis for a
formal pledge system.
Realizing Property Rights page / 46
/
13.1 Will made out by “Helen Kiwale” – with her
signature AND countersignature of a witness
AND written on a standardized form provided by
the Kikara Parish Lutheran Church in Moshi
AND the church’s official stamp AND the signa-
ture of a church authority.
/
14.1 A sales contract for a piece of land in the
Mwanza area. Attestation appears in the form
of a fingerprint, signatures (also counter-
signature and official stamp of the Mwenyekiti)
The Challenge of Connecting Informal and Formal Property Systems page / 47
/
15.1 The statutes (top) of the “Mungano Women”
(bottom), which authorizes certain members of
the group to represent the others in business
negotiations – with a chart of their different roles
within the company.
/
16.1 An extralegal sales contract for a one-acre par-
cel in the outskirts of Arusha with names of
witnesses plus a fingerprint – all imprinted on
the standardized “dotted line.”
Realizing Property Rights page / 48
/
17.1 Money-lending contract between two individu-
als, which establishes the amount of the loan,
the interest rate, the payment period, and the
collateral to be used in case of non-payment
(the debtor’s house). The document is signed by
both parties, the witness provided by each,
and the balozi or “ten-cell leader.”
The Challenge of Connecting Informal and Formal Property Systems page / 49
The problem with these archetypes is that able law that allows each enterprise to
on the ground they all work separately, function unwaveringly under one point
trapped in thousands of fragmented, in- of control where the division of labor, the
formal, undersized and underdeveloped combination of assets, and the intercon-
circumscriptions. The result is a series of nection of contracts between suppliers,
barriers that prevent ordinary Tanzanians clients, creditors, and investors can take
from creating efficient and productive le- place. The extralegal system does not yet
gal institutions from the bottom-up. Spe- fully separate the legal personality of the
cifically, these barriers are: enterprise from its owners; nor does it al-
Regarding the Archetypes of Property, low the partition of assets so that all par-
in the extralegal economy, they have only ties – including workers, owners, suppliers
local validity. To build an effective bot- and creditors – can feel that their rights
tom-up property system that can be rec- are protected. They also lack the legal pro-
ognized by all Tanzanians and foreigners visions that can give entrepreneurs lim-
will require that these dispersed prop ited liability so as to reduce risks and in-
erty archetypes be pulled together into crease information about property that is
one consistent network of systematized committed to transactions, as well as per-
representations. Additionally, most prop petual succession rules that allow a col-
erty in the extralegal economy is not lective to live beyond the death or depar-
sufficiently fungible: assets cannot be ture of its initiators. Missing, too, are clear
combined into higher valued mixtures, provisions for statutes and standard or-
because they are not defined in standard ganizational forms so that all enterprises
definitions that allow the low cost meas- can have similar structures and can cap-
urement of their attributes nor their valua ture information about each other easily
tion through their inscription in track and thereby avoid exploitation.
records that are accessible and easy to Regarding the Archetypes of the Ex-
follow. Also, because these rights are held panded Market, the extralegal system does
in the context of local arrangements, the not provide them with enforceable rights
legitimacy of these rights is still too po and obligations throughout the whole
liticized compared with those that are nation. It does not protect their trading
protected by the impersonal context of names and the trademarks of their prod-
national law. People are still more ac- ucts, nor protect their imports and ex-
countable to the local context than to the ports at national and international levels,
principles of law. They also miss the low nor allow them to freely advertise, nor give
cost legal connecting devices that would them the means to demonstrate cash flow
allow them to use their property to access and financial statements to outsiders us-
credit, capital, services, and insurance, as ing official accounting standards, nor al-
well as to secure inheritance. low them to issue shares to raise capital
Regarding the Archetypes of Business and guarantees to obtain credit outside
Organizations, they still lack an enforce- their local circles.
Realizing Property Rights page / 50
Because these Tanzanian archetypes lack rigorous, the law as a whole becomes de-
all the above benefits of standard law, pro- tached from the real world. The result is
ductivity in the extralegal economy is ex- that the legal system creates top-down
tremely low, the capacity of extralegal en- barriers and costs that keep people on the
terprises to reap the rewards of organized, outside, that my researchers have exam-
large scale production in an expanded ined step by step, from the point of view
market is practically nil, and their chances of the people trying to comply with the
of using property efficiently and obtaining law. Tanzania’s barriers can be summa-
credit and capital in competitive condi- rized in this way:
tions are very reduced. Extralegal enter-
prises operate way below their potential Property barriers
because they lack the rule of law. 1. Most property rights are not fixed
in writing, or standardized to facilitate
The legal economy search, use, and discrimination between
The problem with the existing legal sys- similarities and differences.
tem is that in practice it only applies to 2. Information is not stored in a fixed
2 % of Tanzanians regarding business, place in each village or neighborhood and
and 11 % regarding property. In general, is also dispersed over 10,000 locations
the law lacks transparency, predictability, nationwide and disconnected from the
and economic sense: more than 120 ordi- 3 separate, uncoordinated registration
nances regulating the business life cycle, systems.
and more than 100 administrative offices 3. Registration procedures are unneces-
are involved in the most frequent prop- sarily burdensome for poor property own-
erty and business paperwork; written in ers: they have access to only six registry
English, though most Tanzanians speak offices nationwide and are obliged to com-
Kiswahili; not easy to obtain; frequently ply with irrelevant red tape – 7 tax and ad-
amended; incomplete and inconsistently ministrative obligations and sophisticat-
regulated; often contradictory or outdat- ed, expensive surveying.
ed – and requiring unjustified costs of al- 4. Some 90 % of Tanzanians cannot be
most US $ 180,000 over the 50 year life- located through the property system and
time of a successful business. be identified to get credit, services, deliv-
This is not at all unusual: all develop- eries, and to exercise their rights as con-
ing countries that draft their laws profes- tracting parties and citizens.
sionally and inspired by Western systems 5. Due to prior authorizations required
produce very good legal documents that from land, government and tax authori-
are harmonious on paper and meet the ties, registrars, and valuers, property is
standards of good universities; but they not very liquid: it is difficult to mobilize,
pay a price for that elegance. As the writ- transfer, combine, divide, and be lever-
ten law streamlines and the connections aged into credit and capital.
between the documents are made more 6. Complying with the law takes too much
The Challenge of Connecting Informal and Formal Property Systems page / 51
time: Valuation, planning, surveying and defend themselves against alleged arbi-
titling procedures (8 years), land alloca- trary decisions. (Objecting to a adminis-
tion for urban purposes on the mainland trative decision on the mainland requires
(7 years), in Zanzibar (9 years); transfer- consent from the Attorney General – and
ring and registering property (380 days). could take 570 days.)
7. High-level decisions – virtually impos- 6. To incorporate a private company in
sible to obtain – are often required: The Zanzibar or register a cooperative on the
Minister of Land intervenes six times to al- mainland requires complying with proce-
locate land in Zanzibar; on the mainland, dures that are totally unrelated to either
all surveying maps must be approved by objective or that duplicate procedures al-
the Director of Surveying and Mapping; ready completed.
all titles by the Commissioner for Lands. 7. Incorporating a private company on
the mainland costs US $ 2,669; to wind up
Business organization barriers a company voluntarily costs US $ 2,753 –
1. 90 % of the businesses in Tanzania are almost four times the average annual wage
sole traders and partnerships, but the law for an ordinary Tanzanian.
makes no provision for separating their 8. It is impossible for most Tanzanian
business and personal assets or for a busi- companies to raise financing by selling
ness to continue after the owner’s death. shares on the stock exchange – unless
2. Tanzania has no clear laws for sep- they have been profitable for the past
arating the owners of small enterprises three years and have a minimum of TShs
from their managers – and holding them 50 million in capital, a description of less
accountable for their management. than 1 % of the nation’s companies.
3. Agreements between employers and 9. Growing through mergers and acquisi-
trade unions require the approval of the tions is also closed to the majority of Tan-
state bureaucracy. zanian companies who do not have the
4. Incorporating a private company can requisite stock to transfer nor the funds
only be done in Dar es Salaam – and is to meet the costs of judicial procedures to
thus virtually impossible for most of the change company by-laws.
87 % of the nation’s businesses located
outside the capital; permits for officially Expanded market barriers
declared “special businesses” (e.g. phar- 1. Mainland Tanzania has two legal sys-
macies, restaurants, tour agencies, cell tems, and neither offers security to con-
phones) are available only in Dar es Sa- tracts: The statutory system contains gen-
laam – and may cost between US $ 3,916 eral norms and specific ones, which are
and US $ 5,506. not well-known to most entrepreneurs; in
5. Authorities have excessive and unreg- the customary system it is easy to make
ulated discretionary powers over applying contracts, but difficult to enforce them –
laws and regulations – and Tanzanians do an appeal must be moved into an entire-
not have the reasonable mechanisms to ly different legal system with different
Realizing Property Rights
Property Rights − Incorporating a private company can only be done in Dar es Salaam – and thus pay the high costs of registering or using extralegal real estate for collateral.
− Most property rights are not fixed in writing, standardized to facilitate impossible for most of the 87% of the nation’s businesses located elsewhere. − Microfinancing is also prohibitive, requiring a bank account of at least
search, use, and discrimination between similarities and differences. − Authorities have excessive, unregulated discretionary powers over applying laws TShs 10,000 for three months: NGO Pride does not even lend to individuals.
− Info is not stored in a fixed local place, dispersed over 10,000 locations nation- and regulations – and Tanzanians do not have mechanisms to defend themselves. There are not publicly available guidelines for obtaining permission
wide, disconnected from the 3 uncoordinated registration systems. − To incorporate a private company in Zanzibar or register a cooperative for advertising – and no time limits for approval.
− Tanzanians can only access six registry offices nationwide and are obliged to on the mainland requires complying with procedures that are unrelated to either − Import and export procedures are so complex that entrepreneurs must hire
comply with 7 tax and administrative obligations and expensive surveying. objective, duplicating completed procedures. “clearance agents,” adding about 40 % to business costs.
− 90% of Tanzanians cannot be located through the property system and be − Incorporating a private company on the mainland costs $ 2,753 – almost four − Trademark law discourages innovation: registering a new product in Zanzibar
identified for credit, services, deliveries, and exercising rights as contracting times the av. annual wage. (107 days); faster on mainland, but can be done only in Dar.
parties or citizens. − To raise financing on the stock exchange, companies have to be profitable − Recovering a $ 1,000 loan through the courts in Zanzibar takes 1,286 days
− Due to excessive prior authorizations, property is not very liquid: difficult to for three years and have a minimum of TShs 50 million in capital. and $ 1,022; appealing the decision could take between 2 and 5 years.
mobilize, transfer, combine, divide, and be leveraged into credit and capital. − Growing through mergers and acquisitions is closed to most Tanzanian compa- On the mainland, costs $ 4,745.
− Valuation, planning, surveying and titling procedures take 8 years, nies – without stock to transfer or funds to pay for bylaw changes. − Special, “fast-track” business courts handle disputes of no less than 40 million
land allocation for urban purposes (7 years), in Zanzibar (9 years). shillings and cost 10 times greater than regular courts.
− High-level, impossible decisions often required (e.g. Minister of Land intervenes Expanded market − Most Tanzanians ignore legal arbitration mechanisms because courts,
six times to allocate land in Zanzibar: on mainland, all survey maps − Mainland Tanzania has two legal systems, and neither offers security to contracts: in practice, modify awards.
must be approved by Director of Surveying and Mapping). Statutory system contains specific norms not well known; customary system’s − More than 120 ordinances regulating business life cycle; more than 100 admini-
contracts are easy to make but difficult to enforce: an appeal must be moved to strative offices involved in common property and business issues; written in
Organizational Forms different legal system and language (Kiswhali to English). English; often amended, contradictory, or outdated, inconsistently regulated –
− 90% of Tanzania enterprises are sole traders and partnerships, but the law does − Contracts are typically made only between known individuals or for cash, and requiring unjustified costs of $ 180,000 over a 50 year business lifetime.
not separate business and personal assets or provide perpetual succession. due to no national i.d. system and ineffective registry system. − Systems not in place for Tanzanian entrepreneurs to access expanded
− Tanzania has no clear laws for separating owners of small enterprises from − Contracts to provide goods and services to the State must have the signed markets: no national i.d. system, no integrated, up-to-date national registry,
managers – and holding managers accountable. approval of the Finance Minister or A.G. and carry non-refundable fees. no fully organized credit bureaus.
− Agreements between employers and unions need state approval. − Traditional forms of credit are unavailable to most entrepreneurs, unable to
BARRIERS BOTTOM UP
access to public utilities and information, etc. − Without perpetual succession to survive founder/owners. − Cannot leave track recording through appropriate registration of contracts.
− Asset owners cannot be easily identified or located: their contracts not − No asset partitioning to protect creditors, suppliers, workers et al. − Cannot publicize compliance or non-compliance with commercial obligations.
enforceable – and thus cannot encourage the kind of trust needed − No clear statutes on the terms under which all parties are associated. − Cannot demonstrate cash flow and financial statements with
to create surplus value. − No means to bring outsiders into firm, thus reducing transaction costs. official accounting standards.
− Assets cannot be interfaced in the expanded market via low-cost connective − Unable to define adm. responsibilities so that all know how the firm is run. − Cannot obtain financing outside family circles.
devices such as record keeping organizations, fiduciaries, insurance − Without standard structures so firms can easily capture info about each other. − Cannot issue and trade shares freely.
and trust mechanisms. − Management & social benefits not standardized to appeal to outsiders.
courts, rules, modes of proof, and lan- the mainland, trademark registration is
guage (Kiswhali to English). quicker – but can be done only in Dar es
2. Contracts are typically made only be- Salaam.
tween individuals known to each other 9. Enforcement of contracts through ju-
and on a cash basis, due to lack of effec- dicial procedures is lengthy and costly:
tive national identification and registry In Zanzibar, recovering a US $ 1,000 loan
systems. through the courts takes 1,286 days and
3. For most Tanzanians, contracts to pro- costs US $ 1,022; appealing the decision
vide goods and services to the State are could take between 2 and 5 years. On
inconceivable: not only do they have to be the mainland, the same procedure costs
in writing, they must have the signed ap- US $ 4,745.
proval of the Attorney General or the Min- 10. Special, “fasttrack” business courts
ister of Finance, and carry non-refunda- are available only to big businesses: they
ble fees and financial guarantees. handle disputes of no less than 40 mil-
4. Traditional forms of credit are un lion shillings, cost 10 times greater than
available to most entrepreneurs – unable regular courts, and are located only in the
to pay the high costs of registering or use capital and Arusha.
their real estate for collateral because it 11. Most Tanzanians also discount the
is extralegal; pledging moveable proper- possibility of legal arbitration and me-
ty, such as a car, takes 297 days on the diation mechanisms, because courts, in
mainland. (In Zanzibar, such pledges are practice, can modify the awards, no mat-
non-existent.) ter how fair – thus destroying the mean-
5. Micro-financing is also prohibitive, ing of “arbitration.”
requiring a bank account of at least TShs 12. Tanzania simply does not have the sys-
10,000 for three months; groups receiving tems in place to allow its entrepreneurs
loans are required to attend weekly train- access to expanded markets: no national
ing sessions for a month. I.D. system, no integrated, national reg-
6. There are no publicly available admin- istry with up-to-date information, no fully
istrative guidelines for obtaining permis- organized credit bureaus.
sion for advertising – and no time lim-
its on the approval of a proposed sign or And where does that leave the people? As
billboard. the following graphic shows, when a legal
7. Import and export procedures are pro- system detached from the real world gives
hibitive for most Tanzanians: due to the the people mechanisms to formalize their
complexity of regulations, entrepreneurs property, organize their businesses, and
must hire “clearance agents,” increasing expand into wider markets – summa-
the cost of doing business by about 40 %. rized in the top-down arrows – its effects
8. The current law discourages innova- are stymied by barriers that keep people
tion: registering a trademark for a new out of the system. But when they create
product in Zanzibar takes 107 days; on their own extralegal archetypes, these,
The Challenge of Connecting Informal and Formal Property Systems page / 55
too, smack into barriers summarized in its people – and in the process creates a
the bottom-up arrows. The people are thus constituency for change. The challenge
stuck in the middle – doomed to being less is two-fold: to tailor existing legal institu-
productive than they might be. tions to suit the poor, a top-down exercise,
and, then, to harmonize, professionalize,
Looking to the future and formalize the extralegal archetypes
Tanzania has designed a varied, sophis- of the poor, a bottom-up exercise, so that
ticated legal system that offers its people the Government of Tanzania can even-
the possibility of creating and using prop- tually have its two institutional realities
erty, organizing collectives, and operat- meet somewhere in the middle.
ing on a nation-wide scale. The problem This would allow the formal legal sys-
is that this system is inaccessible to most tem to remain stable and macro-economic
Tanzanians. From the point of view of the growth and other formal development ef-
poor, it is just too burdensome. Tanzania’s forts to continue, while the poor quick-
current legal system has to be simplified ly see their practices being recognized,
and pruned and adapted to local practices strengthened, and gradually weaved to-
– until it fits the needs of the great major- gether to create an effective rule of law –
ity of Tanzanians. without having to wait for the existing le-
On the other hand, Tanzania’s people, gal system to reach them over the longer
working extralegally, are building institu- term.
tional archetypes that tell us where they The reforms to be designed will have to
want to go, archetypes that are totally take into account not only the prevailing
in sync with their culture. However, these local and customary arrangements that
archetypes lack the standards, systems, exist in Tanzania’s extralegal economy
information management, and basic in- (bottom-up), but also the institutional ob-
frastructure to allow property to create stacles and deficiencies found in the na-
good credit and capital, business organ- tion’s legal framework (top-down). Some
izations to divide labor productively, and of the reforms will focus on improving the
identification and contractual systems to existing legal framework, while others will
enable Tanzanians to operate all through- focus on improving current “extralegal
out the national territory. The archetypes practices” – all in a way that will merge
they have produced – those that have both systems into a single legal frame-
been discovered and those that are yet to work that will help create an inclusive
be discovered – need to be built up and legal and economic system in Tanzania.
formalized. Special consideration will also be given to
These facts provide sufficient mate- ongoing Government reform initiatives.
rial to outline some recommendations Herewith follow the principal recommen-
and to begin building a strategy and a dations we have made to the Tanzanian
program that will help Tanzania create a government:
modern rule of law that fits the culture of
Realizing Property Rights page / 56
A. Reforms geared to improving the real estate assets, and harmonizing cur-
current legal system until it fits rent registers in Mainland Tanzania and
the needs of the great majority of Zanzibar.
Tanzanians (top-down) ___Facilitating the economic utiliza-
Reforms to improve public administra- tion of properties, eliminating restric-
tion and to defend user rights, such as: tions on transfers and other conditions
___Introducing simplification and modern- that, in practice, are no longer in effect
ization principles, legislation, and proce- in Tanzania.
dures for public administration (e.g. ac-
ceptance of applications and statements at Reforms to improve business organiza-
face value; decentralization; deregulation; tional forms, such as:
elimination of unnecessary and expensive ___Allowing access to asset partitioning
requirements and formalities, etc.). and risk reduction through entity shields
___Designing special mechanisms to con- and limited liability facilities for all en-
tinually improve and streamline the reg- terprises, particularly sole traders and
ulations that govern all the relationships partnerships, which constitute the most
between the government agencies and for- frequently used organizational forms in
malized businesses, as well as to receive Tanzania.
and channel user feedback. ___Establishing decentralized, simplified,
___Harmonizing the current programs, standardized, and low cost procedures
projects and initiatives that aim to im- for the entry into (incorporation, registra-
prove specific aspects of the institutional tion, licensing) and exit from the market
framework to facilitate entrepreneurial legally (protecting third party rights), for
activity and assign clear property rights all enterprises and particularly sole trad-
in Tanzania. ers and partnerships.
parties with a clear, reliable and updated ___Introduce ways to protect the rights of
information service. women and minors in extralegal practices
for the administration of property received
B. Reforms geared to improving the through inheritance. (For example: In-
archetypes of Tanzania’s extralegal formation programs, the availability of a
economy (bottom-up) local authority, such as a mediator.)
The Government needs to determine how
these dispersed grassroots extralegal pro- Reforms to improve organizational
cedures can be pulled together, systema- archetypes:
tized, codified, and harmonized with the ___Provide more easily accessible legal op-
existing legal system. But here again is a tions for poor people to form business as-
sample from our list of recommendations, sociations, allowing the separation of their
according to each category: personal assets from the assets of their
businesses. (For example: Standardizing
Reforms to improve property archetypes: forms for bylaws or statutes for compa-
___Classify extralegal documents in a way nies, partnerships, etc.)
that they can help create a wide-spread, ___Introduce simple rules and legal mech-
inclusive legal property system. (For ex- anisms to promote good management. (For
ample: Defining the probative value of example: Standardizing rules for simple,
documents that formalize property.) transparent accounting practices that
___Design and introduce throughout could be the basis of a national account-
mainland Tanzania basic rules for stan ing system.)
dardizing and setting up archives for ___Design mechanisms to make most citi-
the records and representations that the zens and business organizations account-
Mweyenkitis are now keeping, each in his able. (For example: Putting all extralegal
own way, that could be the building blocks arrangements in a standard, written form
for future registries that will function na- that can be enforced according to availa-
tionwide. (For example: Organizing the ble documentation.)
Mwenyekiti archives under a genuine fo-
lio system, with a unique number for each Reforms to improve expanded market
real estate unit and owner; standardizing archetypes:
registration books and providing efficient ___Design mechanisms that will help
mechanisms to store them; standardiz authorities monitor and simplify the use
ing forms to record transfers and con of redundancy to control mistakes and
tracts; facilitating access to this archive fraud. (For example: Clarifying the legal
and delivery of copies of the documents effects and the hierarchy of documents
stored in it; establishing legal mecha- created to prove something, such as land
nisms requiring the outgoing Mwenkekiti transfer contracts and wills.)
to pass on the registration book to his ___Determine the constraints of extra
successor.) legal arrangements for enabling effective
Realizing Property Rights page / 58
representation and its enforcement. (For cooperate productively with each other,
example: Perfecting or standardizing the a property system to protect their assets
powers of attorney and liability arrange- and build capital if they so wish and legal-
ments based on extralegal practices to ize identity and contracts to gain access
help make representation less risky and to all of their own country.
more widely acceptable.)
___Determine how contract and company I am extremely grateful to the government
law can take advantage of the increasing of Tanzania and especially to President
clarity of extralegal contracts to provide Benjamin Mkapa for having the courage
norms and standards that will make it to look at Tanzania’s problems with the
easier to monitor and interpret the duties same or even greater enthusiasm than
and obligations of each contracting party. they look at their many achievements.
(For example: Creating simple, standard I am proud to have been chosen to sup-
forms for different kinds of written con- port them in their quest for development.
tract; evaluating the need of the Village Needless to say, my colleagues and I are
Council’s role in approving contracts and especially thrilled to see how the facts that
mortgages.) have been discovered continually demol-
ish the notion that Africans are not pre-
Implementing these reforms will benefit pared culturally or disposed to work in a
all Tanzanians and not only the small mi- modern market economy and are doomed
nority that already uses the present legal to depend on charity and untested models
system. The prospect of such widespread of development.
benefits will, in turn, not just inspire
equally widespread support for reform but Acknowledgements
also silence the opponents of institutional We would like to thank the following peo-
change. When the Government of Tanza- ple for their contribution.
nia first asked us to shed light on the na-
tion’s informal sector, the hope was that In Peru: Patricia Aparicio, Ana Lucia
we might find among the extralegal prac- Camaiora, Gabriel Daly, Enrique Díaz,
tices of ordinary Tanzanians the building Victor Endo, Almudena Fernández,
blocks of a modern, legal economy. We have Mario Galantini, Susana Lizárraga,
done exactly that. As a result, we believe Gianna Macchiavello, Iris MacKenzie,
that all the facts laid out in this document Gustavo Marini, Manuel Mayorga,
along with its recommendations, pro- Luis Morales Bayro, Rosario Payet,
vide the pillars for establishing a Mas- Anthony Power, Juan Pulgar Vidal,
ter Plan to identify the policies to include Patricia Ritter, Javier Robles, Jackie
the extralegal economy under the rule of Silva, Gerardo Solis, Edward Tivnan.
law by providing it with the indispensable
legal tools to create wealth: organizations
that enable Tanzanian entrepreneurs to