Mitigating Downsides Of Foreign Property Ownership Reform

The Council of Ministers this week gave the nod to a draft proclamation rescinding the ban on the ownership of immovable property in Ethiopian by foreigners. Expected to land on lawmakers’ docket some time later this year for legislative deliberation and eventual enactment into law, the Council laid out a number of justifications in defence of the draft, saying establishing a legal framework allowing the ownership and holding of immovable property in the country offers significant benefits in terms of encouraging foreign capital investment, stimulating housing development and accessibility, aligning the supply of residential buildings with demand, and creating employment opportunities for citizens. The Council underscored that the new legal regime would not abridge the rights of Ethiopians to hold and utilize land. As a bill that signals a major policy departure that upends Ethiopia’s long-standing immovable property ownership laws, it inevitably gives rise to valid concerns that need to be addressed before it becomes law. This requires careful regulatory design, transparency, and safeguards to ensure that Ethiopia’s economic opening does not come at the expense of its citizens.

True, the draft proclamation can entail the upsides the government argues it will have. Despite these advantages, the policy shift introduces several risks that demand scrutiny. Chief among these is the potential erosion of national sovereignty. Land ownership is a sensitive issue in Ethiopia, where the constitution vests all land in the state and people, a legacy of the 1974 revolution. Critics argue that ceding immovable property to foreigners undermines this principle, potentially leading to long-term leases that mimic ownership, as seen in other African nations. There are also fears that foreign investors could exert disproportionate influence over urban planning, prioritizing profit over public interest. This raises questions about Ethiopia’s sovereignty over its land and resources, as well as the ability of the government to impose regulations that protect the rights and needs of its citizens.

The economic ramifications are also troubling. Foreign ownership could lead to speculative bubbles, where investors buy property as assets rather than for productive use, distorting prices and exacerbating housing shortages. The influx of foreign buyers can inflate real estate prices markets beyond people’s reach, forcing them to move to outlying areas where basic services are hard to come by. While foreign investment may increase the inflow of hard currency into the economy, it could also deepen inequality if the benefits are not widely shared. For instance, if developers focus on luxury housing, the majority of Ethiopians—already struggling with backbreaking inflation—may see little improvement in affordability. As urban centers continue to grow, ensuring that locals can afford to live and thrive in their own communities is crucial.

The social implications of permitting foreign ownership of immovable property are substantial as well. It can lead to a sense of alienation among local communities when foreigners acquire valuable pieces of land and property in droves. This feeling of disenfranchisement can further exacerbate tensions, resistance, and conflict within communities that already perceive themselves as marginalized. For a country seeking to foster unity and inclusivity, addressing these social concerns is imperative. Moreover, community dynamics could shift significantly, particularly in areas where foreign investment results in the establishment of enclaves that give prominence to foreign interests over local culture and customs. Such scenarios risk marginalizing local voices and undermining the sense of belonging that is integral to Ethiopian identity.

Given that the draft proclamation has not been made public yet, it is not clear what provisions, if any, it has incorporated with a view to mitigate these risks. This said it should aim at striking a fine balance between openness and the protection of citizens. There are a number of key measures that may be taken in this regard. First and foremost, establishing a robust and transparent regulatory framework is vital. This framework should outline the conditions under which foreign ownership is allowed, such as restricting foreign ownership to certain zones or imposing minimum investment thresholds to deter speculative buyers; mandating that a percentage of foreign-funded projects cater to low- and middle-income Ethiopians; stipulating that land purchased must be used for development projects that benefit local communities; and encouraging joint ventures between foreign and Ethiopian firms to foster skills transfer and ensure locals retain a stake in developments. Furthermore, strengthening property registries and anti-corruption mechanisms is critical to prevent elite capture and ensure fair transactions. Finally, it is of the essence to undertake regular impact assessments to track whether the law is meeting its intended goals so that timely adjustments are made as needed.

Opening immovable property ownership to foreigners reflects a bold and indeed risky bet on economic liberalization. However, it poses legitimate concerns that must be proactively addressed, thereby harnessing the benefits accruing from it offers while protecting the legitimate interests of Ethiopians. The coming parliamentary debate offers a crucial opportunity to refine the draft law—ensuring that the historic shift it introduces becomes a catalyst for shared prosperity, not division.