Slum tenants face higher rents and lower investments when their landlord and chief share ethnicity, while gaining when their chief is a co-ethnic
Political power is often concentrated within a community, defined by religion or ethnicity. In turn, evidence reveals that those who wield power often provide patronage (usually in the form of preferential access to public resources) to particular members of their community based on their common religion or ethnicity (Frank and Rainer 2012, Burgess et al. 2015). Some scholars have gone as far as to blame “Africa’s growth tragedy” and failed policies on the continent’s ethnic divisions (Easterly and Levine 1997).
While it is often conjectured that ethnicity is one of the factors that prevents African economies from transitioning from personal to impersonal exchange, there is little rigorous evidence that ethnicity affects transactions in private markets (exceptions include Fafchamps 2000, Hjort 2014, and Michelitch 2015). This column aims to fill this knowledge gap by presenting evidence that ethnicity affects prices and investment decisions in a private housing market in one of Kenya’s largest informal settlements, the Kibera slum in Nairobi.
Ethnicity in Kenya
Kenya is home to over 70 different ethnic groups. The five largest ethnic groups – the Kikuyu, Luhya, Kalenjin, Luo and Kamba – make up nearly 70% of the country's population of 48 million (2009 Kenya Census). Since Kenya's independence in 1963, its politics and economics have been plagued with ethnic tensions between its larger groups.
To a large extent the last two Kenyan elections were peaceful, however ethnic affiliations did play an important role. Further, the fear of ethnic conflicts remains rife since the violent aftermath of the 2007 elections. This raises concerns that ethnic favouritism, as well as the political grievances and the market inefficiencies it generates, may be undermining the country’s political and economic development.
Context: Kibera, Kenya
To better understand the role ethnicity plays in Kenya’s economic development, and particularly in its private markets, Marx et al. (2017) (referred to as ‘the study’ henceforth) look at the interaction between the ethnicity of local authorities i.e. local chiefs, and landlords and tenants in Kibera. Kibera is an overcrowded, informal, and diverse area of the capital, Nairobi. It is one of Africa’s largest slums and has experienced many episodes of inter-ethnic violence in its history.
Occupancy rights in Kibera have been ambiguous since its establishment. Since the 1970s, local chiefs and bureaucrats in the Provincial Administration have illegally allocated land titles to private individuals (Amis 1984), allowing these individuals (predominantly from the Kikuyu or Nubi tribes) to rent out Kibera’s land and to effectively control the housing market in the slum. Tenants (most of whom are Luos or Luhyas) rarely hold formal rights on the land they occupy. In addition to tenancy rights being weak, rents are also regularly renegotiated – as demonstrated by frequent evictions.
The study analyses whether ethnic alignments between chiefs and landlords, and between chiefs and tenants, affect rental prices and investments in the slum’s housing stock. The Provincial Administration appoints chiefs to their positions within Nairobi, and these chiefs are regularly rotated around the city. This information is used to analyse the role ethnicity plays in Kibera.
Further, to study investments in slum structures, it combines high-resolution satellite imagery captured over Kibera between 2009 and 2012 with a large-scale survey of several thousand slum dwellers. The satellite images capture the luminosity reflected by metal roofs and are used as a proxy for housing investment, by providing a measure of the age of these roofs.
When the local chief and landlord are of the same ethnicity, tenants pay rental prices that are 6% to 11% higher, on average. Conversely, when the chief and tenant are of the same ethnicity, tenants pay lower rents by a similar magnitude. These findings suggest that chiefs act as arbitrators in setting rental prices in the slum.
Ethnic relationships also have long-term effects on tenants’ investment decisions. The study finds that investments in the housing infrastructure are lower (though not significantly so) when a landlord and chief are of the same ethnicity, and significantly higher when the tenant and chief belong to the same ethnic group. These effects arise as chiefs intervene in decisions to upgrade private dwellings, a feature that would not exist in an efficient housing market.
While any individual may win or lose from ethnic favouritism, the main results suggest that across the entire slum these effects approximately offset each other, rendering the aggregate welfare impact of ethnic favouritism to be neutral, if a narrow definition of welfare is used. This means that the total amount of monthly rent paid with and without ethnic collusion is about the same. However, the welfare of individual tenants that experience discriminatory rental prices and housing investments may well be reduced, as they experience volatility as a result.
Conclusion and policy recommendations
In summary, the study finds evidence that ethnic favouritism exists in private markets, including Kenya’s informal rental market. These findings have important implications for our understanding of urban planning across the developing world. Ethnic divisions and informal land rights observed in Kibera are also widespread in other slum settings across the world.
We put forth two recommendations:
1. Strengthening local institutions
In policy terms, the lack of fair public arbitration of land disputes is a key obstacle to the efficient allocation of goods in slums. City authorities should play a much more direct role in settling rent disputes, since delegating this role to local chiefs creates opportunities for patronage. The strengthening of local courts is one potential solution.
2. Formalising land rights
Informal land rights, found in Kibera, make it easier for ethnic favouritism to thrive and difficult for government to regulate. Formalising property rights in a fair manner, whilst politically tricky, would help correct the illegal distribution of Kibera’s land and ensure the security and legal enforceability of land rights.
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