Africa’s ‘dead capital’ problem: why cows aren’t assets.

Lack of access to finance is a major contributor to persistent poverty. Capital is the force that raises the productivity of labour and creates the wealth of nations. While trying to understand how capital is the lifeblood of a capitalistic system, I bumped into the term ‘dead capital’. So let’s discuss it. What is ‘dead capital’; and how is it prevalent in Africa?

What is ‘dead capital’?

  • Owning land that doesn’t have adequate legal documentation like a title deed.
  • Houses built on land whose ownership rights are not adequately recorded.
  • Unincorporated businesses with undefined liability.
  • Industries located where financiers and investors cannot see them.
  • Farmers with crops & cows but not deeds.

In all of the above cases, there is no adequate documentation to legally prove ownership and or the value of the property. Therefore, these properties cannot be easily turned into capital e.g., as collateral for a loan or traded widely as a share against an investment. Essentially, the people in these examples lack the process to represent their property and create capital.

How ‘dead capital’ affects development.

‘Dead capital’, such as unregistered land, is typically owned by poor or middle-class people and cannot be realised due to poor local policies, ineffective country procedures, or government bureaucracy. It will come as no surprise to most Africans; that only those that are well-connected and privileged get to unlock capital with their assets. Unlocking such capital creates surplus value for further investment, which unlocks more capital, and in the long run, generates wealth. The value of this cannot be understated. Wealth gives people access to a decent education and healthcare, it unlocks home ownership and insurance to shield them from economic downturns.

It is difficult to get the population percentage represented in this group. However, using WBG’s data, 85% of Africans are still poor if judged by the standards of upper-middle-income countries. Meaning at best, the privileged group comprises 15% of the African population, but I’d speculate it to be lower. This leaves a massive shadow economy that although very wealthy, does not fully contribute to the economy and does not help its participants fully achieve their potential.

‘Dead capital’ in African countries.

1. Kenya:

According to Professor Bitange Ndemo of the University of Nairobi, there is another type of ‘dead capital’ that is prevalent in Kenya. These are the rural shopping centres that are built for prestige, not as an income-generating asset. Some $20 billion lie idle in the villages. Another $5 billion is buried in second homes of the urbanites who travel perhaps once a year to sleep in their mansions.

2. Zimbabwe:

3. Nigeria:

An opportunity for African startups

  • Blockchain for land registry: the distributed public ledger database system, can be used as a new way of trustworthy registration and authentication of documents. It will list every single transaction and other people in the system would be able to instantaneously verify these transactions, protecting people or the community’s privacy but at the same time giving enough transparency to allow for oversight from anyone. There is a need to simplify processes and accelerate the issuance of title documents as well as implement an electronic title registry for storage, retrieval of such titles for continuous update and easy verification. One such company is HouseAfrica.
  • Agritech and data analysis: using field and farm data to improve farming practices, introduce a level of predictability in yield production, and provide marketplaces for smallholder farmers’ produce. Insights from this data can be used by financiers to give more capital to farmers. One such company is Synnefa.
  • Legaltech: companies that can be used in dissecting the legal and regulatory framework for doing business in African countries. This can significantly lower the barriers to business incorporation, registration and valuation. One such company is mSME garage.

What other ways can startups address the ‘dead capital’ problem?



Any topic that interests me, I'm on it. What interests you, and can I write about it? Lmk. :)

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Murage June

Any topic that interests me, I'm on it. What interests you, and can I write about it? Lmk. :)