A standard point economists like to make is that economic development depends upon “institutions”. Things like the rule of law, certainty of contract, the privacy of property and so on. If you can’t be sure of what has been agreed to, who owns what, how it can be transferred, what the price of something is in a contract, then people just aren’t going to put in the hard work to develop an economy. Why do all that labour if you can’t be certain of whether you’ll get what was promised at the end? Even, whether you’ll get anything?
This being one of the basic rules that the Ethiopian government has just violated. There was a housing scheme whereby if you made the deposit now then you’d get one of the new houses the government was building in the satellite towns and suburbs around Addis Ababa. In essence the same thing as the pre-build agreements common in the private sector right around the world.
Sure, sometimes private developers go bust, it has been known to happen. But you should be able to trust the government, right?
Removes lottery privilege for 100 percent depositors The Ministry of Urban Development and Construction (MoUDC) revealed a twofold price increment for condominium housing schemes and reversed the earlier promise to award first, those house seekers who have deposited 100 percent payment for 40/60 housing schemes be scraped, and made eligible those who have managed to save 40 percent and above to be added to the lottery draw.
There’re two different things here. One, that making the deposit doesn’t mean you get the house. It means that you enter the lottery to get one. Presumably the lottery only changes how long you’ll have to wait but still. Government has now changed the terms of that lottery. They’ve reneged on their contract that is. But then it gets worse:
Citing the existing regulation that stipulates those who have deposited 100 percent for the 40/60 scheme shall have priority privilege for housings, he said that “They now could not enjoy that privilege since it will no longer be considered as a 100 percent deposit, as the cost of construction has surged by two folds.”
Now it’s true that the original contract stated that the sale price would be the construction cost at completion time, not deposit time. But still, to say that the 100% depositors lose their lottery privileges because government has decided to change the costs charged? No, that’s the sort of thing which breaks that trust in government. The sort of thing that ruins one of those necessary institutions for economic growth.
If government starts weaseling about over contracts then it’s really no surprise that people start to lose trust in contracts and the whole idea of the official economy.