In order to further understand the above relationship, it is important to examine the actual institutional structures, which are the co-ordination mechanisms that facilitate economic development in developed countries. This is important in order to demonstrate the overriding importance of institutions in economic development, especially to sectors such as property development. Prominent among these is excludability, which is the ability to exclude consumers unwilling to effectively demand goods and services (Kähkönen, 1998). Exchanges of goods and services or transactions are highest where excludability is most pronounced, indicating increased protection of property rights. In other words, consumers are unlikely to part with money in exchange for goods and services without the transfer of exclusive rights with such goods and services. Where the incidence of ‘free riders’ is overwhelmingly present, entrepreneurs are unlikely to be attracted to such sectors, explaining the relative lack of support for the public goods and the need for government support in these areas.

The second institutional structure fundamental to the co-ordination mechanism that underpins effective economic development is Rivalry. Rivalry is the extent to which a person’s consumption of a good reduces its availability to others (Kähkönen, 1998). Goods that are of high rivalry attract higher effective demand than non-rival goods and services of joint consumption nature where one person’s consumption has no impact on the consumption of others (Samuelson, 1954).

These attributes are fundamental to the existence of markets as institutions underpinning effective economic development (Kähkönen, 1998). Markets are crucial to entrepreneurship and remain the most fundamental institution, which underpin development in advanced countries of the world. Thus, markets offer favourable environments for innovation, production and exchange of goods and services (Coase, 1988; Clague et. al, 1995). While no attempt is made to pre-empt the discussion, these attributes are fundamental to property development, especially given the huge capital investments associated with its production and consumption. Furthermore, and in the case of the developing countries, these attributes become even more significant as a necessary prerequisite to effective property development. In these countries, not only is excludability and non-rivalry difficult to enforce owing to inadequate institutions and local customary practices; the underdevelopment of markets is also well pronounced (McKenzie, 1984).

Given the absence of such institutions as well as other co-ordinating mechanisms, the general underdevelopment and entrenched poverty that is prevalent in the developing countries comes as no surprise. The inability of developing countries to establish and enforce legal rights has made it difficult for effective and efficient markets to evolve.

Underpinning the market institution are hierarchy and collective action both of which are crucial to the functioning of the markets, defining responsibilities where a group of people with common interest engage in economic and social activities (Sandler, 1992). Hierarchy manifests in law and order or command and control, which is necessary to modify behaviours and business practices to acceptable standards. Such hierarchies can be market-oriented or public oriented as can be found in private corporations or in the public sector. For, example, government agencies allocate public land, and the success of such an exercise is best achieved under an efficient and effective regulative framework that cannot be usurped or abused. As it is the case in many developing countries where a piece of land can be sold to numbers of people simply because of ineffective legislative framework and practices, public confidence in the process is usually very low. The impact manifests in high transaction costs, which discourages investments in real property.

Collective action is equally fundamental to the market mechanism and the overall process of economic development. Small groups whose frequent interaction and shared common values set rules and standards of operations (Kähkönen, 1998; Olson, 1965), typify collective action. In the particular case of property development, the roles of the professional bodies such as the Royal Institute of Chartered Surveyors, the Chartered Institute of Building, and the Royal Institution of British Architects in the United Kingdom are fundamental to the property development process. These bodies not only enforce their own rules and regulations regarding best practice, they also take on board government regulations. As a result, properties that fulfil both clients and users’ requirements are delivered, which reinforces confidence in the system and invites private sector participation.

In the developing countries, the absence of such professional cadre of individuals has created a void, which is inefficiently and ineffectively filled by the government, creating room for corruption and nepotism and distorting the market mechanism in the process. It is a common practice for nepotism, ethnicity and political patronage to take overriding priority in contract awards or appointment with the consequences that inexperienced contractors and property developers are awarded contracts (Duesenberry et. al, 2000; Goldsmith, 1998). This has led such interest groups to pursue and implement economic policies, which are undermining to the market mechanism.

They include the constitutional order, institutional arrangements and cultural endowments (North, 1981; Ostrom et. al, 1993). Before proceeding any further, we acknowledge the apparent conflict between these three categories of institutions in Sub-Saharan Africa, a view held by North (1981). Following on, the constitutional order encompasses both written and unwritten state law and legislation that govern all activities within a country. In particular, the constitution provides legislation, which governs the interactions of various stakeholders for example in the Property Development process. It also provides enforcement mechanisms, especially the judiciary to safeguard the rights of local entrepreneurs and foreign investors engaged in various economic activities such as property development (Ihonvbere, 2000; Coleman, 1990). The institutional arrangements are rules and regulations that govern organisations, devised by collective and individual actions of the members. A useful example, include professional codes of conduct that may govern property professionals during the property development process. They are crucial because property firms have to efficiently organise the factors of production (i.e. land, labour and capital) during the delivery of buildings. Similarly, any public organisation responsible for the provision of property services like land allocation requires regulations to guide and enforce the delivery of such services. Cultural endowments are customs or norms that people use to interpret their experiences within society. In other words, they are informal institutions that exist to fulfil peoples’ needs either in the presence or in the absence of formal institutions. In the case of the developing countries where formal institutions are rudimentary, cultural endowments are definitely an important category of institutions. For instance, the absence of formal rules in such countries has resulted in a dense social network of customs, laws, trust and normative rules that constitute an informal institutional framework (Bates, 1989). Nevertheless, it can be argued that informal institutions in such countries preceded formal institutions and that formal institutions were a result of colonial influences. Otherwise, informal institutions like the Chieftains (political institutions of governance) would still be very prominent in most SSA countries. Whether this arrangement would have been able to deliver the kind of institutions necessary to facilitate development if they had endured is open to debate. Nevertheless, three categories and other aspects of institutions are illustrated in more detail in Figure 2.1.

Before elaborating on the link between institutions and economic development, it is important; to highlight the characteristics of properly designed institutions. Figure 2.2 highlights the roles of institutions as well as the characteristics of properly designed institutions.

According to Figure 2.2, institutions have two main roles in economic development; the first role is the enforcement of individual property rights during the exchange of goods and services. For example, individuals purchasing real property have their legal rights enforced by institutions like courts. The other role of institutions is the reduction of risk and information asymmetry during transactions. In particular, contracts reduce risk during economic transactions. Similarly specialist institutions reduce the problem of information asymmetry by providing adequate information to individuals prior to economic transactions. As for the characteristics, properly designed institutions must have explicit purposes when established. To achieve such purposes, authority in the form of specific powers is vested in institutions and functional working procedures are provided to facilitate the whole process for which institutions have been designed.

The theoretical framework chapter dwells on the role of institutions in economic development.

The role of institutions in economic development for which Property Development is a catalyst is rationalised within the two camps of institutional economics, which are commonly identified as the “Old Institutional Economics” (OIE) and “New Institutional Economics” (NIE). According to Rutherford (1994) the OIE camp started with the work of Thorstein Veblen, Wesley Mitchell, John R. Commons and Clarence Ayres. However, the camp had two major approaches, the first approach being the Veblen-Ayres, which centred on business and industrial aspects of the economy. The second approach involved the work of Commons, which is now advanced by Warren Samuels and Allan Schmid (Schmid, 1978; Samuels et. al, 1981); their work focused on law, property rights and organisations. The Commons approach also addressed the judicial and political processes of conflict resolution and attacked the Veblen-Ayres approach for failing to explicitly address these issues (Commons, 1924; 1934). Equally, it has been argued that since the Commons approach dealt with transactions, property rights and organisations, then it is closely linked to NIE (Rutherford, 1994). Despite this statement, the Commons approach still differed from the NIE camp in various ways, as will be seen shortly.

The NIE camp was very broad and had four main strands. The first dealt with property rights (Demsetz, 1967; Alchian et. al, 1973) and common law (Posner, 1977; 1981). The second strand was concerned with public choice processes, including rent seeking and activities of distributive coalitions (Olson, 1982; Mueller, 1989). The third strand dealt with organisations and agency theory (Jensen et. al, 1976); and work on transaction costs stemming from Coase (1937) and widely used by Oliver Williamson (1975, 1985). The last strand was the work of Douglass North (1981, 1990; 1984; 1986) that dealt with the history of institutional economics and combined elements of the game theory. More importantly, he argued for the recognition of fairness and ideology in institutional change. So, disagreements in the NIE camp stemmed from North criticising both those who took a purely rent-seeking approach to government activity and those who limited their analysis to alterations in contracts occurring within a given basic institutional framework (Rutherford, 1994). Overall, the NIE camp had disparities like the OIE camp (Coats, 1986; Maki, 1987; Andersen et. al, 1992).

The dichotomy between the OIE and NIE is essentially down to the fact that the OIE camp favoured greater government involvement to correct institutional failures; emphasising a holistic and collectivist approach. In contrast, the NIE camp favoured more individual action and orientated towards rational choice and non-intervention. Nevertheless, the dichotomies between both camps reflect the complexity and dynamic nature of institutions. So, the arguments over holism and individualism equate to the interrelationship between the individual and society. For instance, society is created out of the actions of individuals and the individual to some extent is the creation of his social situation (Rutherford, 1994). In other words, individuals and society are interrelated and influence each other because individuals make up society and society influences individuals. Thus, this scenario illustrates the connection between individuals and society and how institutions rectify problems arising during their interaction.

Chapter two examines the role of institutions in economic development based on the statement made in the introductory chapter. More particularly, it demonstrates how appropriate institutions can enhance and facilitate economic growth and development from the examples of the developed economies while their noticeable absence in the developing economies has been detrimental. In order to support our viewpoint, we focused on the importance of property rights, contracts and contract enforcement mechanisms, which underpin the market mechanism.[1] Also, we found three categories of institutions namely constitutional order, institutional arrangements and cultural endowments, as crucial to the process of economic development especially that of Property Development. However, these variables must be well co-ordinated to foster economic development. In the case of developing countries, such institutions are still evolving and uncoordinated, thus unable to support the necessary economic development initiatives. Overall, government, legal and financial institutions in SSA, which are vital during the process of economic development are lacking in organisation, efficiency and effectiveness.

Chapter three reviews the process of property development. However, it first of all, examines the institutional approach to real property development then analyses the various institutions and institutional arrangements involved at each stage of the property development process. For us to demonstrate the overriding importance of the role of institutions in the property development process, we used the UK property sector because of its organisation and the interface that exists between it and the functional institutions in the economy. Interestingly, we found the property development institutions namely government, professional and financial as crucial and without them it would be difficult for developers to undertake the property development process.

Chapter four details the interface between Uganda’s socio-economic structure and its real property sector. The interface is significant because of the influence of stable socio-political and economic environment on the process of property development. The findings show that the rudimentary property development process in Uganda mirrors its past and present socio-economic and political structure. The absence of a stable political environment destroyed its economy along with its institutions in the 1970s, which although has improved vastly in the 1990s, still falls considerably short of what is necessary to support a thriving property sector. However, the absence of property development institutions has largely meant that properties are developed incrementally. Although, this is seen as appropriate by many housing and property experts, including the World Bank it is nevertheless a symptom of underdeveloped institutions and economy, perpetuating delayed consumption with adverse impact on employment and income. This has been the case with real property development in Kampala, which has been hindered by the lack of effective institutions.

Chapter five presents both the research methodology and the Ugandan case study. More particularly, the exploratory case study method was chosen for the research because of its flexibility, which allows for structured questionnaires and interviews, including in-depth analysis of the issue under investigation. In particular, this is considered the most appropriate method for the research because of the priori observation on the dearth of data and statistical information on this area of study. Meanwhile, in the Ugandan case study emphasis is on Kampala where the need for properties is greatest and also hosts the financial and government institutions as well as property and construction firms. During the actual process, we employed the snowballing technique where authorities or stakeholders in the property development process recommended competent authorities on the research issue, reducing the likelihood of obtaining information from irrelevant people or those on the peripheral of the study.

Chapter six presents the empirical results from the case study. The data was analysed using the SPSS statistical package; the results were categorised as follows financial and government institutions, and property and construction firms. This has been done for easy reading and understanding of the work. Also, charts and tables were used, providing a visual presentation of the results.

Chapter seven discusses the findings from the empirical analysis and recommends policy to facilitate the evolvement of property development institutions and improve property development in Uganda. Following on is chapter eight with the conclusions.

(ii)          Investigate the property development process in Uganda.

(iii)         Investigate existing property institutions and their role in property development in Uganda.

(iv)         To show that the absence of effective and functional institutions can hinder the process of real property development.

(v)          Recommend policy to enhance the property development process in Uganda.

It is hoped that findings from the study should facilitate better infrastructural provisions and hence rapid sustainable growth and development.

However, looking at the present structure of real property development in Sub-Saharan Africa (SSA) countries shows the process to be highly disorganised and as a result has been unable to deliver the required amount of buildings to facilitate economic development. This situation has been attributed to various obstacles of which the most important is institutional deficiency. Institutions are now acknowledged as a vital component of economic development and explain the difference between developed and developing countries with regards to socio-economic and physical development (Knack et. al, 1995). In other words, the property development process in the developing countries is disorganised because of inappropriate institutions compared to the scenario in the developed countries where appropriate and efficient institutions exist.

1\.2 Research proposition

An effective and functional property development process is impossible without well-developed institutions.

This study investigated the role of institutions, their efficiency and effectiveness in the Property Development process in Uganda. The role of real property development in economic growth and development is well acknowledged especially industrial, commercial and residential properties that are key catalysts to accelerated economic growth and development. In particular, for a developing country like Uganda to be able to absorb the huge direct capital inflow and take full advantage of the rapidly unfolding globalisation process, the necessary infrastructure has to be in place and functioning. However, the dearth of such infrastructure in Uganda, as in many developing countries, and Sub-Saharan Africa in particular is well acknowledged, and can be argued to hinder economic growth and development because of the known ‘bottleneck’ effects on the economy. Nevertheless, the postulation of this study is that for an effective property development process to take root in Uganda, the necessary institutions must be developed and nurtured. To this effect, a survey method of investigation was employed to ascertain both primary and secondary data, along with information on the state of the real property industry in Uganda so as to critically evaluate the role of stakeholders, including financial, government, professional institutions and private entrepreneurs involved in real property development in Uganda. A case study was conducted in Kampala, which is the Capital and hub of economic activities and where most of the institutions reside. In addition, structured interviews were conducted with legal institutions, as well as some key individuals within the public and private sector domain.

The findings revealed that the process of real property development is very rudimentary. In most cases, private and public property developments occur on an incremental basis, which apart from the effects on demand by suppressing it, has a wider negative impact on developing the construction and property industry and entrepreneurial skills, and having a knock-on effect on the evolution of effective property institutions. This scenario is exemplified by the stop-go approach to real property development in Uganda as in other developing countries. In the absence of indigenous capacity, foreign construction and property multinational companies have filled the void but due to the very limited skills sourced and developed locally, relatively little managerial and technical skills are transferred to the local property entrepreneurial class. Thus, the need to identify not only the role that institutions play in real property development, but to also explore such a role within the context of a developing country like Uganda is seen as a necessary prerequisite to its economic growth and development. Hence, this study aims to identify those institutions that are vital to the process of real property development in developing countries such as Uganda, and a strategy has been proposed by which policy can evolve and sequenced, leading to the development and functioning of such institutions.