Regular readers know the goal that drives this newsletter: land value return, making sure the value of land, which the community creates, flows back to the public rather than to private speculators. There are two broad ways to get there. One is to tax it, through a land value tax. The other, at the opposite end of the same spectrum, is for the public to own land outright and lease it back. We've written about that leasing end before, from Jeff Fong's case for land leasing to Singapore's innovative land policy, and it runs through Elle Griffin's work we sponsored, Let Cities Build Utopia, and her argument that land should be a public good.
Ethiopia takes that idea far. Under its constitution, all urban land is publicly owned and leased back to residents and businesses rather than sold. It is a very large, real-world experiment that most of our readers have never heard of, and we think it's important to tell the story of a country set up to keep the value of land in public hands.
From 2008 to 2012, Wudu Muluneh served as District Municipal Manager of Bole Sub-City, one of Addis Ababa's fastest-growing districts, where he ran the land tenders and administered the lease system firsthand. Today he lectures and researches at the Institute of Land Administration at Bahir Dar University. As you'll see, Wudu offers a comprehensive - and at times critical - account of the potential and the shortcomings of Ethiopia’s land leasing system. We directly commissioned this report from Wudu, something that is only possible thanks to your continued financial support. If you'd like to see more deep research efforts like this in the future, please consider becoming a paid subscriber, or make a donation.
—Greg & Lars
When I started my career as a District Municipal Manager in Bole Sub-City of Addis Ababa City Government in 2008, I did not think I was stepping into one of the most ambitious land value capture experiments in Africa. At the time, my primary responsibility was managing municipal services, overseeing land administration activities, and responding to the daily concerns of residents and investors. However, it soon became clear that many of the challenges facing the city from infrastructure financing to land speculation and tenure insecurity were closely connected to Ethiopia’s urban land lease system.
Over the last 17 years, I have worked with this system from multiple roles and responsibilities. Between 2008 and 2012, I served as a District Municipal Manager and elected council member in Bole Sub-City Administration. From 2008 to 2018, I taught urban land administration courses at various public universities in Ethiopia including the former Kotebe Metropolitan University (the now Kotebe University of Education). Since 2018, I have been a lecturer and researcher in the Department of Real Property Valuation at the Institute of Land Administration at Bahir Dar University. These roles have given me a unique opportunity to reflect on how Ethiopia’s urban land lease system works not only in law but also in practice.
This blog is not simply a review of Ethiopia’s lease proclamations. It is a reflection on how successive legal reforms attempted to solve real problems that I observed as a practitioner. Looking back, the story of Ethiopia’s urban lease system is also the story of a country’s effort to capture land value for public benefit while confronting the realities of rapid urbanization, institutional limitations, and competing interests.
Proclamation No. 80/1993: The Birth of Ethiopia’s Urban Land Lease System
The military government known as Derg , which is an Amharic word for committee, came to power in Ethiopia in 1974 following the overthrow of Emperor Haile Selassie. Influenced by socialist ideology, the regime viewed private ownership of land under the imperial regime as a source of inequality, exploitation, and speculation. In pursuit of its vision of social justice and state-led development, the Derg nationalized all rural and urban land through a series of land reform measures, including the 1975 Government Ownership of Urban Lands and Extra Houses Proclamation No.47/1975.
Under this system, urban land could not be bought, sold, or mortgaged. Instead, the state became the sole owner of all urban land and exercised extensive control over its allocation and use. In practice, a person wishing to build a house, establish a business, or undertake another form of urban development could not purchase a plot on the open market. Rather, land had to be obtained through administrative allocation by government authorities. Once allocated, users were granted rights to occupy and develop the land, often subject to conditions imposed by the state. Land users paid only nominal land rent, and their continued access depended largely on compliance with government regulations.
The system was intended to promote equity by preventing land concentration and eliminating private speculation. However, the absence of market-based allocation mechanisms created significant challenges. Administrative allocation often resulted in bureaucratic delays, inefficient land use, corruption, and informal transactions outside the formal legal framework. Because transfer rights were highly restricted, urban land had little functioning market value, and municipalities generated limited revenue from land. As urban populations expanded and demand for serviced land increased, the shortcomings of the system became more apparent.
In 1991, the Derg regime fell after years of civil war, economic decline, and political instability. It was replaced by the Ethiopian People’s Revolutionary Democratic Front (EPRDF), which introduced a series of economic and institutional reforms aimed at transitioning the country toward a more market-oriented economy while maintaining public ownership of land. Upon assuming power, the Transitional Government of Ethiopia took a decisive step away from the Derg’s permit system by enacting the first urban land lease holding law, Proclamation No. 80/1993. The reform reflected a broader effort to introduce market-oriented mechanisms into urban land management while maintaining public ownership of land.
Unlike the Derg-era permit system, under which urban land was allocated administratively and users generally held indefinite occupancy rights subject to state control, the lease framework introduced market-based valuation, competitive bidding, benchmark pricing, and contractual tenure arrangements for fixed periods. Under the new system, individuals and businesses no longer received land primarily through administrative allocation. Instead, urban land was increasingly allocated through public tender, whereby interested applicants competed by submitting bids, and the highest qualified bidder obtained the right to lease the land for a specified period.
In practice, this meant that someone wishing to build a house, commercial building, or industrial facility could compete for a plot by offering a lease price. However, winning a bid did not confer ownership of the land itself. The land remained publicly owned, and the successful bidder acquired only a leasehold use-right (See FDRE Constitution, Art. 40(3)) for a defined period, typically varying according to the intended use of the land. The leaseholder was required to comply with contractual obligations and make payments in accordance with the lease agreement.
A particularly significant innovation was the formal recognition of the transferability and mortgageability of leasehold rights. As stated under Article 10 of Proclamation No. 80/1993, the leaseholder could transfer, mortgage, or contribute the lease right as capital only up to the value of the lease rent already paid. The law was deliberately designed to prevent land speculation and windfall gains from urban land. This means that if one acquired a lease from the government and later wanted to transfer it, he/she is not supposed to auction the lease to the highest bidder and pocket a large profit. For example, if a person obtained a leasehold plot from the government by paying 100,000 birr and, several years later, the market value of that lease right increases to 500,000 birr, the leaseholder will not simply transfer the lease for 500,000 birr and keep the additional 400,000 birr. Rather, the leaseholder has the duty to pay the difference that is the income which is higher than the rent already paid (in this example 400,000 birr) to the urban administration. The intent of the law was that increases in urban land value should accrue to the public rather than to private individuals.
However, the proclamation did not establish a clear mechanism through which the government would directly collect the extra 400,000 birr from a transfer transaction. Instead, it simply restricted the leaseholder’s right to realize that gain. In practice, this meant that the leaseholder could either transfer the lease only within the legal limit or surrender the lease and allow the government to reallocate or re-lease the land. When the government subsequently leased land to a new user, it could capture the higher land value through lease payments. Thus, the appreciation was intended to remain with the state by preventing private capture of the gain, rather than through an explicit tax or charge on the transfer itself.
Regarding lease payments, the proclamation provided that the successful bidder paid the lease price determined through the bidding process. However, unlike the later lease laws, Proclamation 80/1993 was not very detailed about periodic lease payment schedules and annual adjustments. In practice, the lease payment was generally based on the bid value agreed at the time the lease was granted rather than being continuously re-bid or frequently adjusted according to changing market conditions. For example, suppose the municipality offered a residential plot through auction and a person won the bid at 100,000 birr. He/She will obtain the right to use that land under the lease arrangement, but the land would still belong to the state. He/She will not be able to claim permanent ownership of the land itself. If, ten years later, the market value of the land increased to 500,000 birr, Proclamation No.80/1993 does not automatically require one to pay a higher lease amount because of that increase in value.
Under the permit system, land-use rights were highly restricted and could not readily serve as economic assets. The lease system, by contrast, allowed leaseholders to transfer their leasehold interests to others and to use those rights as collateral for loans. For example, a leaseholder who had acquired a plot through tender could subsequently transfer the remaining lease period to another party, subject to applicable legal requirements. Similarly, banks could accept leasehold rights as security, thereby facilitating investment and access to finance.
Transfer and mortgage provisions of proclamation No.80/1993 represented a major departure from the Derg’s Permit system practice because they created an economic value attached to land-use rights, even though ownership of the land itself remained with the state. They also laid the foundation for the emergence of a secondary market in leasehold rights as the law placed strict limits on the transfer of lease rights up to the rent already paid , raising important questions about how increases in land value should be shared between private leaseholders and the public sector- an issue that would become increasingly significant in later lease reforms.
However, Proclamation No. 80/1993 left many critical questions unanswered. Most notably, it failed to clearly define how existing urban holdings acquired under the permit system would transit into the new lease regime. This ambiguity would become one of the most persistent challenges in Ethiopia’s urban land administration, generating uncertainty over rights, obligations, and the treatment of pre-existing holdings.
Beyond this transitional gap, the proclamation’s design revealed a number of structural weaknesses. Although the proclamation aims to curb land speculation and ensure that increases in land value accrued to the public, the law placed strict limits on the transfer of lease rights. Leaseholders could transfer their rights, but they were generally not permitted to capture increases in land value beyond the lease payments they had already made. While this approach reflected the government’s commitment to social equity and public ownership of land, it also reduced incentives for private investment and hindered the emergence of a vibrant and transparent land market.
In addition, the proclamation also struggled to translate its land-value-capture ambitions into a workable institutional framework. Although it sought to prevent private windfall gains from rising land values, it did not establish a clear mechanism through which the state could directly capture and redistribute those gains. As a result, the law restricted private appropriation of land-value appreciation without providing an effective alternative system for public value capture.
Additional challenges stemmed from the proclamation’s limited treatment of lease valuation, mortgage finance, and secondary land transactions. The law provided little guidance on how lease values should evolve over time in response to changing market conditions, making the system relatively inflexible. At the same time, restrictions on market-based transfers reduced transparency and may have encouraged informal arrangements outside the formal legal framework. Lease rights were recognized as transferable and mortgageable, yet the absence of detailed rules governing valuation and secondary markets limited their effectiveness as economic assets.
To sum up, Proclamation No. 80/1993 represented an important first step in Ethiopia’s transition from the permit system to leasehold tenure. Yet its rigid approach to transfers, its unclear treatment of existing holdings, and its incomplete framework for managing land-value appreciation revealed significant shortcomings. These limitations would ultimately motivate the more comprehensive reforms introduced in subsequent lease proclamations.
The 2002 Reform: Re-enactment and Expansion
When I assumed office in Bole Sub-City in 2008, Proclamation No. 272/2002 governed urban land administration. The reform had expanded the lease system and sought to make lease holding as the cardinal urban land tenure system. A key development was its broader application: it applied to all urban land, including land held under the previous permit system and other older forms of tenure (Article 3), reflecting a deliberate effort to create a unified urban land tenure framework. The proclamation also introduced a more differentiated structure of lease periods. In Addis Ababa, lease terms extended up to 99 years for residential use, 90 years for education, health, culture and sports, 60 years for industry, and 50 years for commercial activities (Article 6), reflecting an effort to align lease duration with the social and economic objectives of different land uses. It also maintained the critical provisions allowing the transfer and mortgage of leasehold rights (Article 13). These provisions were essential because they transformed leasehold rights into tradable and bankable assets, enabling landholders to transfer land to higher-value users and use their leasehold interests as collateral for investment and development. The 2002 law represented an evolution toward a more sophisticated and market-oriented lease system.
With regard to land value capture, the government’s principal means of capturing urban land value remained the lease allocation process itself, particularly through benchmark prices and competitive auctions for newly leased land. In addition, Article 13 of the proclamation stated that when a leaseholder transferred a lease right, the transfer be registered and conducted according to prescribed procedures. The government could therefore monitor transactions and claim payments associated with the transfer such as transfer service fees. However, while registration improved transparency and administrative oversight, the proclamation did not establish a valuation mechanism through which the state automatically claimed a share of the appreciation realized by the transfer.
On paper, the system appeared sophisticated. In practice, however, I observed challenges almost immediately. One experience from my tenure in Bole Sub-City vividly illustrates the tensions surrounding land-value appreciation. Residents displaced by urban infrastructure development projects such as roads frequently came to my office to complain about the compensation and replacement arrangements offered to them.
I remember the complaints and grievances of dwellers of Bole Rwanda whose property was demolished by the Rwanda Street project. Their argument was often straightforward: the compensation they received did not reflect the current market value of the land and property they were losing. Many felt that the rapid appreciation of land values in Bole- driven by urban growth, infrastructure investments, and expanding commercial activity was not adequately recognized in the compensation process. From their perspective, they were being asked to surrender assets whose value had increased substantially over time without receiving a commensurate share of that increase. These complaints highlighted a broader policy question that continues to shape debates on urban land governance in Ethiopia: when urban land values rise as a result of public investment and citywide development, who should benefit from that increase for the individual occupant, the leaseholder, or the public sector?
The 2002 proclamation sought to address this dilemma by allowing private actors to benefit from the transfer and mortgage of lease rights while enabling the state to capture a portion of land value through benchmark prices and competitive lease auctions. Because urban land remained publicly owned, municipalities could recover a substantial share of land value at the point of allocation. In rapidly growing areas of Addis Ababa, rising demand for urban land translated into higher lease revenues, allowing the public sector to capture some of the value generated by urbanization, infrastructure investment, and economic growth. From an administrative perspective, the reform represented a shift from a system that sought to prevent private land-value gains to one that attempted to balance public value capture with market incentives for development. Yet the complaints I encountered from displaced residents demonstrated that the question of how land-value gains should be shared remained far from settled.
Furthermore, one of the most difficult issues I faced involved what the law called “old possessions.” The reform continued to struggle with the fundamental challenge of converting pre-existing holdings into leasehold tenure, as its provisions on the issue lacked the clarity and enforcement mechanisms needed to achieve a comprehensive transition. Almost every week, residents arrived at my office carrying documents issued under previous land tenure systems. Some had acquired land during the Imperial period; others held permits issued under the Derg regime. Although the law envisioned a gradual transition toward a unified lease system, there was no clear roadmap for conversion. As a result, we were effectively administering two parallel systems. Leaseholders operated under one legal framework while holders of old possessions operated under another. This created confusion in taxation, valuation, compensation, and property transfers. It also generated frustration among citizens who often struggled to understand their rights and obligations.
Regarding the lease tender process, the City Administration has introduced several important reforms aimed at enhancing transparency and expanding public access. These include publishing tender announcements on its website and through radio broadcasts, digitalizing the purchase of tender documents via platforms such as 2merkato and Telebirr, and disclosing the names of successful bidders in local newspapers such as Addis Lisan(see figure 2). While these measures represent meaningful progress, I have also observed persistent institutional and procedural shortcomings that continue to undermine the effectiveness and credibility of the lease tender system.
While competitive bidding was intended to promote transparency, collusion among bidders was not uncommon. In several cases, investors coordinated bids to suppress prices, reducing the amount of land value captured by the city. Municipal officials often suspected such practices but lacked adequate legal tools to address them. For example, I recall a specific tender in 2010 for a prime commercial plot near Bole Medhanealem Church. The bid documents were sold, and multiple bidders appeared. However, I later discovered through internal investigations that several of the bidders had colluded, agreeing among themselves on a ceiling price to keep the winning bid low. The “winner” was a front for a well-connected investor. When I raised concerns with city-level superiors, I was told to proceed since proving collusion was nearly impossible under the existing regulations. The 2002 proclamation had no explicit anti-collusion provisions in its tender process (compare with Proclamation No. 721/2011, Art. 11, which introduced more detailed competitive criteria). This was a daily frustration: we knew the system was being gamed, but we lacked the legal tools to stop it.
Proclamation No. 721/2011: Why Reform Became Necessary?
By 2011, it had become increasingly clear that the 2002 lease proclamation was not adequately addressing many of the problems emerging in Ethiopia’s rapidly urbanizing cities. During my time as District Municipal Manager in Bole Sub-City, I saw these challenges firsthand.
One of the most visible problems was land speculation. Although the lease system had been designed to ensure that land would be developed productively, many investors were acquiring leasehold rights with little intention of building. Instead, they held land for a short period and then transferred their lease rights to other buyers at substantially higher prices. In many cases, significant profits were being generated without any actual development taking place.
As municipal officials, we frequently encountered vacant plots in prime locations that had remained undeveloped for years. While the city struggled to finance infrastructure and provide services for a growing population, valuable urban land remained idle. The result was not only inefficient land use but also a growing perception that the lease system was benefiting speculators more than the public.
Weak enforcement compounded the problem. Although existing laws required leaseholders to begin and complete construction within specified periods, enforcement was often inconsistent. Limited administrative capacity, lengthy legal procedures, and political pressures made it difficult to reclaim undeveloped plots. Some leaseholders repeatedly sought extensions, while others simply ignored development obligations. The gap between what the law required and what happened in practice became increasingly apparent.
The issue of old possessions also remained unresolved. Despite nearly a decade of implementation under the 2002 proclamation, cities continued to operate under parallel tenure systems. Municipal offices struggled to manage leasehold properties and old possessions simultaneously, creating confusion for both administrators and citizens.
It was within this context that Proclamation No. 721/2011 was introduced.
The new proclamation represented a deliberate attempt to address many of the weaknesses that had become apparent under the previous legal framework. It significantly tightened rules governing the transfer of lease rights. Under the new system, leaseholders transferring undeveloped land could retain only a small portion (5 %) of the transfer lease value, while the government captured the majority (95%) of the gain. This was intended to discourage speculative transactions and reinforce the principle that land should be used for development rather than quick profits.
The proclamation also introduces a vivid and limited set of modalities for land acquisition, ignoring the earlier methods of negotiation and lot in favour of only two: tender (auction) and, under exceptional circumstances, allotment (Article 7.2). These exceptional cases include allocations for public institutions and public services, condominium and government housing programmes, diplomatic missions, religious institutions, strategic investment projects approved by the government, and land provided as compensation or relocation for persons displaced by public development projects. By making auction the default mechanism and limiting allotment to clearly defined public-interest cases, the proclamation sought to strengthen transparency, improve market efficiency, and enhance the state’s ability to capture urban land value through competitive bidding.
With respect to land value capture, Proclamation No. 721/2011 did not fundamentally alter the previous lease proclamations provisions but significantly strengthened its implementation. The proclamation made competitive tender the default mechanism for allocating urban land, thereby enabling the state to capture land value through market-based bidding. It also required benchmark lease prices to be established and periodically revised to reflect changing market conditions, reducing the risk that valuable urban land would be allocated below its economic value. In addition, the law introduced more comprehensive rules governing lease transfers, valuation, registration, and administration, improving transparency and strengthening the government’s capacity to regulate the urban land market. Compared with the 2002 proclamation, the 2011 reform shifted the focus from simply permitting market transactions to building a more robust institutional framework through which the public could recover a greater share of the land value generated by urban growth and public investment.
The proclamation also introduced stricter construction deadlines and stronger provisions for repossessing land from non-performing leaseholders. It limited the use of leasehold rights as collateral and strengthened government oversight of land transfers. In addition, the most significant reform introduced by Proclamation No. 721/2011 regarding old possessions was that it moved beyond simply recognizing them as the 2002 proclamation had done and established a clear legal framework and principles for their eventual conversion into the lease system. Although the conversion was still not immediate, the 2011 proclamation substantially clarified the legal status of old possessions and identified the circumstances under which conversion would occur.
From my perspective, the 2011 proclamation was a necessary response to the realities we were confronting on the ground. It addressed several genuine weaknesses in the system and demonstrated a growing recognition that market mechanisms alone could not ensure efficient and equitable urban land development.
The Draft 2024 Proclamation: Lessons Learned and Remaining Challenges
Although the 2011 proclamation introduced important reforms, implementation challenges persisted. As I transitioned from municipal administration to teaching and research, I became increasingly interested in understanding why some problems continued despite repeated legal reforms. The draft 2024 Urban Land Lease Proclamation reflects many of the lessons learned from nearly two decades of lease system implementation. In many respects, it represents the most ambitious attempt to modernize urban land governance in Ethiopia.
One of its most important contributions is its stronger emphasis on transparency and accountability. During my years in municipal administration, one of the recurring concerns among citizens was the perception that land allocation processes lacked transparency. The draft proclamation explicitly recognizes the need to reduce opportunities for corruption and maladministration while strengthening public trust in land administration institutions.
Another notable improvement is its emphasis on modern land information systems. Throughout my professional career, I have observed how inadequate land records, outdated cadastral information, and fragmented databases hinder effective land administration. The draft proclamation acknowledges these challenges by promoting digital land administration systems and improved cadastral management.
The draft also seeks to improve land valuation practices. One of the recurring weaknesses of the lease system has been the failure to regularly update benchmark prices in many cities. As a result, governments have often captured only a fraction of the actual increase in land values. The draft’s requirement for periodic benchmark price revisions represents an important step toward strengthening land value capture.
Furthermore, the draft places greater emphasis on integrating land allocation decisions with urban planning objectives. This is particularly important because land policy should not be viewed solely as a revenue-generation tool. Effective urban land management requires balancing fiscal objectives with housing affordability, infrastructure provision, environmental sustainability, and broader development goals.
However, an important question remains: does the draft go far enough?
In my view, several fundamental challenges remain unresolved.
The first is the continued existence of old possessions. Despite being recognized as a major challenge across successive proclamations, Ethiopia still lacks a comprehensive and nationally coordinated strategy for converting old possessions into the leasehold system. Without resolving this issue, legal dualism will continue to complicate urban land administration.
Second, institutional capacity remains a major constraint. New laws can establish ambitious objectives, but implementation ultimately depends on capable institutions, skilled professionals, reliable information systems, and adequate resources. Many urban administrations continue to face significant capacity limitations.
Third, there is an ongoing tension between maximizing revenue and promoting social equity. As lease prices continue to rise, concerns about affordability become increasingly important. Policymakers must ensure that land value capture mechanisms do not inadvertently exclude lower-income households from access to urban land and housing.
Finally, enforcement remains a challenge. Strong legal provisions have limited impact if they are not implemented consistently. Future reforms should focus not only on improving laws but also on strengthening monitoring systems, administrative accountability, and institutional effectiveness.
Conclusion: What Ethiopia Can Learn from Three Decades of Land Leasing
Looking back over more than thirty years of urban land leasing in Ethiopia, one lesson stands out clearly: legal reform alone is not enough.
The progression from Proclamation No. 80/1993 to Proclamation No. 272/2002, Proclamation No. 721/2011, and the draft 2024 proclamation reflects a continuous effort to improve the management of urban land and capture publicly created land value for public benefit. Each reform emerged because weaknesses in the previous system became increasingly visible through practice.
My experience as a municipal manager taught me that land administration is ultimately about people, institutions, and incentives. My years as a lecturer and researcher have reinforced the importance of evidence-based policy reform and institutional learning. The Ethiopian experience demonstrates that public land leasing can be a powerful land value capture tool. It can generate substantial revenue for infrastructure, support urban development, and help ensure that increases in land value created by public investment benefit society rather than a small group of private actors.
At the same time, the experience also reveals the limitations of relying solely on legal reforms. Sustainable success requires transparent institutions, professional valuation systems, effective enforcement, modern land information systems, and a commitment to balancing economic efficiency with social equity. As Ethiopia continues to urbanize, the future of its cities will depend not only on how land is allocated but also on how effectively the value created by urban growth is shared. The central lesson of the past three decades is therefore clear: land value capture is not merely a technical exercise. It is a governance challenge, and ultimately a question of how urban development can serve the broader public interest.
Very interesting. Thank you.
Seems like a lot of work compared to approximating land prices and charging people ~10% of that a year.