10 African cities whose economic importance will triple by 2030

Downtown Dar es Salaam. Image: Daniel Hayduk/AFP/Getty Images.

Global Economy Watch, a monthly report released by PwC, usually leads with stories on US employment figures or an analysis of the Eurozone crisis. In August, though, it turned its attention to a more neglected part of the world, running an article titled, “Africa: Growth is on the horizon but where should you look?”

The audience for such reports are the senior executives (CEOs, CFOs and COOs) referred to as occupants of “the C-suite”. Most of these guys haven’t spent a great deal of time thinking about sub-Saharan Africa’s potential as an investment target. But, it turns out, they should.

Historically, foreign investment has focussed on the “top 3” cities in the region – Johannesburg, Kinshasa, and Lagos. They have the largest populations in the region, and that alone gives them a significant economic footprint, and most multinational companies will now have a presence within them.

But PwC predicts that, over the next 15 years, most of the growth will come from the “next 10” biggest cities in Sub-Saharan Africa. These include Nairobi (Kenya), Abidjan (Cote D’Ivoire), Addis Ababa (Ethiopia) and Dakar (Senegal). Here are the full 10, mapped:  

There are several reasons why PwC have focused on these 10. First, there’s demographics. By 2030, the region’s population will have overtaken every continent but Asia, and Africa will account for around a third of the world’s population. By 2040, PwC predicts, the continent will have the biggest labour force in the world (the result, one assumes, of a youthful population). 

UN predictions suggest that, thanks to the process of urbanisation, the “next 10” cities will grow even faster than the region as a whole: most of these cities will double in size by 2030. The populations in Dar es Salaam and Luanda will both rise to around 10m by 2030, putting them on a par with Paris or London.

Add to that the standard processes of growth, and the fact that many of these countries are sitting on oil and gas reserves, and the economic importance of these cities is going to soar. In all, the IMF predicts, the size of their combined economy will triple by 2030, rising by about $140bn in total.


There are, of course, obstacles to this type of swift development. One major difficulty is overpopulation, and the accompanying shortfall in infrastructure and resources.  In Nigeria, which contains three of these top 13 cities, only 20 per cent of the roads are paved (in the UK, it’s, er, 100 per cent). All 10 cities have low levels of literacy, and schools that aren’t good enough to plug the gap.

Many of the countries’ governments also lack the legal infrastructure required to manage bigger, more developed economies. The path to business deals in some countries is still occasionally smoothed by bribery: no less a figure than Albert Stanley, one time CEO of Halliburton, was jailed after paying officials bribes to secure a natural gas contract in Nigeria.

The motivations of potential investors may cause problems of their own. As an explanation for why Africa will become increasingly attractive, PwC points to the expectation that labour costs in Asia are going to soar. There’s a danger that the firms most likely to invest in the region will be those seeking cheap labour and ways to cut corners.

PwC advises its C-suite readers to invest in these cities. But it wants them to support infrastructure, (by building roads, say); and to pay for skills development programmes for the cities’ rapidly expanding workforces. Whether they’ll listen is another question.

 
 
 
 

High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.