Done right, urbanisation could boost living standards in Africa

Nairobi, home to about 2.5m slum dwellers. Image: Getty.

Sub-Saharan African countries are urbanising fast. Currently, 335m people are living in urban areas across the continent and this number is expected to double in the next 25 years.

But as African cities have grown, so have their problems. They are more congested than they were a decade ago, commuting times have increased, and there is growing evidence that air pollution is on the rise.

Most African governments have found it difficult to expand public services and infrastructure fast enough to keep up with their growing populations. This has led to an expansion of informal settlements. According to UN Habitat, more than 60 per cent of all residents in African cities now live in slums.

However, the news is not all bad. Most of Africa’s urbanisation is yet to come - so there is still time to get things right. Africa is urbanising later and at a lower level of income than other developing regions (see graph below) which means that African policy makers can learn from the successes and failures of other countries. Done right, urbanisation has the potential to significantly raise both productivity and living standards across Africa.

Urbanisation in developing regions: Asia, Latin America and the Cariibbean, and Sub-Saharan Africa. Source: Author’s calculation based on World Development Indicators (2012).

Cities are engines of growth

Urbanisation is central to the growth process. As countries develop, workers move from rural to urban areas in search of higher paying and more productive jobs. Similarly, entrepreneurs choose to locate their firms in cities where localised economies increase their productivity. This is why cities are viewed as engines of growth.

Historical data support this view. Since the industrial revolution, cities have become centres for industrial production and, as cities grow, so have the countries where they are located. The robust relationship between levels of urbanisation and per capita income can be seen in data mapping trends of economic growth against urbanisation:

Source: Author’s calculation based on World Development Indicators (2012)

Economic growth happens when workers shift out of low-productivity activities such as agriculture and into high-productivity activities, such as manufacturing and some service activities. Urbanisation generates growth in two primary ways: urban jobs tend to be more productive than rural jobs and productivity changes are larger in urban areas than in rural areas.

In poor countries, where the majority of workers are employed in agriculture, economic growth is driven primarily by rural to urban migration. For rich countries, economic growth is primarily driven by higher productivity changes in urban areas compared with rural areas.

Cities are engines of growth for a range of other reasons too. It is cheaper to provide infrastructure when populations are large and people are densely packed together.

Spatial proximity also makes it easier for individuals to learn from each other. There is increasing evidence that knowledge spillovers play a key role in raising the productivity of successful cities. In the United States, for example, a 10 per cent rise in the proportion of workers with a college degree in cities leads to a 22 per cent rise in per capita metropolitan product.

What’s missing in African cities

Historically, the best way for a country to grow is by expanding its manufacturing sector (see graph below). Early industrialisation usually takes place in cities so industrialisation and urbanisation go hand in hand.

The problem, however, is that Africa is urbanising without industrialising. Few African cities are expanding their manufacturing sectors - at least not at the same rate as cities in other regions. This is a cause for concern because manufacturing jobs usually pay higher wages than those in agriculture and trade.

Source: Author’s calculation based on World Development Indicators (2012).

Across Africa, average wages are highest among miners and manufacturing workers. But the mining sector is capital-intensive which means that it employs fewer workers compared to other sectors. Therefore the best way to raise incomes is by increasing the number of manufacturing jobs.

Where Africa’s cities are falling short

Successful cities serve two functions: they provide liveable environments for workers and their families; and they provide productive environments for businesses.

The typical African city is achieving neither. Most African cities score low on every metric of livability such as housing quality, access to public services, and security of tenure.

African cities also fall short in terms of productivity. Often firms are unable to take full advantage of being based in cities because of inappropriate regulations and massive under-investment in public infrastructure.

On top of that, high urban costs make it difficult for African firms to compete on global markets.

These constraints can be eased through better policies, particularly in relation to land access and business regulations.

The way forward

Getting the most out of Africa’s rapid urbanisation won’t be easy. There needs to be a focus on proper co-ordination and effective planning.

The biggest challenge is to understand how public policies can be used to optimise investments by households and firms. The development of a city is about three investment processes which build assets on land: investment in residential property, in commercial property and in infrastructure.

The productivity of these three forms of investment is mutually inter-dependent. These interdependencies give rise to benefits that accrue to parties other than those making the investment (positive externality), which, to be optimised, require coordination through effective planning.

Developing countries need to learn how to manage their urbanisation process. The key to success is not simply ensuring that the positive benefits outweigh the negative — it is about creating liveable and productive environments that promote sustained growth.

Patricia Jones is Project Manager/Researcher (Urbanisation in Developing Countries) at University of Oxford.

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

 
 
 
 

What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.


Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.