African Business 2020 edition

SPECIAL FEATURE Engines

SPECIAL FEATURE Engines of growth Giant cities and development corridors are vehicles for tackling Africa’s infrastructure gap. By John Young An investment in 2007 in an acre of land in Juja, a small town 30km north of Nairobi, would have earned a savvy speculator a return of 1 428% in 2019. That’s according to The Economist, which also cites an estate agency’s report that Nairobi’s land prices have risen sixfold in 24 of the city’s 32 suburbs and satellite towns in just over a decade. About 40% of Africans live in cities but that figure is climbing fast. By 2030, the continent will have six megacities. Accra, Cairo, Kinshasa, Lagos, Nairobi (pictured) and Johannesburg are currently big conurbations, but they are expected to grow even further. By 2050 there will be an additional 900-million Africans living in cities, according to the African Urban Dynamics report of the Mo Ibrahim Foundation. One of the drivers of urbanisation is migration. The top five destinations for African citizens moving within Africa are South Africa, Ivory Coast, Uganda, Nigeria and Ethiopia. The United Nations Conference on Trade and Development (UNCTAD) reports that migrants quite often make significant contributions to the host country’s gross domestic product (GDP). Migrants in Ivory Coast, for example, contribute 19% to that country’s GDP. Rapid urbanisation presents challenges in terms of providing the necessary infrastructure, but it also represents an opportunity for the private sector. Rapidly expanding markets offer private companies the chance to sell their goods and services and to build infrastructure, possibly in conjunction with state entities. Electrification, accommodation, transport, water and sanitation and telephony are just some of the types of infrastructure that cities need. Difficult and expensive as the provision of services is, large groupings of people can also be a blessing in that large-scale projects can be rolled out reaching tens of thousands of citizens. Urbanisation also creates ready markets for retail enterprises and a potential workforce for manufacturing and industry. The thrust of The Economist’s March 2019 AFRICAN BUSINESS 2020 16

SPECIAL FEATURE article (“Destroying the city to save it”) was that poor planning and corruption are threats to Africa’s hopes of making its cities more liveable and efficient. Using Nairobi as its example, the newspaper cited a shortage of skilled urban planners, weak government investment and unclear zoning laws as other barriers to success. A Nairobi city regeneration taskforce was established in 2017 and government plans to build 200 000 low-cost houses. Whatever the obstacles, Africa has to find a way to deal with urbanisation. Several countries, Egypt and Senegal among them, are conceptualising brand-new cities where a fresh start can be made with good planning and sustainability as a part of the process. The African Development Bank’s latest estimates put Africa’s infrastructure needs at between 0–170-billion per year, with a financing gap in the range –8-billion. The gap can’t be closed quickly but the bank (AfDB) makes the point that not being able to fully fund everything does not mean that a start should not be made. The bank has devoted 60% of its funding to infrastructure projects since 2009. In the five years to 2018, the AfDB allocated -billion to energy projects: more than 640-million Africans have no access to energy. Africa’s best chance of delivering infrastructure is through cities and development corridors. Cities allow for projects to be done on a big scale and development corridors can be tackled on a project-by-project basis with clear deliverables and timelines. Another fast-tracking device for infrastructure delivery is the Special Economic Zone (SEZ), a dedicated parcel of land which attracts investors with special incentives and bespoke facilities. Infrastructure The World Economic Forum calculates that for every dollar spent on infrastructure, an additional 5% to 10% in economic growth is added. In 2016, commitments to Africa’s infrastructure were made totalling .5-billion. This was the lowest figure in five years, mainly because of a reduction in Chinese commitments. The sector which attracts the most funding is transport. The figure for transport has fallen somewhat in recent years, after peaking in 2014. In 2015, transport spending was .4-billion; in 2016 it was .5-billion. The number one source of infrastructure funding in Africa is national governments. In 2016, governments committed -billion. About half the funding for infrastructure in Africa comes from bilateral and multilateral institutions such as AfDB and the World Bank Group. Private investors raise about 4% of the funding devoted to infrastructure on the continent. Sectoral share of investment Transport: 39% Energy: 32% Water and sanitation: 17% ICT: 3% (Source: AfDB) With East Africa consistently showing good growth rates, it is no surprise to learn that infrastructure construction is expected to experience good growth in that region. GlobalData reports that the figure for infrastructure spend in 2017 was .9-billion in Ethiopia, Kenya and Tanzania. The analytics company believes this will likely to climb as high as .8-billion in 2022. The formation of the Sustainable Development Investment Partnership (SDIP) in 2015 has helped to focus funding on infrastructure. The World Economic Forum (WEF) and the Organisation for Economic Co-operation and Development (OECD) initiated the idea and a further 28 institutions have joined, including the Senegal Strategic Investment Fund (FONSIS), the Development Bank of South Africa (DBSA), US Agency for International Development (USAID), the Bill and Melinda Gates 17 AFRICAN BUSINESS 2020