Catalysing Transformation of Cities for Spurring Development in Africa

Published on 31st January 2023

I would like to divide my discussion tonight into five major parts. First, I will discuss the importance of cities in Africa’s economic growth and development. Second, I will discuss some of the major challenges facing cities and Mayors as they grapple to cope with these challenges. Third, I will discuss new trends that Mayors should focus on to further improve urban development. Fourth, I will discuss the work of the African Development Bank in supporting urban development. Fifth, I will close with areas of priorities for catalysing the transformation of cities.

Urbanization is taking place in Africa at a very fast and unprecedented pace. Today, more than one quarter of the world’s 100 fastest-growing cities are in Africa. Three megacities, Cairo, Kinshasa, and Lagos have population of more than 10 million people. Africa is also home to at least 52 cities with over one million residents each.

Africa is projected to have the fastest urban growth rate in the world, at 3.2%. By 2050, Africa’s urban population is expected to double from about 600 million to 1.2 billion. And by 2050, and additional 950 million people will be living in 13,000 urban centres. What this effectively means is that the African will be home to the largest urban population in the world.

Large cities bring enormous opportunities for growth and prosperity provided that the needed urban governance, policies, and infrastructure exist. We should consider that cities generate 55% of the total GDP of Africa. This can be expected to increase over time given that in developed economies cities generate an estimated 90% of the GDP.

Cities are fast growing consumer markets, driven largely by rapid urbanisation. Consumer expenditure in Africa has grown at an annual rate of 3.9% since 2010, reached $1.4 trillion in 2015, and is expected to reach $2.1 trillion by 2025 and 2.5 trillion by 2030. The implementation of the African Continental Free Trade Area will spur more growth and rise in consumer expenditure, which will be driven my higher consumer demand in rapidly growing cities.

In view of the enormous contributions of cities to overall economic growth, greater attention is needed to ensure that these economic potentials are fully maximized through better urban planning, urban governance, infrastructure, housing, health, and overall socio-economic development.

We need liveable cities. We need healthy cities. We need cities that provide decent work. We need cities that are well fed. We need secure cities. And we need cities with good quality of life.

The rapid urban growth at the early stages of Africa’s development has meant that people have been concentrating in the urban areas without the accompanying investment in infrastructure and human capital needed to reap the economic benefits. So much of the urban expansion in Africa is characterised by unplanned and unregulated growth and high unemployment rates. For the most part of the cities jobs are concentrated in the informal sector, with more than 60% of the jobs being in the informal sector or grey economy that is neither taxed nor well monitored by governments.

Over the past 45 years, investment in infrastructure and housing in Africa has remained at around 20% of gross domestic product. In contrast, countries in East Asia that experienced similar rapid urbanisation scaled up their capital investments to over 45% of gross domestic product, particularly in China. Across East Asia, investment remains above 40% of gross domestic product, producing significant results in productivity improvements and poverty reduction.

However, the chronic lack of investment in Africa has led to fragmented cities and an unsustainable model of urban growth. Additionally, unchecked urban expansion leads to increased emissions, transit costs, and the loss of natural resources and arable land that could have been used for other purposes like agriculture.

The biggest challenge facing cities in the face of massive rural-urban migration and urbanisation with rising poverty is a lack of affordable housing.

The poorly developed mortgage financing market leaves millions unable to afford decent housing. In Uganda for example, there are an estimated 5,000 mortgages for a population of 41 million people, while in Tanzania there are only 3,500 mortgages for a population of 55 million people. Recent estimates show that as of 2019, Kenya and Ghana had housing deficits of 2 million units respectively, as the governments can only meet 3% of the demand.

The African Development Bank has been supporting the expansion of mortgage financing on the continent. Let me cite a few examples.

The Bank provided $40 million senior loan for Housing Investment Partners in South Africa to build a portfolio of affordable housing mortgages for eventual securitization on the local capital markets, using innovative legal structures. It will support low- and middle-income households to access 1,250 newly built housing units. In Zambia, the Bank’s loan of $25 million to the Zambia National Building Society will enable the delivery of 667 housing units for lower and lower-middle income households. In Kenya, our support of €90 million supported the establishment of the Kenya Mortgage Refinance Company. In Ghana, our $15 million support to the GHL Bank is providing mortgage financing for 300-375 families. And in Nigeria, our $50 million loan to the Families Home Fund is helping to boost access to mortgage finance while supporting the issuance of bonds on the local capital market. The Bank is also providing technical assistance to the government of Togo to structure 20,000 housing units.

A huge challenge for many cities is the sprawling areas of slums. Two African countries, South Africa, and Kenya figure among countries with the largest slums in the world, with Khayelitsha in Cape Town and Kibera in Nairobi. Top five countries with largest slums in Africa also include Kenya (Mathare), and Nigeria (Ajegunle, Shomolu and Makoko; all in Lagos State). Slums have unhealthy living environments, shacks, lack water and sanitation and are extremely poor communities. Because of the lack of jobs, high levels of poverty, lack of infrastructure, they are highly susceptible to violence, crime, illicit drugs, and health epidemics.

There have been several efforts to do “slum upgrading" to improve the living conditions in cities. While I appreciate these efforts, I wish to be clear that I do not believe there is anything like a five-star slum. A slum is a slum. We must not get comfortable with slums. The abnormal must not become normalized. Government and cities must have “Zero Slum” policies.

Innovative planning and financing models are needed to change this.

One way this can be done is to completely revamp these areas, develop affordable, decent, and quality housing, using the collateralisation of implicitly high land values to attract private developers. Households can own their own homes, or they can own a share of the developed estates based on the valuation of their land (land equity) which will help raise their income over time as the estates develop.

Some countries such as Egypt, Morocco and Tunisia have achieved remarkable decline in the percentage of their populations living in slums. They have used approaches such as the highly successful programs in China and Singapore, based on strong public sector actions, effective housing finance system, developing well-functioning land markets, and improved urban mobility.

For example, the percentage of slum dwellers in Cairo declined from 50% to 17% in two decades. The city of Cairo has also auctioned public land to finance infrastructure programs.

Transforming cities will require significant levels of financing.

The African Development Bank is playing its part. On average, the African Development Bank’s Board approves more than $2 billion per year in projects and programs that have a direct positive impact on urban areas across Africa. These projects cover a wide range of areas. They include transportation, access to clean water and improved sanitation and sewage systems, drainage infrastructure, waste management, climate change adaptation, energy, and financial services.

In Tanzania, in 2017, the city of Dar es Salaam received $160 million in funding from the bank for the construction of Phase 2 of its Bus Rapid Transit system. Before the system, Dar es Salaam was one of Africa’s most congested cities. Suburban residents spent a significant portion of their income on unreliable public transportation. The Bus Rapid Transit system can transport around half a million commuters a day, directly improving the lives of over 1.2 million regular commuters in the city.

We are supporting the Kampala Capital City Authority in Uganda in their efforts to revamp the infrastructure of their city, with a loan of $264 million. The project includes the rehabilitation and construction of over 60 kilometres of roads, 123 kilometres of walkways and cycling tracks, as well as improvements to the drainage systems. Additionally, the Kampala Capital City Authority will purchase 50 environmentally friendly buses to enhance the city’s transportation options.

The city of Nairobi in Kenya in 2020 completed the Nairobi Outer Ring Road project thanks to $107 million in funding from the African Development Bank. The project has resulted in the upgrade of a 13-kilometre stretch of carriageway. It included provisions for a future median bus rapid transit system.

And in Senegal, the African Development Bank has provided a €250 million loan to support the development of Diamniadio, a satellite city and new growth pole located 40 kilometres from the capital city of Dakar. The project includes a toll-financed highway through a public-private partnership and an express train railway.

The Bank is helping the Nigerian city of Abuja with its plan to create satellite towns as a means of managing urban sprawl. Additionally, we have provided the city of Abidjan in Côte d’Ivoire with a loan of $637 million to finance the Abidjan Urban Transport Project. This project will reduce traffic congestion and solidify Abidjan’s position as a key industrial hub. The project will improve the daily commute for 2 million people, slash the number of road accidents in half, and decrease greenhouse gas emissions.

The African Development Bank has been providing significant support to improve access to water and sanitation systems in cities across Africa.

For example, between 2015 and 2018 the Bank invested over $2.7 billion in urban water and sanitation systems. One notable example is the Kigali bulk water project, the first public-private water partnership in Africa, which is supporting over 500,000 people.

In Cairo, Egypt, the African Development Bank has supported the development of the Abu Rawash water treatment plant which treats 1.6 million cubic meters of water per day and serves 9 million in greater Cairo. It is the largest water treatment plant in Egypt and one of the 10 largest in the world.

African cities face new challenges.

Top on the list is climate change. Africa loses $7-15 billion due to climate change, and this is projected to rise to $50 billion by 2040. The frequency of cyclones and floods and droughts, and sea-level water rise pose serious challenges to cities, especially coastal cities.

World Bank estimated that West Africa coastal countries lose $3.8 billion annually due to coastal erosion. Other estimates show that African countries lose up to $7 billion due to coastal erosion. Building more climate-resilient infrastructure is therefore critical for all cities, and even more so for those in coastal countries.  

That is why the African Development Bank has launched the African Adaptation Acceleration Program together with the Global Centre on Adaptation to mobilize $25 billion for Africa. The upstream facility of the program, based at the Global Centre of Adaptation for Africa, hosted by the Bank, deploys tools and analytical approaches to help cities to assess the extent of vulnerability of their infrastructure to climate change and develop strategies to climate proof cities.

Climate change may make some cities unliveable or have such vulnerabilities and heightened risks that will reduce their attractiveness for investors. It is, therefore, critically important that cities develop disaster risk management strategies, build city resilience frameworks and climate adaptation plans. Vulnerability assessments especially for informal settlements are important in the face of climate change.

The economic viability of cities depends on the availability of energy, for lighting, cooking, heating, and cooling, and for powering industries as well as for supporting small and medium scale enterprises and millions in the informal service industries. Yet today over 600 million Africans do not have access to electricity. Even right here in South Africa which used to have greater access to electricity, the cities are now plagued by frequent power failures.

The African Development Bank has been investing in energy, especially rapid expansion of renewable energy. Our experience shows that decentralized energy systems are more effective, mini grids in towns and cities, as well as smart grids. There is need to connect poorer households in cities to electricity and help reduce their connection charges.

The African Development Bank’s support on our “Last Mile Connectivity” Project in Kenya has helped to connect 2.6 million poor households to electricity, reducing their connection charges by more than half. We have been able to do the same for towns and cities in Cote d’Ivoire and Burkina Faso.

There is no doubt that much still needs to be done to make our cities better. A key area that we must tackle is how to support cities and towns to have greater access to financing, as well as greater autonomy in the management of their financing.

The African Development Bank’s Boards of Directors approved in 2018 a new non-sovereign operations policy that allows the Bank to lend to decentralised entities such as cities, towns, and local governments. The Bank has also recently established an Urban Development Division to support our sector operations and to build knowledge on urban development in Africa.

The African Development Bank also established in 2019 the Urban and Municipal Development Fund, to enhance the provision of technical assistance and capacity building for integrated urban planning, governance, project preparation, and broader urban management, including municipal fiscal management. The Fund is now providing support in more than 15 cities.

Let me close with some thoughts on how to better finance cities and how the African Development Bank can better support your efforts.

We need innovative ways to tackle market dysfunctions and develop better mortgage financing in Africa to make cities more liveable with access to affordable housing. Such approaches could include crowding in institutional investors. By promoting housing as an important asset class, supporting securitization and mortgage-backed securities will be attractive to asset managers and private sector. Greater efforts are needed to develop local financial markets, use of green bonds to support housing, provide technical assistance to financial institutions, and providing greater access to housing finance for women and youth.

The Bank can support wider south-south and north-south collaboration and sharing of lessons on how to build liveable cities and towns. Africa’s urbanization is starting much later than other parts of the world, so great scope exists to learn from others that have achieved sustainable urbanization.

There is need to provide greater autonomy and fiscal responsibility to cities and towns and for national governments to allow them to raise financing to meet the huge needs of development. Instead of simply depending more on transfers from national governments, cities and towns should build their institutional capacity to raise their own financing.

Aside from the regular sources such as local taxes and levies, they should be strengthened and provided regulatory space to raise financing on local capital markets by posting municipal and green bonds. This is especially important as studies have shown that debt by subnational entities account for only 4% of total debt of countries in Africa.

A study by the UCLG of 153 cities in Africa found that just 6.5% of the cities have access to credit. This must change. There cannot be sustainable development of cities without access to low cost and long-term sustainable financing for cities.

The work and agenda of the innovative partnership between the Big Win Philanthropy and the University of Cape Town on the African Mayoral Leadership Initiative (AMALI) is clearly a game changer for urban development by building the leadership capacity to develop better and more liveable cities in Africa.

I am excited that you, the mayors of our cities in Africa, are here to look for ways to achieve better development of our cities in Africa.

We must achieve the Africa we want. The Africa we want must be one where our cities are well planned to become drivers of greater economic growth and prosperity for Africa. This cannot happen by chance. The future is not created by a roll of the dice. The more we delay actions to transform our cities, the greater the costs to Africa’s development. The cost of inaction to develop better cities is higher than the cost of action. So let us act to transform Africa’s cities.

Akinwumi Adesina

President, African Development Bank Group

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