Africa at a Turning Point?

Banking on Urbanization

For decades commodity prices have influenced Africa’s growth performance.

If commodity prices continue to decline, is there another way forward?

Story of next decade: rising urban population & land prices.

Rising demand for urban land

Nairobi (4km from CBD): 2004 Nairobi (4km from CBD): 2013

Land appreciation is a rent analogous to natural resource rents.

Change in Advertised Land Prices in Nairobi: 2007-2014

Suburb

Annual % Change

% Change Since 2007

Karen 11.4% 575%

Kileleshwa 20.2% 614%

Kilimani 25.4% 551%

Langata 8.4% 427%

Lavington 20.6% 488%

Runda 10.7% 482%

Spring Valley 5.6% 392%

Upper Hill 29.7% 789%

Westlands 8.5% 494%

Total 18.1% 535%

Source: Haas Property Index, 2015

In many cities, urban land prices are rising quickly.

Local governments can take advantage of these price increases by taxing the appreciation in urban land values.

Land appreciation is not due to any activity of the owner so:

Land taxes are not distortionary.

Land taxes are fair.

Building a Successful City Requires Investment

Infrastructure

Housing

Commercial/Industrial

When urban investment is done well, it generates a triple miracle of productivity.

Triple Miracle of Productivity

Clusters of Firms→ Enable scale &specialization

Density of settlement→ Concentrates demand

Workers proximityto jobs→Matches abilities to opportunities

These investment decisions are made by different people.

And need to be coordinated.

Infrastructure is the coordinating mechanism.

Urban planning is not sufficient to coordinate investments.

Early infrastructure investments help to make plans credible.

Early infrastructure is

also cheaper.

Costly to retrofit it oncepeople have settled.

Sequencing is Important

Getting it RightInfrastructure→ housing

Getting it WrongSettlement→ little infrastructure

Transforming Africa’s Cities into Global Cities

Most African Cities are Artisanal Cities

A high percentage of urban workers are employed in the informal sector and produce non-tradable goods & services.

Firm producing non-tradable goods tend to be small with low productivity.

Firms in artisanal cities have higher costs of doing business than firms in global cities.

• Why?

• Because they have higher transport costs—due to low quality infrastructure.

• Because they are small—not reaping the benefits of economies of scale.

The way forward:

Designing livable density:

• Clusters of firms.• Clusters of people.• Proximity of workers to

firms.