Sub-Saharan Africa is undergoing an urbanization boom that could see the region emerge as the world’s most urbanized region by 2050. At present, roughly 40 percent of Africans (south of the Sahara) live in urban areas, defined loosely as cities and large towns, as well as their surrounding areas. For a continent that was almost entirely rural at the start of the 20th century, this growth is remarkable, putting it ahead of India and nearly on par with China. And it is predicted to continue; some estimates see Africa as 70 percent urban by 2050.
The reasons for this growth are multiple, some mirroring what is seen elsewhere and some unique to the continent. Similar to the rest of the world, cities are the land of opportunity—they are (or at least are perceived to be) the epicenters of jobs, innovation, high incomes, education, and general excitement. Young people in particular are drawn to them, and many, if not most, end up staying. Across Africa, these urbanization trends will be exacerbated by additional factors. First, the continent is in the midst of a youth boom, with UN projections that the sub-Saharan population will double to more than 2 billion by 2050. Secondly, income disparities between rural and urban areas tend to be more pronounced in Africa than elsewhere in the world, in large part due to African governments’ lack of investment in rural infrastructure and the agricultural sector. And lastly, while its long-term impact is hard to predict, climate change already is wreaking havoc with crop yields on the continent, making the prospect of eking out a rural existence less and less appealing to the young.
Given this untrammeled march toward greater urbanization, businesses looking to invest in the continent must consider how it will impact their operations, both in terms of challenges and opportunities. Cities, particularly “mega-cities” of more than 10 million people, can be difficult places to do business for a host of reasons—choking traffic, insufficient infrastructure, crime, and sometimes prohibitive costs (African cities like Luanda, Angola and Libreville, Gabon rank among the world’s highest costs of living). They can be especially daunting for expatriates, who may be necessary to import due to sometimes insufficient domestic human capital.
That said, the opportunities are fantastic, no matter what industry. At their most basic, cities can maximize profit by offering access to millions of consumers in a highly concentrated area. And across the continent, African governments—recognizing that urbanization also equals rising political influence—are devoting more resources to urban infrastructure development in an effort to retain loyal voters and minimize the possibility of instability.
Another key development over the past two decades has been a growing shift toward decentralization and devolution across the continent. African national governments, long considered the world’s most centralized, have been pushing powers of self-governance (and sometimes taxation) to provincial and municipal entities. These moves have had mixed success, but have resulted in some high profile success stories: Cape Town, South Africa and Lagos, Nigeria have both undergone striking urban revitalizations under competent, technocratic administrations (both of which were controlled by the national opposition party). So for infrastructure projects and government procurement, cities represent new markets for firms who no longer have to depend on national government approvals alone.
When looking at Africa’s cities, several sectors stand out to us as the most promising for firms looking for business opportunities:
- Transport infrastructure: A great deal of attention has been paid to Chinese investment in road and rail throughout the continent in the past decade. However, most of these projects are focused on connecting mines and other centers of production to ports for export—cities have not won out. That said, cities and national governments are realizing the need to deal with crushing traffic jams that are paralyzing them, investing in ring roads, new highways, and other mass transit options like light rail and bus rapid transit. Demand for these projects will skyrocket in the coming years.
- Commercial construction: More density in African cities means there is a growing need to build up. Skylines across the continent are getting higher, while high rises built in the boom years of the 1960s and 70s are being rehabbed to accommodate growing demand. Hence, construction and architecture firms will have many opportunities, particularly given the paucity of domestic firms in these sectors.
- Power: Few if any African cities have enough power generation or transmission capacity to deliver uninterrupted electricity to their citizens, a problem worsening as they grow and expand into peri-urban areas. Power generation capacity is probably the most important driver of economic growth, making solutions of the highest importance to governments.
- Retail: No matter how poor a populace is, it buys food, toilet paper, toothpaste, and other necessities on a daily basis. Until recently, urban consumers have been primarily served by small, informal stores known as spazzas, tuck shops, and many other names around the continent, which offer limited selection and often high prices. Increasingly, however, retailers like France’s Carrefour and South Africa’s Shoprite Checkers and Massmart (now owned by Walmart) are looking to fulfill urban demand with large outlets that offer discounts for consumers. Demand for these retailers shows no sign of abating.
Obviously, every company’s urban strategy is going to differ depending on their sector, but there are several considerations every company should take into account if considering African investment and operations:
Consult demographers: Any firm looking to make a long-term commitment in an African city needs an idea of what the area’s growth and development is likely to look like. How many people are likely to move there? What sort of income growth is likely? Where are new roads, rail links, and housing developments planned or anticipated? How will the city grow geospatially? In a continent where data are lacking more than anywhere else in the world, these can be difficult projections, but countries like Kenya, Nigeria, and South Africa do have skilled demographers who can help businesses plan for the long term.
Know who does what…: In the still relatively new world of decentralization and devolution, businesses—particularly those dealing with government procurement—need to know what levels of government deal with what tasks. Does a company looking to do a rail project in Lagos, for example, need to deal with the state government or the national Ministry of Transport, or both? In most situations, national, provincial, and municipal buy-in are likely to be necessary, but one must know who makes the final decisions…and who writes the checks.
…and who owns what: Land ownership across Africa is a complicated—records are often lacking or incomplete, and often land is altogether unassigned. Cities are generally better regulated, but conflicts do often arise, particularly given the growing number of squatters in informal settlements. The lesson is that before making any land purchase or engaging in a lease, consult with local lawyers to ensure you will have the rights to use or develop the property. Pay attention to local laws—in South Africa, for example, squatters only have to set up domicile on property for a few days before instigating an often drawn out eviction process.
Engage at all levels: Following on the previous point, businesses must make sure to develop relationships at all levels of government. Few projects are likely to be purely local, and across the continent, the situation is fluid—while the trend is toward decentralization, some places—notably South Africa—have seen moves to recentralize political power in light of local-level capacity shortages. Also, mayoralties and governorships are increasingly seen as springboards to national-level political power, both for individuals and political parties. Any firm looking toward a long-term investment is going to see this change over time, so a breadth of political contacts will be key—and could open doors in other urban areas.
Look to nascent centers: There is a good chance that Africa in 2050 will see the growth of urban areas that have little or no population today. Tanzania’s Bagamoyo port project, for example, is being initiated by the central government in an effort to rival Kenya’s Mombasa as east Africa’s leading port. If even moderately successful, this project is likely to bring hundreds of thousands of inhabitants to what is today a small town. Nigeria’s planned capital of Abuja, less than 30 years old and previously a largely rural area, has a population exceeding a million today. The lesson is to pay close attention to government announcements of mega-projects, particularly those with international backing. Early investments can pay huge dividends in the long term.
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