Urgent change needed to finance the development of Africa’s cities, says AfDB

African cities are not yet the engines of growth that they should be, but with key reforms they can thrive, says a new report from the African Development Bank.


Image : Emmanuel / Adobe Stock

Unless urgent changes are made, African cities will neither demand nor receive the finance they desperately need to meet the challenges of their unprecedented urbanisation, says a new report from the African Development Bank (AfDB).

With the population of Africa’s cities expected to nearly triple in the next 25 years, the AfDB proposes a number of key strategies to address the urgent need to finance the continent’s urgent growth.  

The findings of the report show dramatically rising population numbers – Africa’s urban population is expected to reach 1.5bn inhabitants by 2050. The city of Lagos will be home to approximately 24.5m people in 2050 – more than 32 times its size when Nigeria gained independence in 1960.

Urbanisation represents a critical economic, political, and social opportunity for accelerating progress towards the targets set out in the United Nations’ Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063. But if African cities are unable to build infrastructure and extend services, the cost will be borne by the whole world, says the report.

“The time to think big is now; African cities hold the power. Let’s act boldly to transform Africa’s future for generations to come,” said co-author Astrid Haas presenting the report at a forum on the sidelines of the African Investment Forum in Marrakech on 10 November.

Planning is essential

How well Africans plan for rapid urbanisation will set the continent’s trajectory for centuries to come, says the report – no country has ever reached middle-income status without undergoing a well-managed urban transition. 

But African cities are not yet the engines of economic growth that they could be. Smart investments in infrastructure, quality service delivery, and job creation are desperately needed. The continent’s infrastructure gap alone is immense – closing it will require existing investment to be more than doubled to an estimated $130-$170bn per year, the bulk of it deployed in cities.

The paper seeks to move beyond existing analyses that simply conclude, “African cities need more finance” or “African cities need bankable projects.” After examining the constraints on African city finance, it takes a “bottom-up” look at the diverse budgets of 10 African cities to reveal common themes and highlight options for improving subnational finance on both the supply and demand side.

Detailed solutions range from creating enabling environments and increasing revenue flows to cities to improving fiscal autonomy and credit worthiness.

Reforms are needed

Although the financing challenge with respect to African cities is commonly portrayed as a “bankability” problem, addressing it will also require some changes to the way finance is supplied, argues the report.

“The challenge is to play the finance game better and to take advantage of the available options that cities can influence. This is only possible, however, if cities have the support of their national governments to enhance revenue collection and raise finance,” say the authors.

Looking at examples from Mexico and the Philippines, they stress the need to mobilise domestic markets for finance rather than seeking it externally. Reforms, such as developing instruments like credit ratings, enabled investors to see the improvements cities were making and understand the opportunities for investment.

Such reforms are well within the reach of African countries too, argue the authors.

“Simultaneous public- and private sector efforts targeting the supply- and demand-side of financial markets is crucial to shaping Africa’s development in the run-up to 2050 and ensuring that the continent’s cities are productive, liveable, and sustainable places where citizens not only live, but thrive,” they say.

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Four ways to attract more private investment into cities

Also speaking at the presentation, Akinwumi Adesina, president of the African Development Bank, stressed that greater priority needs to be given to attracting private investment into cities.

He outlined four ways in which this could be done: by providing greater autonomy and fiscal responsibility to cities and towns; using debt securities which could deliver greater financing; by developing better mortgage financing to make cities more liveable with access to affordable housing; and by providing additional regulatory space to raise financing on local capital markets by posting municipal and green bonds to boost their own financing.

Click to access From Millions to Billions: Financing the Development of African Cities.

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Charles Dietz

Charles Dietz is a sub editor and journalist at African Business.