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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.