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Financing Africa’s cities: The local investment challenge

Thierry Paulais's picture
Also available in: Français

The 2009 financial crisis demonstrated how closely local government finances and housing policies are intertwined with the financial systems and the economy as a whole. The ramping up of efforts to combat global warming and the prospects created by the COP 21 preliminary discussions have once again thrust local governments into the spotlight, with their growing responsibilities in the areas of adaptation and mitigation.

A Steady Deterioration in Basic Services

Thus far, the response of States and donors to the vast needs of cities has focused on decentralization and good governance. An increase in State transfers, the regularity and predictability of these transfers, improvements in the area of local taxation, and the gradual increase in their own funds, along with progress in the area of administration and management and, lastly, donor financing, were supposed to be a surefire path leading cities to the virtuous circle of sustained growth.

Unfortunately, the facts point to the shortcomings of this approach. Despite a number of successful experiences, infrastructure services, basic services, and the living conditions of most citizens have deteriorated steadily in the majority of Sub-Saharan cities, simply because the growth rate outpaces the investment rate.
The Volume of Investment Needs to Be Scaled Up

The African continent has experienced the strongest urban growth in the world. Over the next 20 years, there will be an influx of more than 300 million additional persons into Sub-Saharan cities alone. In most countries on the continent, the economic productivity of cities and the living conditions of residents are already being seriously impacted dysfunctional and inadequate facilities. Why? Because urban investment continues to be insufficient relative to the vast needs spawned by demographic growth as well as the effects of global warming.

The volume of investments needs to be scaled up to ensure that the city can truly become the engine of growth and job creation, as it has been for the emerging economies of Asia. Efforts must continue to increase solvency and to improve governance at the local government level. Financing procedures and systems must also be reviewed with the aim of enhancing the solvency and ability of local governments to deliver. The financing of local governments is linked to a series of problems in such areas as decentralization, local taxation, controlling local government debt, and urban governance, as well as to sectoral policies, particularly those related to land, development, and housing.
Practical Solutions Can Be Applied to Modernize Financing Systems

African case studies and examples taken from other parts of the world point to the fact that practical solutions can be applied to modernize investment financing systems, promote private sector involvement, facilitate the use of home-grown solutions, and mobilize new sources of financing.

Financing through land development and improvement is one solution that has, from time immemorial, been used widely on all continents. Sub-Saharan Africa, the exception in this area, can in turn adopt this solution. The root factors stifling this approach are historical and cultural, and are linked to the specificities of land rights in Africa, poor management, a lack of strategic vision on the part of the authorities, and land grabbing by the elite.

It should be noted that the housing and construction sectors are the main engines of economic growth in countries with strong demographic growth. In Sub-Saharan Africa, however, the development of these sectors is stymied by land management rules and practices that are unsuited to conditions on the ground and the modern urbanization process.

For many countries, lifting this constraint to growth and employment will entail land governance reform and the adoption by informal markets of modern production methods, using the models of other continents, in particular those of Asia.

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