Urbanisation and Economic Transformation

This blog post originally appeared in Ideas for Africa on March 25, 2014.

I was recently invited by the International Growth Center (IGC) to participate in a two day workshop in support of Rwanda’s national forum on sustainable urbanisation (#urbanrwanda) and give a talk on urbanisation, growth and structural transformation. I had never worked in Rwanda before, but this gave me an opportunity to reflect on what it means for a small, landlocked economy, where urbanisation is at an incipient stage (18 percent urban) but picking up speed.

Urbanisation may well be the most important transformation that the African continent will undergo this century. In a rapidly urbanising world, there is a wealth of experience from other countries that can inform the discussion in Rwanda and elsewhere, some of which is captured in the 2009 World Development Report on economic geography.

In fact, Rwanda’s national development strategy aims at accelerating urbanisation to 35 percent by 2020, with the underlying logic that urbanisation will herald economic transformation. And why not? Greater economic integration within East Africa will expand the reach of Rwanda’s cities – potentially enabling economies from specialisation and agglomeration. However, integration will also lead to convergence among prices of tradables – and considerable effort will be needed to reduce the prices of non-tradable services that can help maintain economic competitiveness. So what are the key issues here?

While every country is different, and local circumstances need to be given due consideration, I offer three lessons from international experience that the Rwandese may want to consider:

1. Urbanisation is a messy process – as much of the urban transformation happens when countries are at low incomes, without many of the necessary institutional capabilities and finance in place to synchronise urbanisation and urban investment. But to prosper countries need to manage this mess and prioritise action to conserve on scarce institutional and financial capital and get the maximum return on investment. What matters most? National government should nurture the institutions for well -functioning land markets (including valuation and transactions) and expansion of basic services such as water, sanitation, health and education to improve living standards in all parts of the territory – regardless of whether it is rural or urban. The good news is that these institutions can be developed at early stages of development. South Korea provides a successful example and India illustrates today’s challenges.
2. Facilitate economic concentration – as the concentration of economic activity can enable Rwanda to reap economies of scale and specialisation – critical for trading and prospering in East Africa and beyond. Asia’s tigers and cubs including Japan, South Korea, Malaysia and China have reaped economic efficiency through the proximity of many activities in their leading cities: agglomeration economies and scale economies were delivered. Africa’s lions may want to get moving along a similar path. While there may be a desire to regionally balance economic growth throughout the nation, international evidence clearly tells us that economic concentration reflecting forces of the market helps economic growth early in development.
3. Plan for cities that “work” – As in much of Africa, the durable structures that form the landscape of Rwanda’s cities will be built over the next three decades. Investments in homes, offices, factories, and infrastructure will accelerate with rising incomes and fast urbanisation. People will come to cities – but will they have to endure excessive commutes and risks from natural hazards just so that they can access jobs? Important here is to plan ahead for urban expansion so that the use of land is coordinated among housing, commercial investment, and infrastructure and the pipes are laid in before people come. Decisions on land use planning live on for 150 years, and getting it right early in development will generate dividends in productive, inclusive, and sustainable cities.