Key message 1 – Urbanisation and the creation of modern employment opportunities must be undertaken with greater climate considerations.

If harnessed correctly, urbanisation offers a huge opportunity for economic growth (Collier and Venables 2017). The density and connectivity of cities brings people together to share diverse ideas, connect firms and workers, and exchange goods and services—creating hubs of innovation and trade, and adding value beyond the primary sector. However, to date, urbanisation in the poorest countries—particularly in Africa—has contributed much less to development and poverty reduction than in other regions (Ravallion et al. 2007). A major reason is that African urbanisation has not gone hand-in-hand with large-scale, productive job creation (Kriticos and Henderson 2019). Instead, much of the labour transitioning from agriculture has moved into informal, non-tradable urban services (Gollin et al. 2016).

The climate challenge compounds this. Not only are developing countries urbanising with low incomes, but they are also facing additional environmental constraints that countries urbanising earlier did not have to contend with. This includes adapting to the increased risk of floods, droughts, and heat waves in developing country cities, as well as making room for climate-induced migration. Estimates suggest that Africa has been losing from 5-15% of its annual GDP per capita growth because of climate change and its related impacts (Urama 2022). Furthermore, the constraints also extend to the pressure imposed by global net zero commitments around the types of energy that can be used to fuel growth or meet international environmental and social responsibility standards (ADBG 2018).

Cities in developing countries need a pathway that minimises the negative and lasting impacts of climate change without compromising on their development and poverty alleviation priorities. Fortunately, despite these challenges, the net zero transition also creates new opportunities for productivity improvement and job creation in cities, as greener technologies, industries, and services emerge, and current ones are required to become more sustainable. Cities can tap into these economic opportunities, as well as reduce future risk by:

  • doing ‘new sustainable things’
  • doing ‘current things more sustainably’
  • proactively adjusting to ‘shrinking opportunities’, such as phasing out coal and other carbon-intensive fossil fuels (Collier and Venables 2015)

There are four factors driving the transition: (1) consumers changing behaviour in response to new opportunities and information; (2) firms responding to demand changes and wanting to stay competitive; (3) markets adapting to new consumption and production choices, as well as pressures to internalise negative externalities, such as air and water pollution; and (4) governments driving change through regulation, financial support, and coordination efforts.

Importantly, the transition will be underpinned by innovation—both the development and deployment of low-carbon technologies across the economy. Indeed, in the long-term, growth is fundamentally driven by our ability to be more productive through innovative technologies and practices (Aghion et al. 1998). Cities, with their quantity and diversity of ideas, play a central role in spurring this innovation (Storper and Venables 2004). Cities also generate economies of scale, lowering the relative cost of diffusion and adoption of new technologies and practices (Wu et al. 2022). Governments should proactively plan for this transition, considering policies and approaches that could attract greener firms and create jobs.