Key message 4 – Policies to promote urban connectivity are critical to supporting high value job creation.
Being competitive is not just about diversifying activity. As well as moving towards higher-value emerging sectors, African cities need active public policy to provide the infrastructure, markets, and institutions that enable them to grow and generate the jobs and incomes that fuel long-term development.
A key issue is that many African cities have gaps in critical infrastructures – such as roads, ports, and power grids – which lower the cost competitiveness of businesses and limit the growth of private enterprise. In transport, it is estimated that Africa has less than one quarter of the density of paved roads in other low-income regions. In energy, Africa has half the generating capacity per person of South Asia (Donaldson et al., 2017; Collier, 2016).
Work by IGC researchers has shown that investments to lower commuting costs, such as Bus Rapid Transit (BRT), could improve access to markets and facilitate the growth of productive business clusters in Africa (Tsivanidis, 2018; Otunola et al., 2019). Similarly, access to reliable energy could lower production costs and support economic specialisation (Lipscomb et al., 2013).
Land and property are other critical inputs for firm growth and urban development. The World Bank’s Doing Business Report (2017) finds that it takes on average 60 days to transfer a fully-registered property in sub-Saharan Africa, compared to only 22 days in high-income OECD countries. Such challenges represent a major constraint to firm growth because they exacerbate spatial frictions and constrain goods and services to be small-scale and local in scope. Grocery services, for example, are dominated by small stalls and local vendors on every street in African cities. However, lower spatial frictions could open the possibility for larger service markets by realising scale economies through capital investments and new technologies – for example, larger supermarkets with parking, storage, and refrigeration.
Lastly, institutional and non-spatial policies may impede firm development. IGC research shows that regulatory barriers – such as administrative costs, compliance procedures, registration fees, and punitive taxes – can hold back manufacturing and service providers in informality (Eissa et al., 2017). These regulatory hurdles could be particularly onerous for the tradable service sector given the high costs of travel (e.g., related to visas and work permits), the different qualifications criteria across Africa for licensing professional services, and other matters such as barriers to FDI in the service sector (Dihel et al., 2016).
Businesses also need ancillary support from finance, insurance and legal institutions to help them deal with regulatory procedures and advise them on how to grow. Addressing some of these challenges could help many enterprises join the formal economy, generating greater interactions and linkages as they integrate into the economy and supporting structural transformation.