Conference Dinner Keynote (Professor Tony Venables)

Growing African Cities: Economic Principles for functional cities

Prof. Venables started his dinner keynote speech with a look at the numbers:

  • Africa is 1/3 of way through its urbanisation
  • 500 million Africans will enter cities in the next 30 years
  • That means 350.000 Africans enter cities per week

How can African cities cope with this high rate of urbanisation? To answer this question, Prof. Venables drew lessons from success stories of urban growth. He framed his analysis along three types of capital stocks that a successful city needs to get right: (1) the business and commercial building stock, (2) the residential housing stock and (3) the stock of public infrastructure including roads, schools, hospitals etc.

Generally, successful cities are characterised by a very high degree of density, so by a high number of businesses and residents per area. Optimal forms of urbanisation produce a vertical density, resulting in a cone-shaped urban form, contrasted against the suboptimal horizontal densification that characterises slum-dwellings in developing cities. Optimal forms of urban density also apply to the distribution of business and commercial activity. The reason that successful cities are dense stems from agglomeration benefits: easier and cheaper communication, more competition, and greater specialization, to name a few. People working in such a high productivity environments have high opportunity costs for their commuting time; hence higher residential density. All three types of capital stock can help make cities denser, and alleviate the pressure on land, the scarcest resource in cities.

In efficient markets, high degrees of density are achieved through price incentives, but outcomes vary hugely based on the infrastructure put in place. So apart from providing direct user benefits, infrastructure also plays an important coordination role. One crucial challenge for developing cities is therefore managing to finance the infrastructure needed to capture the benefits of agglomeration. These investments pay back: taxing the appreciation of land value that results from providing the right kind of public infrastructure is enough to provide for a good rate of return. Taxing appreciated land values provides an ethical and administratively efficient tax revenue base.

But public infrastructure by itself is insufficient to create dense and productive cities. Investments in commercial and residential building stock that helps achieve density also rely on secure property rights, functioning capital markets and good regulation. Most crucially however, Prof. Venables cautioned that for dense cities to be successful, they must attract the right kind of businesses; businesses in industries that reap the benefits of agglomeration, as density alone is not the objective. Without attracting businesses that benefit from agglomeration, cities run danger of moving towards high-cost, low productivity equilibria, paying low real wages and unable to raise living standards.

Summary written by Sebastian Wolf, Country Economist – IGC Uganda