“Strangers in the night exchanging glances
Wondering in the night
What were the chances we'd be sharing love
Before the night was through”
(Strangers in the Night – Frank Sinatra)
In the 1840s, Thomas Carlyle, the Scottish essayist and historian, said that economics was a “dreary, desolate, and indeed quite abject and distressing” subject; it was, he claimed, “the dismal science.” I intend to prove Mr Carlyle wrong. Economists can be romantic optimists and, in the case of Africa, they can even help bring together “two strangers in the night”:
According to UN forecasts, between 2018 and 2050, the African urban population will increase from 548 million to 1.34 billion people—from below to more than double that of Europe. Economics, despite being the “dismal science,” has been traditionally buoyed by smiles of optimism about urbanization. Historically, note economic historians, GDP per capita and urbanization have increased together. Countries that experienced an acceleration of economic growth, such as China after 1980, also experienced accelerated urbanization. Being economists, they do have lots of dry theory- and data-laden, conversation-killing, enthusiasm-ebbing explanations for this link that revolve around the agglomeration benefits of density.
However, since the 1970s the link between urbanization and industrialization has broken down across Africa. Urban Africa and industrialization are, in the immortal words of Frank Sinatra, too often “strangers in the night.” The Urbanization & Industrialization research cluster based at the Africa Urban Lab (AUL) will conduct deep dives into African city case studies and also step back to better understand big picture urban issues related to urban industrialization. This research will be translated into policy-relevant outputs that can be utilized by African governments and other stakeholders to help ensure that ongoing urbanization does occur alongside an expansion of industry and other productive sectors that boost technology, exports, and good jobs. Or in the words of the same Sinatra song,
“Ever since that night we've been together
Lovers at first sight, in love forever.”
One the great economists of the twentieth century, Professor (and Lord) Nicholas Kaldor framed three influential laws of economics in the late 1960s that have been repeated as a mantra by economists and policy makers ever since. In summary, those laws conclude that agriculture is good, but industry is better. This is an understatement; industry is not just better, it’s a very good thing. More industry leads to faster economic growth and greater gains in productivity. Industry can also create millions of jobs for young unskilled or semi-skilled workers, especially women, boost exports and lead to gradual upskilling, from textiles, to electronics, to branded logo-laden goods that command premium prices in world markets.
Sadly, those lovers, cities and industry, have been drifting apart on the African continent. A recent study of 41 Sub-Saharan African countries over 1960 to 2016 found that industrialization was either going backwards (Southern Africa) or stagnating (the rest of Sub-Saharan Africa). There was a brief optimistic romance after independence, in the 1960s and 1970s, when workers spurned agriculture and embraced good jobs in manufacturing. However, since the 1990s, workers have been leaving agriculture for low-productivity employment in services, such as home-help and retail trade.
The AUL seeks to understand why urbanization is not driving industrialization across the region. Every Romcom has the ‘com’–the misunderstanding, the personality clash, or the character failing that leads the protagonists to split up in anticipation, we hope, of a final understanding and romantic reunion. The suggested reasons why urbanization has failed to lure industrialization into its steamy metropolitan embrace are many.
First, a well-functioning labor market allows workers to commute to firms quickly at low-cost, for firms to purchase inputs or sell to customers at low cost, for residents to enjoy the consumption benefits of urban life (access to restaurants, shops, and open spaces), and for researchers and creative workers to easily connect with each other and allow knowledge to spillover. The productivity of a growing city can significantly increase if travel between residential areas and firms, and between firms’ locations, remains fast and cheap. In Nairobi, one study found that only 11% of jobs were accessible in a one-hour commute, meaning that the city is functioning as a series of disconnected urban villages. This increases transport costs and drives up the overall costs of industry.
Second, a resource curse may be affecting the industrialization prospects of contemporary African cities. In raw-material export-based consumption cities, political and economic elites are utilizing resource wealth to consume housing, vehicles, consumer goods, and food. The process has a two-fold impact on domestic industry. Firstly, the extra demand and prices in consumption-based sectors divert investment away from manufacturing. Secondly, increased land and property costs and higher wages increase the total costs faced by domestic industry. Luanda in Angola, for example, has become one of the world’s most expensive cities as a result of the post-2000 oil boom. There has been a boom in the availability of luxury apartments, restaurants, hotels, car hire and local taxis, but no local industrialization.
Third, African cities face financial constraints due, in part, to urbanizing at historically low levels of income. In 1890, the US reached one-third urbanization when its GDP per capita was nearly $6,000 and one-half urbanized in the 1920s when its GDP per capita was closer to $7,500. The UK became one-third urbanized in 1861 when its GDP per capita was around $5,000 and one-half urbanized in 1881 when its GDP per capita was closer to $6,000. In 2009, Sub-Saharan Africa (SSA) was 37% urban with an average GDP per capita of $992. In the fifty years after 1960, urbanization increased from 7 to 24% in Kenya while per capita incomes increased by less than $250. Urbanizing at low levels of income means that African governments lack the tax revenue to invest in the public infrastructure that is essential to leverage the economic and social benefits of rapid urbanization. The outcome of low income and low investment urbanization “includes extensive informal employment, sprawling shack settlements, overloaded services, environmental degradation, social unrest, violent crime and chronic traffic congestion.”
Fourth, complex property rights and land administration place serious constraints on urbanization. There are three components to functioning land markets: “rights that are secure, marketable, and legally enforceable.” In many African cities, tenure security comes from private actions (such as hiring private security firms) rather than the formal legal system. In Africa, the rules and protection of tenure is often conducted by landlords, chiefs, bureaucrats, and gangs. These negotiated property rights are not secure. In Nairobi, unclear property rights in the Kibera slum area allowed well-connected bureaucrats to claim ownership over much of this land.
Moreover, formal property registration in Africa takes, on average, almost 60 days and costs 9% of the property value. For example, registration can take almost 300 days in Togo and cost more than 20% of the property value in the Republic of Congo. Across Africa, land is not easily marketable due to the absence of formal land records for ownership and previous sales. If land is not easy to market, it cannot be transferred to its highest value use, such as farmland to industry, and small informal factories to larger formal-sector factories. Also, it is harder to purchase land to build big urban infrastructure such as roads, railways, and airports. Even where formal titles exist, poorly maintained land records or contested rights of inheritance cause disputes. Land rights related to security and marketability require legal protection, working through the police and courts. Legal protection in Africa is often undermined by overlapping and contradictory property-rights systems based across formal, customary, and informal rights.
Finally, China poses both threats and opportunities for African cities. The phenomenon of (rapid) urbanization without industrialization has occurred alongside another transformative global phenomena - the rise of China. Are the two phenomena related? In regard to trade, China may provide cheap inputs and consumer goods to Africa, but cheap imports of industrial goods from China may also displace industrial firms. There are direct and indirect effects. For example, China may export textiles directly to Africa, competing with local producers, while also exporting textiles to the US, indirectly undermining African exports of textiles.
However, there are also China-related countervailing factors which may work to help restore the link between urbanization and industrialization in Africa. China is investing heavily in African infrastructure, potentially alleviating those constraints to urban industrialization noted earlier in this blog. In China, labor costs rose rapidly from $150 per month in 2005 to $500 per month in 2012, and to over $600 in coastal regions. The re-allocation of China’s manufacturing to more sophisticated, higher value-added products and tasks has promised to open new opportunities for labor-abundant, lower-income African countries to produce the labor intensive, light-manufacturing goods that China leaves behind. One study noted that the relocation of China’s light manufacturing to Africa and elsewhere was now “pending.”
African development plans and the speeches of African leaders are full of the promise of industrialization, just as Frank crooned:
“Something in your eyes was so inviting
Something in your smile was so exciting
Something in my heart
Told me I must have you.”
This won’t be such an easy task, as it was for those original strangers in the night:
“Love was just a glance away
A warm embracing dance away”
Africa needs more than a glance and an embracing dance to fuse together the reality of rapid urbanization and the promise of widespread industrialization. The AUL, through the Urbanization & Industrialization research cluster, hopes to contribute to a solution by looking outward from African cities to understand why urbanization is not driving industrialization across the region. The promise of industrialization—to create good jobs, drive productivity, exports, and ultimately good urbanization—is such that this effort is well worth undertaking. Or to conclude with the closing words,
“It turned out so right
For strangers in the night!”
