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Africa at a Turning Point?
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Banking on Urbanization
For decades commodity prices have influenced Africa’s growth performance.
If commodity prices continue to decline, is there another way forward?
Story of next decade: rising urban population & land prices.
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Rising demand for urban land
Nairobi (4km from CBD): 2004 Nairobi (4km from CBD): 2013
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Land appreciation is a rent analogous to natural resource rents.
Change in Advertised Land Prices in Nairobi: 2007-2014
Suburb
Annual % Change
% Change Since 2007
Karen 11.4% 575%
Kileleshwa 20.2% 614%
Kilimani 25.4% 551%
Langata 8.4% 427%
Lavington 20.6% 488%
Runda 10.7% 482%
Spring Valley 5.6% 392%
Upper Hill 29.7% 789%
Westlands 8.5% 494%
Total 18.1% 535%
Source: Haas Property Index, 2015
In many cities, urban land prices are rising quickly.
Local governments can take advantage of these price increases by taxing the appreciation in urban land values.
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Land appreciation is not due to any activity of the owner so:
Land taxes are not distortionary.
Land taxes are fair.
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Building a Successful City Requires Investment
Infrastructure
Housing
Commercial/Industrial
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When urban investment is done well, it generates a triple miracle of productivity.
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Triple Miracle of Productivity
Clusters of Firms→ Enable scale &specialization
Density of settlement→ Concentrates demand
Workers proximityto jobs→Matches abilities to opportunities
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These investment decisions are made by different people.
And need to be coordinated.
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Infrastructure is the coordinating mechanism.
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Urban planning is not sufficient to coordinate investments.
Early infrastructure investments help to make plans credible.
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Early infrastructure is
also cheaper.
Costly to retrofit it oncepeople have settled.
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Sequencing is Important
Getting it RightInfrastructure→ housing
Getting it WrongSettlement→ little infrastructure
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Transforming Africa’s Cities into Global Cities
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Most African Cities are Artisanal Cities
A high percentage of urban workers are employed in the informal sector and produce non-tradable goods & services.
Firm producing non-tradable goods tend to be small with low productivity.
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Firms in artisanal cities have higher costs of doing business than firms in global cities.
• Why?
• Because they have higher transport costs—due to low quality infrastructure.
• Because they are small—not reaping the benefits of economies of scale.
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The way forward:
Designing livable density:
• Clusters of firms.• Clusters of people.• Proximity of workers to
firms.