Somik V. Lall Lead Economist World Bank Group. April 20th, World Resources Institute

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1 Somik V. Lall Lead Economist World Bank Group April 20th, World Resources Institute

2 CITIES ARE CENTRAL TO ECONOMIC DEVELOPMENT Source: World Development Indicators

3 Why Cities? THE PRODUCTIVITY OF CITIES DEPENDS ON STRENGTH OF AGGLOMERATION ECONOMIES Thick labor markets Thick markets for specialized service providers Production/knowledge spillovers 3/14/2018 3

4 Benefits of density: productivity, amenity urban wage premium Cities are a balance between: Costs of density: land scarcity, commuting, congestion urban cost penalty Overarching question: How to get the balance right? maximise benefit minus cost Mechanisms to achieve the balance: Markets Crucial for allocating labor and capital between cities and land within cities Numerous market failures interactions not just through markets Policy intervention Correct market failures Provision of infrastructure

Urban Density can enhance productivity Density saves

about delay Density saves communicatio n costs Face-to-face

Specialist workers Density promotes knowledge spillovers.

Scale promotes competition Bigger market : more firms + more

5 Urban Density can enhance productivity Density saves transport costs Shipping goods Cost of time/ uncertainty about delay Density saves communicatio n costs Face-to-face High frequency exchange Complex noncodifiable ideas Builds trust. Scale enables finer specialization Specialist firms Specialist workers Density promotes knowledge spillovers. Learning by workers Spillovers between firms. Scale promotes competition Bigger market : more firms + more intense competition Good for consumers (buyers) if not necessarily for firms (sellers) Competition for labor: incentive for workers to acquire skills 3/14/2018 5

6 Urbanization Goes Hand in Hand with Economic Development, but the Link Appears to Be Weaker in African Countries

7 Africa s urban population 472 million today

8 8 659 million by 2025 Adding another Nigeria 8

9 9 1 billion by 2040 Double in 25 years 9

10 African cities are 10

11 African cities are 11

12 People per sq. km SSA IS NOT AN OUTLIER IN TERMS OF POPULATION DENSITY South Asia MENA SSA EAP LAC ECA North America Source: using Demographia (2015)

13 But URBANIZATION OF CAPITAL LAGS URBANIZATION OF PEOPLE Africa at 2 am: Satellite data reveals lack of infrastructure density

14 Africa s mega cities need mega investments Light (infrastructure) -to-population ratio Maputo Barcelona Durban es Salaam Population Size Paris Rio de Janeiro Lagos Source: World Bank calculations.

15 Slope BUT URBANIZATION OF CAPITAL LAGS URBANIZATION OF PEOPLE Addis Economic density gradients Luanda Jo'burg Peak economic density Economic densities are low and fall fast as moving away from the downtown Africa Other Peak_median Slope_Median Source: VIIRS

16 URBANIZATION OF CAPITAL LAGS URBANIZATION OF PEOPLE Similar population density Lagging economic density Lagos Seoul Lagos Seoul Source: Landscan. Source: VIIRS.

17 URBANIZATION OF CAPITAL LAGS URBANIZATION OF PEOPLE Similar population density Lagging economic density Source: Landscan. Source: VIIRS.

18 INVESTMENTS ARE DELAYED Capital investment as a share of GDP (%) SSA ( ) China (1980) East Asia (2012) China (2011) Source: World Bank 2013.

19 Millions (USD) Thousands Millions (USD) Thousands Millions (USD) Thousands (Persons) Millions (USD) Thousands (Persons) BUILDING STRUCTURES ARE MISSING Kibera (6-7 km from CBD) Non-Residential Residential Population Density Non-residential Residential Population Density es Salaam Tandale (5-6kms from CBD) & Manzese Non-Residential Residential Population Based on Ishizawa and Gunasekara (2016) Non-Residential Residential Population

20 SERVICES ARE MISSING Source: MLSC es Salaam 2015.

21 South Sudan CAR Sudan Chad STP Guinea-Bissau Mozambique Mauritania Madagascar Sierra Leone DRC Ethiopia Somalia Niger Comoros Malawi Equatorial Guinea Burkina Faso Djibouti SSA (Av) Burundi Mali Cote d'ivoire Kenya Angola Zambia Uganda Rwanda Togo Lesotho Tanzania Nigeria Congo Guinea Senegal Ghana Cameroon Gabon Gambia Namibia Swaziland Non-SSA (Av) Zimbabwe South Africa CITIES ARE CROWDED Urban population in slums is high Percent of urban population living in slums Source: UN (2014). *CAR: Central African republic, STP: Sao Tome and Principe, DRC: Democratic Republic of Congo, Non-SSA (av) average in rest of the countries.

22 20% 25% 25% 28% 32% CROWDED LIVING Crowded living in es Salaam INADEQUATE LIVING SPACE C E N T E R C E N T E R - S H A N T Y C O N S O L I D A T E D C I T Y P E R I P H E R Y D A R O V E R A L L Source: World Bank es Salaam Household Survey

23 African cities are 23

24 AFRICAN CITIES ARE FRAGMENTED Compared to LAC and Asia, African cities are 40% less exposed: have less neighbors to interact with 20% more fragmented near the city center Source: Henderson & Nigmatulina (Forthcoming)

footprint - Leapfrog increases fragmentation Extension explains 46%-77%

25 URBAN DEVELOPMENT COMES IN THE FORM OF EXTENSION 3 possible sources of built-up growth: - Infill increases density - Extension increases footprint - Leapfrog increases fragmentation Extension explains 46%-77% of the urban expansion Source: Baruah (Forthcoming). Note: 21 cities in SSA.

26 WITH INCREASING FRAGMENTED PATCHES 60% 50% 40% 30% 20% 10% 0% Percent leapfrog patches Source: Baruah (Forthcoming). Note: 21 cities in SSA.

27 AFRICA BY DAY: SATELLITE DATA IDENTIFIES LAND USE Commercial/Industrial Residential Dense Residential Shanty Residential Sparse

28 COMMERCIAL AND INDUSTRIAL LAND IS MISSING IN THE CITY CENTER es Salaam KGALI Residential shanty Residential non-shanty Industrial/commercial

29 Where are the jobs in the city? 0.9% 1.1% 5.9% Addis Ababa 23% Ho Chi Minh Share of industrial and commercial land (as % of total land) Source: World Bank calculations (2015), EO World.

30 PAVED ROADS OCCUPY A SMALLER SHARE OF URBAN LAND IN AFRICA THAN ELSEWHERE AND USUALLY DROP OFF ABRUPTLY BEYOND THE CITY CENTER Source: Felkner, Lall and Lee. Forthcoming.

31 CITIES ARE DISCONNECTED In, 70% walk or take the matatu to work limiting access to opportunity % of jobs within 60 minutes 28% matatu 14% 42% walk 8% limiting access to opportunities Source: JICA Personal Travel Survey (2013)

32 CITIES ARE DISCONNECTED Most people walk to work Source: UNEP and FIA Foundation 2013

33 African cities are 33

34 Food price index Housing price index COSTLY FOR HOUSEHOLDS Sub-Saharan African cities are 29% more expensive than cities in developing countries for their income levels Urban Food Prices are 33% higher in African Cities vs Other Developing Countries Urban Housing Prices are 57% higher in African Cities vs Other Developing Countries Source: Nakamura et al. (forthcoming) using ICP. Countries at similar income levels.

35 COSTLY FOR HOUSEHOLDS Sub-Saharan African cities are more expensive than cities in developing countries for their income levels. Source: Nakamura et al. (2016) using ICP. Countries at similar income levels.

36 COSTLY FOR WORKERS Percentage of household budget on transport 2 trips/day Source: Kumar and Barrett (2008) % of household budget spent on transport % of average household budget needed for 2 trips/day % of first quintile household budget needed for 2 trips/day

37 Source: Spatial Development Report; Bernard, D Aoust and Jones (2016) COSTLY FOR BUSINESSES Source: Bernard, D Aoust and Jones (2016) using World Bank Enterprise Surveys data. Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Djibouti Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Kabul Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Minsk Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Tbilisi Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Belgrade Log GDP per Capita, 2010 US$ Africa Other Developing Countries African vs Other Developing Median Manufacturing Sector Wages in Major Cities

38 Real Wages, 2010 USD COSTLY FOR BUSINESSES 12,000 Median Manufacturing Wages in African Cities vs Other Developing Countries 10,000 8,000 6,000 4,000 2,000 0 GDP per capita ~5,000 ~1,500 ~1000 ~1000 ~850 Source: Spatial Development Report; Bernard, D Aoust and Jones (2016) 2010 USD Source: Bernard, D Aoust and Jones (2016) using World Bank Enterprise Surveys data.

AFRICAN CITIES ARE IN A LOW DEVELOPMENT TRAP Lack of information Lack of clear rules Low enforcement Lack vision + Crowded, Disconnected, Costly Out

39 AFRICAN CITIES ARE IN A LOW DEVELOPMENT TRAP Lack of information Lack of clear rules Low enforcement Lack vision + Crowded, Disconnected, Costly Out of services Low expectations Low investments Uncoordinated investments Unstructured Closed for business Low levels of human capital and infrastructure

40 OUT OF SERVICE Restrictive regulations limit the supply of formal housing in property markets near the city center Poor connective infrastructure constrains residents housing choices Limited investments in basic services leave many lacking the amenities found in more economically successful cities

LACK OF BASIC INFRASTRUCTURE HURTS LIVABILITY AND LIMITS HOUSEHOLDS CHOICES Urban residents compromise on livability to maintain accessibility 12 10 8 6

41 LACK OF BASIC INFRASTRUCTURE HURTS LIVABILITY AND LIMITS HOUSEHOLDS CHOICES Urban residents compromise on livability to maintain accessibility to jobs Irregular closer to industrial/commercial areas Addis Residential regular Residential irregular Source: Antos, Lall and Lozano-Gracia (2016).

42 CLOSED FOR BUSINESS The lack of structures Makes cities costly Prevents firms to start producing tradables Proliferate non-tradable activities Firms are scattered instead of clustered No labor market pooling To compensate, firms pay high nominal wages driven by urban costs and not by higher productivity Considering real wages: no urban wage premium in Uganda and Tanzania Dashing the Expectations of migrant workers

43 NO URBAN REAL WAGE PREMIUM Tanzania (1) (2) Nominal Wages Real Wages Urban ** (0.053) (0.048) *** (0.048) (0.047) Log(Firm Size) *** *** (0.015) (0.016) Constant *** *** Observations R Uganda (1) (2) Nominal Wages Real Wages Urban *** (0.046) (0.047) *** (0.057) (0.059) Constant *** *** (0.364) (0.365) Observations R Controls include year, industry, occupation fixed effects, and socio demographic characteristics. Source: Bernard, D Aoust and Jones (2016) (based on LSMS surveys)

44 NO URBAN REAL WAGE PREMIUM: LOCAL CITIES Firms in and, like in other urban areas, pay higher nominal wages, as they benefit in some way from locating in urban areas. However, The wage premium disappears when wages are adjusted for spatial differences in the cost-of-living Higher nominal wages in both countries are largely being driven by higher prices rather than higher productivity High wages without higher productivity dampen firms competitiveness Local cities Source: Bernard, D Aoust and Jones (2016) (based on LSMS surveys)

45 Chittagong ANEMIC TRADABLE SECTOR Shenzhen City Delhi emala City Sanaa Lagos Kano Es Salaam Source: Bernard, D Aoust and Jones (2016) based on World Bank Enterprise Surveys Gaborone 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Non tradable Tradable

46 DISPERSION OF FIRMS IN THE LOCALLY TRADED SECTOR Tradable sector in is concentrated Non-tradable sector is not

47 REFORMING LAND MARKETS AND LAND REGULATIONS ALONGSIDE COORDINATED INFRASTRUCTURE INVESTMENTS CAN HELP BUILD AFRICAN CITIES THAT WORK

PROPERTY RIGHTS: LAND MISALLOCATION HAS HIGH COSTS NAIROBI Misallocation of 1000 acres of land near city center costs (3km radius) Misallocation of land is affected by

48 PROPERTY RIGHTS: LAND MISALLOCATION HAS HIGH COSTS NAIROBI Misallocation of 1000 acres of land near city center costs (3km radius) Misallocation of land is affected by inability to redevelop old slums $1.86 billion (land value differential) or $466 per person in greater, 70% of Kenya s GDP per capita in 2014 Source: Henderson, Regan & Venables (2015).

49 DEVELOPMENT REGULATIONS INCOMPATIBLE WITH INCOMES Lot size regulations: : 375 sq m Philadelphia: 28 sq m

50 INVESTMENT IN EARLY INFRASTRUCTURE WORKS Sinza: Site and Services Forty year after, investment in infrastructure persist Manzese: slum upgrading Source: Regan et al (Forthcoming)

51 Urban development improvements at scale/for scale? Ethiopia/Addis (Simon) Housing Tanzania/ (Guy) Sites and Services Can incremental models change expectations? Or not? Large scale (mass) transport vs. small scale informal providers? BRTS or matatus? Formal vs. informal nature of development? Is informality a response to underlying market and policy failures? Does scale and specialization come with formality? In homes and jobs? Can informality co-exist with new expectations of African cities?

January 22 nd, Ede Ijjasz-Vasquez Senior Director Social, Urban, Rural & Resilience The World Bank

January 22 nd, Ede Ijjasz-Vasquez Senior Director Social, Urban, Rural & Resilience The World Bank TICAD Seminar Series 4 th Seminar Land Use Planning & Spatial Development for Smart Growth in African Cities January 22 nd, 2016 Ede Ijjasz-Vasquez Senior Director Social, Urban, Rural & Resilience The