Knowledge Leadership 2014 MasterCard African Cities Growth Index Understanding Inclusive Urbanization By Dr Yuwa Hendrick-Wong & Professor George Angelopulo Acknowledgements The authors thank Rodger George (Deloitte Consulting (PTY) LTD.) for his advice when designing the MasterCard African Cities Growth Index and Desmond Choong (The Quiet Analyst LTD.) for technical support during data gathering and analysis. Copyright MasterCard 2014 Table of Contents Foreword 4 Introduction 5 ONE | ABOUT THE 2014 MASTERCARD AFRICAN CITIES GROWTH INDEX 7 TWO | THE CITIES OF THE 2014 INDEX 8 Illustration 2.1: The six international comparison cities of the 2014 MasterCard African Cities Growth Index 8 Illustration 2.2: The 74 African cities reviewed by the 2014 MasterCard African Cities Growth Index 9 THREE | DATA AND RANKING 10 Lagging Indicators 10 Illustration 3.1: Lagging indicators 10 Figure 3.1: Lagging indicator ranking by city 12 Leading Indicators 13 Illustration 3.2: Leading indicators 13 Figure 3.2: Leading indicator ranking by city 14 FOUR | CITY RANKING 15 International Comparison Cities 15 Table 4.1: International comparison cities 15 Figure 4.1: Inclusive growth potential - comparison city array 16 Large Cities 17 Table 4.2: Large cities of more than 1 000 000 inhabitants 18 Figure 4.2: Inclusive growth potential - large city array 19 Figure 4.3: 2014 MasterCard African Cities Growth Index - large cities by rank 20 Medium Cities 21 Table 4.3: Medium cities of 500 000 to 1 000 000 inhabitants 21 Figure 4.4: Inclusive growth potential - medium city array 22 Figure 4.5: 2014 MasterCard African Cities Growth Index – medium cities by rank 23 Small Cities 24 Table 4.4: Small cities having fewer than 500 000 inhabitants 24 Figure 4.6: Inclusive growth potential - small city array 25 Figure 4.7: 2014 MasterCard African Cities Growth Index - small cities by rank 26 FIVE | FINDINGS 27 Conclusion 28 Biography | Dr Yuwa Hedrick-Wong 29 Biography | Professor George Angelopulo 30 Appendix One | Lagging Indicators 32 Appendix Two | Leading Indicators 34 Appendix Three | City Scores 36 2014 MasterCard African Cities Growth Index 3 Foreword This is the second African Cities Growth Index released A great example of this is our collaboration with public by MasterCard as part of a portfolio of insight reports and private stakeholders across the continent to enable that examine the economic landscape and potential for economic growth through the increased adoption of growth in Africa. This Index, which analyzes 74 African electronic payments. The citizens of Nigeria, South cities and ranks them according to their inclusive growth Africa, Kenya and other countries already experience the potential, serves as a valuable resource for governments, benefits of these collaborations, particularly as related to investors, academics and the business community to map financial inclusion. the continent’s future success from the perspective of inclusive urbanization. There is much credible and relevant investigation into financial inclusion and inclusive economic development. In this edition, authors Dr Yuwa Hedrick-Wong and Prof However, there is a lack of research into the link between George Angelopulo place particular emphasis on inclusive inclusive urbanization and inclusive growth. It is for this urbanization, where the physical, economic and social reason that MasterCard supports academic research such development of a city benefits all its inhabitants. Inclusive as the African Cities Growth Index. urbanization leads to inclusive growth, which occurs when citizens from all levels of society have equal opportunity By increasing the scope of the Index from 19 African cities to participate in and benefit from expanding economies. in 2013 to 74 this year, we have produced a volume of Financial inclusion, in turn, is an integral part of inclusive credible, relevant industry and market intelligence. It is growth, particularly in the urban context. relevant to MasterCard’s customers, industry associates, and merchants as they grow their businesses, adopt At MasterCard, we believe that the only way to ensure alternative payment solutions and migrate from cash to sustained, inclusive economic development is through electronic payments. the financial inclusion of all individuals, communities and countries. This drives our business strategy in Africa, where The findings of the Index highlight the importance of less than a quarter of adults have an account with a formal the development of inclusive cities as a means to deliver financial institution, and where more than 90% of all sustainable and equitable economic growth and inclusion transactions take place using cash. for more people around the world. MasterCard understands that solving for financial inclusion We hope that the 2014 MasterCard Africa Cities Growth is not a one-size-fits-all proposition, nor is it achieved Index brings greater perspective to your assessment of overnight. Complicating the provision of financial Africa’s economic prospects. services are barriers such as the lack of formal identity documentation, the challenges facing banks serving poor and often remote populations, and the need for improved financial literacy. Public-private partnerships are best placed to address many of these barriers, and we are seeing increased interest in such partnerships as governments, non-profits and the private sector embrace Michael Miebach the concept of shared value. President, Middle East and Africa, MasterCard 4 2014 MasterCard African Cities Growth Index Introduction The current economic recovery is turning into one of the (GDP) growth. In other words, for every one percent of most complicated, protracted, and difficult in history. world GDP growth, world trade grew by 1.4%. Between Persistent uncertainty is compounding risks to doing 2008 and 2013 however, the pace of growth in world trade business. slowed to half that of world GDP. This sudden reversal hit emerging markets hard, especially those dependent on A common analysis is that the global economy suffers from exports. In 1990, emerging markets collectively accounted inadequate aggregate demand. Debts over-burden both for only about 19% of total world trade, but that figure has individual consumers and the public sector, which means since increased to 42% of total world trade2. As emerging decreased fiscal expenditure and growth in household markets have become far more export-driven in the last income, the latter leading to reduced consumer spending. several decades, few markets were unaffected. As a result, the business sector is reluctant to invest, even though in many markets it has the financial capability. In sub-Saharan Africa, much of the growth in the previous Weak investment slows employment and income growth, decade came from two related sources. The first was the which further aggravates weak aggregate demand. commodity windfall, which hugely improved the region’s terms of trade. The second was increasing investment from For emerging markets, this is a reversal of fortunes. China, related to China’s demand for resources and its The first decade of the 21st century was very good to need to secure future supplies. China’s increasing demand emerging markets. Cheap finance, boundless risk appetite, for resources was behind the so-called ‘commodity super- and a commodity windfall boosted growth everywhere, cycle’ that generated the windfall for sub-Saharan Africa. including Africa. A ‘rising tide lifts all boats’ phenomenon The current slowdown of China’s growth, on the heels of characterized the 2000s, making it virtually impossible the weak and problematic global economic recovery, is a for economies not to grow. By 2007, only three countries double whammy for sub-Saharan Africa. in the world failed to record economic growth: Fiji, Zimbabwe, and the Democratic Republic of Congo1. Countries in Africa need to implement many political and socio-economic reforms successfully to sustain strong In contrast, the current decade has unfolded very differently. economic growth. Of these, we believe that urbanization is particularly critical and inclusive urbanization the ideal. The BRIC countries - Brazil, Russia, India and China – Cities today are vital gateways that connect countries to supposedly the most promising of emerging markets, the global economy. They are powerful hubs for business have been struggling in recent years. Brazil and Russia are innovation, income and employment generation. recording economic growth that is particularly sluggish. Weighing on many analysts’ minds now is whether the Sub-Saharan African is urbanizing quickly. According to potential of emerging markets was just a ‘fairy tale’. United Nations (UN) estimates, 60% of sub-Saharan Africa’s population will be living in cities by 2050, almost doubling Concern about the economic future of emerging markets today’s 36%3. The economic future of this vast continent is not just a matter of usual market mood swing. It is simply will be determined in its cities. a fact that, globally, achieving sustained economic growth today is decidedly more challenging than in the past. Where there is inclusive urbanization, a city’s critical mass and economies of scale support the flow of knowledge Consider the shift in world trade growth, which illustrates and capital. This generates ever-expanding opportunities this point well. for large business conglomerates as well as for small businesses and entrepreneurs. This environment stimulates In the previous four decades, world trade