Africa FROM THE BOTTOM UP CITIES, ECONOMIC GROWTH, AND PROSPERITY IN SUB-SAHARAN AFRICA Founded in 1983, Monitor is a global fi rm that serves clients through a range of professional services — strategic advisory, capability building and capital services — and integrates these services in a customized way for each client. Monitor is focused on helping clients grow in ways that are most important to them. To that end, we offer a portfolio of services to our clients who seek to stay competitive in their global markets. The fi rm employs or collaborates with some of the world’s foremost business experts and thought leaders to develop and deliver specialized capabilities in areas including competitive strategy, marketing and pricing strategy, innovation, national and regional economic competitiveness, organizational design, and capability building. FOR MORE INFORMATION PLEASE CONTACT: Christoph Andrykowsky [email protected] tel +27-11-712-7517 Bernard Chidzero, Jr. [email protected] tel +27-11-712-7519 Jude Uzonwanne [email protected] tel +27-11-712-7550 MONITOR GROUP 83 Central Street MONITOR GROUP Houghton Two Canal Park South Africa, 2198 Cambridge, MA 02141 USA tel +27 11 712 7500 tel 1-617 252 2000 fax +27 11 712 7600 fax 1-617 252 2100 www.monitor.com/za www.monitor.com Africa FROM THE BOTTOM UP CITIES, ECONOMIC GROWTH, AND PROSPERITY IN SUB-SAHARAN AFRICA Executive Summary .............................................................4 Introduction .........................................................................16 Cities as Platforms for Growth ........................................... 22 Pointing the Way: Johannesburg, Lagos, Nairobi, and Dakar ......................... 34 Creating City-Clusters I: Infrastructure .............................. 52 Creating City-Clusters II: Unlocking Human Potential ...... 74 Creating City-Clusters III: Help from Abroad ..................... 88 Conclusion ..........................................................................112 ENDNOTES ............................................................................122 ACKNOWLEDGEMENTS ............................................................126 AppendixExecutive Summary Photograph by Alf Gillman AFRICA FROM THE BOTTOM UP 5 Executive Summary DURING THE RECENT GLOBAL FINANCIAL CRISIS, growth rates in sub-Saharan Africa (SSA) declined to less than two percent following an unusu- ally robust period between 1995 and 2007 during which they averaged fi ve percent. Amid signs of incipient recovery, SSA’s long-term development trajectory remains uncertain: will the region resume healthy growth, or will its well known political, economic, and social challenges hold it back yet again? Most commentary on prospects for SSA has been relentlessly negative, citing po- litical fragmentation, poor governance, rampant corruption, endemic confl ict and disease, and other serious problems that thwart progress. The minority of more hopeful commentators have been disappointed repeatedly in the decades since in- dependence, with hope turning to frustration and despair as dictators overturned democratic regimes, civil confl icts devastated societies, and aid money has been squandered. Meanwhile, poverty and disease remain endemic. For each step for- ward, it seems, there are often two steps back. This report takes a different view, acknowledging SSA’s very real problems but also pointing out sustained structural reasons why this time, at last, a better outcome may be in the offi ng. Drawing on Monitor’s long experience in SSA, as well as its understanding of the sources of global economic prosperity and the drivers of re- gional economic competitiveness, we argue that SSA’s growth before the downturn was a sign of healthy and increasingly diverse development — growth we expect to resume with the recovery of the global economy. The subcontinent is becoming LAGOS, NIGERIA Blue water containers dominate a drum market in sub-Saharan Africa’s biggest city. © MONITOR COMPANY GROUP, L.P. 2009 6 AFRICA FROM THE BOTTOM UP Executive Summary more prosperous despite its obvious challenges, as cities and competitive urban clusters lead the way. SSA’s fortunes are building from the bottom up. THE CENTRAL ROLE OF CITIES This pattern of bottom-up development indicates that the economic future of SSA is more connected to the success of its cities, and the competitive clusters based there, than to its nation states. Cities today generate most of the subconti- nent’s wealth, with many thriving despite obvious challenges. Rapid urbanization turbocharges economic growth and diversifi cation, enhances productivity, increases employment opportunities, and improves standards of living. Throughout history, cities have been engines of economic growth. This was true in ancient Athens and Rome, in Renaissance Florence and Venice, in industrializing London, Berlin, New York, and Tokyo, and in Shanghai and Bangalore today. Cities bring people together to transact business and share ideas; they provide enabling infrastructure such as offi ces, power, transportation, and telecommunications; most importantly, perhaps, they concentrate talent, innovation and entrepreneurship in a single location to create competitive economic clusters. All these are vital for eco- nomic development and improving competitiveness. In this report, we focus on three themes critical to the development and future prosperity of SSA’s cities and competitive urban clusters: 1. The fundamental imperative to upgrade infrastructure. Compared to the regional leader (Mauritius), poor infrastructure in SSA is estimated to reduce eco- nomic growth by an average of 4.7 percent. Suffi cient transport networks, a reliable power supply, clean, reliable drinking water and sanitation, and fast, extensive telecommunications services all attract commerce to a city and © MONITOR COMPANY GROUP, L.P. 2009 AFRICA FROM THE BOTTOM UP 7 Executive Summary facilitate economic growth. Without these, SSA will not fulfi ll its economic potential, as local ventures struggle to grow and foreign businesses locate their operations in other regions with better services and lower costs. 2. The vital importance of cultivating human assets. Economic prosperity in a global, knowledge-based economy is not solely derived from natural resources and agricultural commodities, which today account for nearly all of SSA’s wealth. Rather, the source of sustainable economic prosperity is human assets working in productive and value-adding companies and sectors. SSA’s economic future lies with its peoples, who are enhancing their skills and knowledge as entrepreneurs, managers, and workers in existing and emerg- ing competitive clusters. 3. The critical role of foreign direct investment. Achieving economic prosperity of course requires investment, which comes in many forms. Among these, FDI brings with it multiple benefi ts in a globalizing economy: money, ideas, tal- ent, and connections to the wider world. It often is the single most effective source of investment in contributing to economic growth, strengthening companies and sectors, and increasing employment and incomes. In the case of Africa, FDI originates not only outside the continent but also, increasing- ly, within it as more advanced economies themselves invest in Africa’s future beyond their own borders. The report highlights numerous fi ndings around these themes based on an examination of ten countries and four cities selected for their contrasting and com- plementary patterns of economic development and their distinctive geographic and cultural variety.* * The ten countries are Angola, Botswana, Ethiopia, Ghana, Kenya, Mali, Nigeria, Senegal, South Africa, and Uganda. The four cities are: Johannesburg, South Africa; Lagos, Nigeria; Nairobi, Kenya; and Dakar, Senegal. © MONITOR COMPANY GROUP, L.P. 2009 8 AFRICA FROM THE BOTTOM UP Executive Summary The four cities include: • Johannesburg, South Africa, which has a diverse economic and industrial base, including strong clusters in fi nancial services, tele- communications, manufacturing, education, and other services. • Lagos, Nigeria, which has competitive clusters in fi nancial servic- es and telecommunications that spur growth in emerging sectors such as entertainment and computer equipment and services. Al- though Nigeria’s economy remains heavily dependent on energy, these other sectors are diversifying the economy and increasing employment opportunities. • Nairobi, Kenya, which boasts a strong private sector and tradition of entrepreneurship as well as growing clusters in trade, fi nancial services, ICT, tourism, and agribusiness. • Dakar, Senegal, which occupies a strategic position as the west- ernmost port on the continent and possesses specialized assets that can provide the foundation for the organic development of competitive clusters in trade and shipping as well as in agribusi- ness and agricultural processing. Finally, we outline implications of these fi ndings for the constituencies most involved with and affected by the future economic development of SSA. These include municipal, provincial, and national governments responsible for promot- ing economic growth; multilateral agencies that provide assistance and advice; public sources of aid; private philanthropists; multinational corporations; and African entrepreneurs and business leaders. © MONITOR COMPANY GROUP, L.P. 2009 AFRICA FROM THE BOTTOM UP 9 Executive Summary The principal fi ndings include: THE FUNDAMENTAL IMPERATIVE TO UPGRADE INFRASTRUCTURE