Urban infrastructure in Sub-Saharan Africa

Harnessing land values, housing and transport

Presented by Stephen Berrisford Research by Stephen Berrisford and Ian Palmer

20 July 2015

Key success factors: implementing land-based financing

Six broad areas of concern

a) Demand for property

b) Effective state

c) Effective city

d) Ease of access to land

e) Active developers

f) Access to property related finance

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Demand for property: level of economic activity and population growth

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Average Cape Town Addis Ababa Harare Nairobi

US$

20

15

at

PP

P

GDP per capita - 2014 Disposable income per hh

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Average Cape Town Addis Ababa Harare Nairobi

GDP growth per annum 2014 -2020

Population growth per annum 2014 -2020

Effective State

4

Key elements:

• a legal framework that is sufficiently clear and unambiguous;

• reasonably transparent public (and municipal) financial management;

• sufficient support to and for local government to carry out LVC;

• technical capacity in place to implement.

Policy commitments (whether/not formally stated as such):

• no subsidising infrastructure for the well-off;

• accept that developers take on risk;

• accept that cities need infrastructure to drive growth.

Example: national state issues affecting LVC

Three countries struggling to implement devolution, with impacts on LVC potential:

• Ethiopia: political crisis in Addis Ababa, 2005; defeat of opposition; then political re-alignment saw city effectively empowered – and able to drive LVC

• Kenya: 2010 Constitution, devolution to address ethnic tensions not urban efficiency – roles of new City County Council still being determined, especially in relation to urban development and infrastructure

• Zimbabwe: estrangement between national government and cities led to stripping of cities of assets, powers and revenue – leads to loss of underlying rationale for LVC as city struggles to pay bills

5

Effective city

Two key dimensions:

1. Institutional framework – Nairobi and Cape Town contrast – there has to be a built-in logic to LBF

2. Organisational capacity • Financial viability, including financial

management capacity

• Planning and land use management systems

6

Organisational capacity

• There is a growing cadre of skilled built environment professionals in the countries and cities of the region – but it’s not growing fast enough

• Key constraints are institutional fragmentation and poor governance.

• Inadequate operational systems.

• Incentives for professionals to work for cities are poor.

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City financial viability

10

0

100000000

200000000

300000000

400000000

500000000

600000000

2009

2010

2011

2012

2013

2014

2015

To

tal

$

Harare City - Total Income

Total Income

$

0

5

10

15

20

25

2002 2004 2006 2008 2010 2012 2014 2016

ET

B (

no

min

al)

Addis Ababa - city revenue

Trend not certain

A financially viable city can manage a capital account and, through this account, raise finance for the provision of infrastructure

Ease of access to land

Two elements to land access for LVC purposes:

• secure land rights to hold and keep the land for a predictable period (i.e. the land tenure regime)

• a system for giving formal approval to land development projects, for identifying a point at which authorities can determine that the land value has increased (i.e. land use management system)

In African cities a wide range of different contexts in relation to both these elements: legal traditions, customary legal systems for land management, approaches to informality, levels of corruption, underlying nature of land markets.

Without both elements of land access in place LVC is hard to implement effectively.

11

Land use regulation

High degree of LU Control can create value through

• creating scarcity

• synchronising LU approvals with infrastructure investment

• promoting environmental quality

But: rapid urbanization, low market access by the poor, low compliance thresholds and institutional capacity constraints and dysfunction – all weaken LU regulation.

Example: the different scenarios unfolding in Ethiopia vis-à-vis Kenya

12

Active developers

• Concept of a developer – ranging from fully private to fully public.

• Experience in three country case studies.

• Range of developers from 28 mini-case studies

13

Owner developer

(small scale)

Conventional private developer Conventional private developer

Ho

use

ho

lds/

co

mm

un

ity

Pu

bli

c se

cto

r P

riv

ate

sect

or

(Sm

all

scal

e)

Pri

vat

e se

cto

r (m

ediu

m t

o

larg

e sc

ale)

National or regional government developer (medium to large scale)

National or regional government developer (medium to large scale) City as

developer (medium to large scale)

City as developer

Public entity as developer (medium to large scale) Parastatal as developer (medium to large scale)

Residential

Commercial/industrial KEY

Increasing control by city

Incr

easi

ng

op

po

rtu

nit

y f

or

val

ue

cap

ture

THE NATURE OF DEVELOPERS

Owner developer

(small scale)

Owner developer

Private developer Small private developer

Notion of a developer in three country case studies

15

Each country’s approach predicated on different notions of what a developer should be and do

• Ethiopia: state provides land, sets price and prescribes development parameters

• Kenya: politicians and land speculators tightly linked in role of developer

• Zimbabwe: ‘land barons’ developing peri-urban farmland with tacit consent of authorities; established developers compete for scraps in the formal sector

Developers in 28 property development sample in 22 countries

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Type of developer No of projects and their country location

Large scale private developer acting as ‘umbrella’ developer, working with smaller scale developers (not identified).

3 (Angola, Kenya & Rwanda)

Medium to Large scale partnership between government and private developer

4 (Ghana, Cameroon, South Africa, Zimbabwe)

Small scale partnership between government and private developer

2 (Nigeria)

Large scale private developer undertaking complete development

12 (Angola, Cameroon, Côte de’Ivoire, DRC, Ghana, Kenya, Senegal, South Africa, Uganda, Zambia)

Small scale private developer undertaking complete development

3 (Ghana, Nigeria, Rwanda)

Parastatal developer None identified in sample

Public sector developer, sometimes with construction firms acting as subsidiary ‘developers’ but taking little risk.

4 (Benin, Ethiopia, Mozambique)

Access to finance

• This is a difficult success factor to understand at a regional scale.

• Extensive anecdotal evidence – and obvious physical signs – that there is finance for real estate development (more so post-2008?)

• ‘access to banks per 100 000 persons’ – not hugely helpful indicator

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3 f): Access to property-related finance Banks per 100,000 population – 31 cities (World Bank statistics in ALICS database)

And so?

• not many places satisfy key success factors

• international evidence: LBF is hard to do

Understanding what will make LBF instruments work more or less well:

• is essential to selecting and designing instruments that will have a reasonable prospect of effective implementation; and

• emphasizes the potential costs of imposing overly ambitious instruments on already weak systems.

End

Urban infrastructure in Sub-Saharan Africa – harnessing land

values, housing and transport