Gerald Gondo: African urbanisation – a changing dynamic

Gerald Gondo

On a recent trip to Morocco to attend the 15th Annual Africa Private Equity and Venture Capital Association (AVCA) conference, I had the pleasure of being seated next to and in front of two young families on the aeroplane, both returning home to Morocco after visiting friends and family abroad.

One father I chatted to was born and raised just outside Casablanca. An actuary by profession, he was quick to rattle off some facts and figures about his home country, with the most interesting fact being that Morocco is looking to host the Football World Cup in 2026. Morocco’s plans to submit its bid, against a united bid from the United States, Mexico and Canada, certainly speaks volumes.

The conversation on the plane, along with the conference discussions, got me thinking about the thematics synonymous with the African investment narrative, one of which is urban dwelling. Urbanisation, in turn, is synonymous with infrastructure.

The overall infrastrucuture gap in Africa, estimated at US$90bn per annum, is widely acknowledged. Thus, investment practitioners specialising in infrastructure investment on the continent are increasingly alert to the need to match and tailor the provision of infrastructure funding to Africa’s urbanisation realities, and how these realities differ from, or in some instances, closely follow the rest of the world’s experiences. Many of the presentations at the AVCA conference mentioned this statistic. Whilst appreciating the fact that urbanisation will increasingly prove to be a vital and critical element to the transformation of African countries, comprehension of how the narrative of urbanisation has and will continue to evolve is key.

Whilst many private equity funds reported participation in extraordinary medium- and long-term opportunities across Africa, their investment returns could be enhanced if the requisite infrastructure was in place.

An article by Ester Boserup, titled Economic and Demographic Interrelationships in sub-Saharan Africa, comes to mind. The article posits that urbanisation for most African countries started out during their colonial periods in support of colonial economic needs, such as exports to Europe. Unlike other regions, urbanisation was not brought about by, and did not bring about, industrialisation. Now, with increased investment from PE funds, urbanisation is starting to occur intrinsically as people move from rural to urban areas to develop their own economic activities and communities.

The Africa Development Forum succinctly supports this changing dynamic in Africa. Across a number of the continent’s economic nodes, broad-based economic prosperity and population density are occurring together despite the infrastructural challenges. The collective challenge for African policy-makers is to allow for greater trade and linkages between their economies to create larger markets with better connectivity.

Of equal importance is the need to change the substance of the rural to urban development narrative. According to the Africa Development Forum, rural and urban development should demonstrate mutual dependence with economic integration; in doing so, producing inclusive growth and development in both rural and urban areas. African cities are growing fast, but there is a need for urban infrastructure to support this growth, alongside the provision of adequate basic services to new settlements.

Basic services include energy, roads, water, and information and communication technologies (ICTs), amongst other things. Long-term growth requires an efficient system of urban centres that include small, medium, and larger cities that produce industrial goods and high-value services, along with well-functioning transportation networks to link national economies with regional and global markets.

Of course, funding is always an issue, but a constructive development is the convergence between African pensions and savings with infrastructure provision. This is firmly underway, with over $3.4bn in capital raised for African infrastructure funds since 2012. Whilst this value only represents just under 4% of the annualised overall infrastructure deficit for Africa, it is a positive indicator of increased private sector involvement in the funding of infrastructure as an asset class.

Gerald Gondo is a business development executive at RisCura.