Experts in Conversation: Africa’s urban future – part 1

To mark the release of WBEF’s Superstar Cities of Africa report later this week, we spoke with Andrew Alli about why investors should consider the rapidly urbanising continent.

About the expert:

Andrew Alli is Partner and CEO at SouthBridge Group, a pan-African financial services group. Between 2008 and 2018, he was Chief Executive Officer of the Africa Finance Corporation.

Andrew, you’re one of the first people outside of the WBEF team to have read our Superstar Cities of Africa report. I wonder, what are your initial thoughts?

Andrew Alli: Well, I’m a big believer in urbanisation as a mode of development. Many people decry urbanisation because they link the movement of people into cities with negative consequences, like overcrowding and the development of slums, for instance. Often what they don’t see is the rural poverty that people are escaping when they come to cities. The fact is that cities tend to be much more efficient in terms of delivering infrastructure and providing venues for people to meet and exchange value of one type or another. African cities aren’t always included in these kinds of conversations; I think the Superstars Cities of Africa report is an important exercise, for that reason.

My major takeaway from the piece is that many of the cities that feature towards the top of the Superstar Cities index are secondary, rather than primary cities. Even when you’re talking about one or two of the primary cities, they tend to be in smaller countries. I’m sure if you asked most people to name Africa’s superstar cities, you’d probably hear lots about Johannesburg and Lagos, and maybe a few people would also name Nairobi. But of those three, only Nairobi ranks highly on this index. I thought that was interesting.

And do you see those cities at the top of our index as providing a viable alternative destination for capital, away from that well know collection of primary cities?

AA: For me, what this report does is provide potential investors with information on places to look at, which might not be among the “usual suspects”. It does highlight the fact that the biggest cities aren’t always the best destinations for investment. It very much depends on what you’re looking for. Let’s take Port Harcourt, which is one of the ranked cities in Nigeria. That’s an economy that’s very much driven by the oil and gas industry. But the report also notes that that it has a good degree of connectivity, it has a certain amount of expertise within various economic sectors, and it’s smaller and easier to get around than, say, Lagos. So, it has its pros and cons. On the other hand, it’s also quite remote from certain large markets in Nigeria. So, depending on what you’re trying to achieve, it may or may not be worth making an investment there but the report will make you think about it. Obviously, I wouldn’t say that the report gives a definitive list, or that the Superstar Cities index is the only resource you should be using, but it’s a very useful exercise to throw up alternatives for investors to consider.

The report notes that 2020 was a particularly difficult year across the continent. One consequence of the COVID-19 crisis was the first pan-African recession in 50 years. Nonetheless, the African Development Bank has made some bullish predictions about the prospects of an immediate rebound in 2021. As we near the end of the year, how should investors assess Africa’s post-pandemic growth story?

AA: Actually, you can spin the COVID-19 story in two directions. Yes, it caused the first pan-African recession for many years. But, on the other hand, I believe, as a continent, Africa suffered the lowest impact in terms of negative GDP. Since the first lockdown, relatively few African countries have locked down again. That’s due partly to difficulties in enforcing lockdowns: many people need to work everyday in order to survive. But it’s also true that, in many countries, COVID-19 hasn’t hit as hard as in other places. Of course, there are exceptions – South Africa, for instance. But they are exceptions. People have ascribed it to our youthful population, though the science isn’t settled on that. This has all meant that internal economies have been able to continue more or less as they were.

Another point is that a lot of international trade activities in Africa tend to be raw materials exports. This is where a structural disadvantage can become an advantage under certain circumstances. Demand for these materials hasn’t been affected; in some cases those commodity values have hit recent highs and that has benefited parts of the African economy. So, I think that partly explains why we haven’t seen massive falls in national GDPs, and why the continent should be able to bounce back into a relatively healthy position.

The one question mark that remains relates to assumptions around when the pandemic will, quote-unquote, end. Clearly vaccinations have improved things, but not as quickly as we might have wanted. And the “vaccine apartheid” effect means that the developed markets are beginning to open up, while African economies are still somewhat shut out. That’s a real reason for caution. But ultimately, the combination of beneficial factors that I have cited do lead me to feel that we can bounce back.