Experts in Conversation: Africa’s urban future – part 2

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.

WBEF’s Superstar Cities of Africa index includes four megacities – Cairo, Johannesburg, Lagos and Kinshasa. The latter two will, according to most projections, become the world’s first and second most populous cities by 2100. In what ways is urbanisation reshaping Africa and what are the opportunities for investors?

Andrew Alli: The question of infrastructure investment has been vexatious for quite a long time. There are various estimates as to the size of the investment gap in Africa. Most people place it at around US$100 billion a year, but whatever the true number is, it’s pretty large. If you take Lagos as an example, it’s deeply lacking in terms of transport infrastructure. Getting from one part of the city to another can be torturous and costly, depending on the time of day at which you’re travelling. One of the benefits of living in a city is being able to interact with people; if you can’t really travel then that benefit is stripped away. But of course, wherever you face these sorts of challenges, you also find opportunities for those people who are willing and able to study the market and invest wisely. Housing is also a problem across Africa – especially affordable housing.

It’s hard to pinpoint a particular city or region as a better or best investment opportunity. Local governance is important in terms of planning, developing, incentivising and regulating, and there are certainly some cities that are better governed than others. There are quite a few cities in North Africa that fall into this category. In Morocco, for example, city governance tends to be quite forward looking. In Sub-Saharan Africa, often the smaller cities are better governed than their larger counterparts – and this, I think, ties in with the findings of your report.

It’s often been said over the past 18 months that we’re in the midst of an ESG investment boom. Could this newfound appetite for ethical, socially-guided investment benefit Africa?

AA: I can answer this question in two ways. To some extent, social issues have always been important in guiding investment decisions in Africa. As an investor, it’s hard to ignore the many social issues affecting the continent, or to pass them on to governments which sometimes don’t have the capacity to properly address them. So, the private sector often takes up that responsibility. And these social issues can also prove to be opportunities if you can come up with the appropriate structures and business models. So that’s one argument.

The second argument is that the ESG phenomenon, as currently understood in the Western world, has yet to really reach our shores (You Asked Us: Responsible, equitable and green infrastructure finance and delivery). There are a few governments that are issuing bonds with an ESG angle and enjoying slightly better interest rates because of that, but we haven’t really seen waves of new ESG investment into the market.

Much is made of Africa’s youthful population. In terms of growth prospects, is the continent’s unique demography a blessing or curse?

AA: I think the estimates say that, on average, 15 million people enter the African labour force annually. So, just to keep unemployment rates static, you need to create that many new jobs each year – you can’t balance it out with retirement numbers. Having such a large and youthful population, especially when other regions are suffering from static – or declining – and ageing populations, could be a big advantage. Africans can be the workforce of the world. If you look at the BRICS (Brazil, Russia, India, China, South Africa) countries, one of the important factors in that thesis was population size, which links to absolute GDP, if not GDP per capita.

But, on the downside, if you cannot provide gainful employment for this young population, you are likely to see all kinds of problems – up to and including civil unrest. Youth unemployment figures in some African countries are already quite scary. A lot depends on how well we can mobilise these young people.