Understanding African urban economies

By Franklin Obeng-Odoom

The analysis of African economies is all too often pitched at the national level. Economists sometimes pass judgements about cities in Africa, of course, but they are usually dismissive of African urban economies, much of which is informal. Yet, these urban economies are vibrant drivers of the macroeconomy. ‘Between 2010 and 2014’, for example, ‘the urban informal economy contributed as much as 38% of the GDP in Sub-Saharan countries’ (The Economist, 2017, p.59). With only 1.1% of total land, urban services and industry contributed 80.7% of GDP in Africa in 2015 (UN-HABITAT, 2020, p. 79).  Beyond income, ‘cities such as Johannesburg, Cairo, Cape Town, Nairobi, Durban, and Casablanca have developed relatively good international air connectivity and are thus relatively well integrated into the global transnational urban network’. Not surprisingly Foreign Direct Investment (FDI) in African cities are, therefore, substantial, with Cairo (18%), Luanda (11%), Lagos (10%), Tunis (6%) and Johannesburg (6%) being the most popular destinations (UN-HABITAT, 2018, p. 318).  Even smaller cities like Diass in Senegal can boast of an international airport which, according to Senegalese economists (Sipoaka and Cabral, 2021), has shored up both the country’s GDP and tourism industry.

Cities like Kigali are seeking to become even more global. Rwandese  authorities are creating the framework for their capital city to become an international financial centre by offering attractive tax discounts. Business tax rates in Kigali can be slashed from 15 to 3 % and neither dividends, interest payments, nor royalties are taxed in the city. Nairobi also aspires for this status. In turn, the city authorities of Kenya’s capital city have signed an agreement with the City of London (The Economist, 2021a, p.40).  In Cairo, property taxes are considered low, pegged on rental values, and capped at 30%. Even though there are rate revisions, they happen only every five years and capital gains in the stock market invested in property attract only a tax rate of 1% (The Economist, 2022, p.30).

Much of the growth and change in African urban economies have raised serious and sustained debate. Critics have asked about conditions of work, the quality of labour, and the wider context for production and distribution. The environment within which economic and social questions ought to be framed is, itself, the focus of much heated discussion. How clean, green, and sustainable is growth? Is a ‘just transition’ just that – environmental viability – or it must take into account spatial and social justice? Does capital created, imported, and expanded in Africa remain or leave cities in Africa?

These are challenging  empirical questions, but they are also difficult to frame analytically. Sketching  the dynamism of urban economies in Africa is one thing but establishing   a framework to understand their nature is another.  Conceptualising what the urban economy is, including how it works, and how it might be managed are critical  stepping stones for this purpose. A useful starting point is considering the spatial equilibrium model, the workhorse of much neoclassical urban-economic analysis.  This approach could be complemented by examining the circuit of capital approach, being the most common way in which urban political economists analyse the urban economy. I discuss these approaches in my book, Reconstructing Urban Economics (Obeng-Odoom, 2016, chapters 3 and 4). There, I consider these two ways of analysing the urban economy to be both similar and different.  Similar because, in utilising them, analysts could establish structural change in the economy by considering how the share of urban employment in agriculture, industry and services change over time. Or they could examine the shares of agriculture, industry, and services  in GDP/GNI over time. Alternatively, analysts  might  study structural change by looking at how the specialisation of cities transform over time, for example, by examining  location quotients to show which industries are export-oriented and which ones are import-substituting.

However, these two approaches are also fundamentally different. As a largely supply-side framework, spatial equilibrium analysts focus on promoting capital as the driver of growth. Practitioners of the circuit of capital approach focus instead on demand-side analysis, often centred on protecting workers as the engines of the urban economy. While urban policy based on spatial equilibrium prioritises the unfettered expansion of capital; urban policy grounded within the circuit of capital usually questions the accumulation of capital and emphasises the protection of workers. Understanding both frameworks is necessary but insufficient because they neglect or treat urban land problematically, caricatures the nature, form, and substance of institutions of urban development in Africa, and treats urban sustainability marginally.

Spatial Equilibrium

In neoclassical urban economics, as I note in my book (Obeng-Odoom, 2016, chapters 3 and 4), the urban economy is understood as the interrelated parts of urban society where goods and services are produced and exchanged, or where incomes are earned, saved, or invested. The primary focus for the typical mainstream economist is on the distinctive urban advantages commonly called ‘agglomeration economies’. Economists also usually study how autonomous choices lead to the establishment of general equilibrium or spatial balance. In this sense, the ‘urban economy’ is treated as the interaction of markets. In this process, firms, individuals, and households exercise their ‘freedom of choice’ to maximise their profit or utility.

A modernist frame, the spatial equilibrium approach is centred on promoting capitalist firms, especially, because they are assumed to drive the urban economy, which is assumed to go through certain ‘stages of growth’. In Reconstructing Urban Economics (Obeng-Odoom, 2016, chapters 3 and 4), I examine four of these stages. In stage 1, firms cluster in big cities to obtain agglomeration economies. As it becomes costly to produce in such cities, firms move to other, possibly smaller cities to reduce their transaction costs, and take advantage of agglomeration in smaller cities in stage 2. With greater specialisation and economies aided by further falls in transaction costs, cities, or firms in cities, undertake greater global trading in stage 3. Eventually these firms could move offshore, either in part (by moving certain aspects of production) or in full (by relocating the entire production plant) in stage 4. Economists assume that this market-based process is quite natural  and, in and of itself, leads to economic growth, employment, and inclusion. As these cities flourish national development becomes more ebullient, too.  For these reasons, in this approach to framing the urban economy, the emphasis is on what enables the firm, the engines of growth, to expand. Yet, in this model, there is also a recognition that while cities can be drivers of economic growth, they also tend to pull growth away from the rest the national economy. In other words, cities are motors that power growth but they also act as ‘magnets’ that attract growth from the national economy.

Interest rates, investment, expenditure, and revenues are all intended to create conditions that support the national but, also, the capitalist urban economy. Informal economies may be created in this process, but they are not expected to be persistent. Conceptualised as temporary, disconnected from formal economies, and insignificant, such informal economies are expected to fade away as they are absorbed into an expanding urban economy. What matters, then, is for the urban economy to keep growing. This is assured when conditions for institutionalising property and registering business are made less bureaucratic and more pro-business, pro-markets.

Circuit of Capital

The exploitation of labour is not a central focus of spatial equilibrium, neither are concerns about class, power, and continuing structural inequalities across space and time. The Circuit of Capital approach, developed by Marxist urban political economists, seeks to address these problems.  Centred on workers, as I summarise in Reconstructing Urban Economics (Obeng-Odoom, 2016, chapters 3 and 4), this alternative views the urban economy as the space of exploitation of workers by capitalists. In this framework (Harvey, 1978), the more workers are exploited, the higher the level of surplus value, some of which is pocketed as profits. But if the capitalists over exploit workers, the economy could be thrown into crisis either because of overproduction or under consumption.

The strategy here is to first find a primary, non-economic sector in which to invest, then create a secondary sector (real or financial) to invest, and eventually leading to the creation of tertiary science and technology sectors that attract investments. In the event a financial glut occurs, investment circuits from spatial relations are entirely reworked. The process could entail offshoring actual or low-value investment to cities in the Africa. In this way the process of investing capital to reignite the engines of  production, create and sell commodities for profits and reproduce  surplus is set in in motion again.

Analysts who use this framework address several hypotheses. A crucial question is the tendency for workers to be dissatisfied because the urban economy is entirely geared to the interest of capital. In this respect, Margaret Peil’s book, The Ghanaian Factory Worker: Industrial Man in Africa (1972), is a classic.  Among others the book addresses questions of work satisfaction in three cities: Accra, Kumasi, and Sekondi-Takoradi. These are the most industrialised centres and cities in Ghana, so their choice requires little justification. Data comes from censuses published at the time (most notably 1960), but also from survey interviews conducted in each city. In total, over 1400 workers from 16 factories were interviewed in the three cities and, in the case of Accra, its environs (Peil, 1972, pp. 23-40). Doing so was needed to fill in data gaps not addressed in the census or not addressed comprehensively there.

Peil does not really provide an overarching argument in the book itself, but five key findings related to her three research questions can be deduced (see, for example, Peil, 1972, pp. 82, 83, 84, 93, 98, 99, 122, 123). Firstly, Ghanaian factory workers prefer self-employment. Secondly, they prefer less stressful work environment with more collective ownership and control. Thirdly, they are more satisfied under Ghanaian bosses and supervisors. Fourthly, conditions of work, including pay, training, housing are  seen as ‘difficult’. Although Ghanaian workers are putting up with difficult conditions, they are helping their kith and kin make ends meet. It is widely accepted that conditions of work have not kept up with rising cost of living. In Ghana, lack of turnover is no proof of satisfaction as workers have no alternatives. Fifthly, job satisfaction is linked more broadly to living conditions, including housing and health. Finally, the concept of modernity has varieties.

The factory workers in Peil’s study are still linked to communitarian and collective ethos. Thus, unlike the ‘global north’ - a common term to describe wealthy western nations - rural and  urban space are connected in Ghana through remittances, for example.  Workers in cities support their families by offering them financial support. Also, workers prefer a work-life balance that is not usually offered  by the hyper industrialised economic order that puts a priority on individual achievement and work performance over everything else. What we have in ‘industrial life’ in Ghana is, indeed, a situation of alternative modernities.   

More recent studies like Peil’s are rare. Franklin Obeng-Odoom’s Oiling the Urban Economy (Obeng-Odoom, 2014) suggests that employment in private enterprising is less satisfying, at least in Sekondi-Takoradi, one of Peil’s case studies. There the persistence of labour stratification in foreign direct investments despite clear laws for diversification is one problem. The rising cost of living is another, so is the lack of worker satisfaction under a discriminatory regime of labour, but particularly wider issues of urban housing and livelihoods beyond work and pay.  A recent study (McQuinn and Sallah, 2022), which examines  the experiences of the General Transport, Petroleum and Chemical Workers’ Union in Sekondi-Takoradi, Accra, and Kumasi, all of which were the focus of Peil’s original study, illustrates these concerns.

However, these matters of frustration and dissatisfaction are driven not so much by capital and its expansion, but more by  ‘rent theft’. Therein lies major tensions. The Circuit of Capital is arguably far more comprehensive and far more nuanced as an approach because it takes into account spatial power imbalances. However, like the Spatial Equilibrium approach, it does not recognise the centrality of land to the urban economy in the Africa.

Urban Land Economy

Overlooking the importance of land is an obvious problem because many urban residents in Africa make a living from urban agriculture. Urban farmers in Kumasi and Accra produce 90% of all the vegetables consumed in those cities. About 65% of residents in Freetown make a living from urban agriculture. In many other cities in Africa the share of urban population is quite high (Obeng-Odoom, 2022, p.73): 40 % in Maputo, Mozambique, 49% in Lusaka, Zambia, and 50 % in Addis Ababa, Ethiopia. On the other hand, urban land is increasingly becoming financialised. Secondary mortgage markets are booming across Africa. These markets do not only provide shelter, they also create employment and investment opportunities. For instance, with shareholders in 44 African countries Shelter Afrique created about 29, 000 jobs, of which 15,303 were direct jobs and 12,753 were created indirectly in 2020 alone (Shelter Afrique, 2021, p. 24).

What can be noted of urban farming and urban real estate industry can be emphasised about the fossil fuels industry, too. Many cities in Africa generate, benefit from, or depend on resources and rents from fossil. Consider cities such as Port Harcourt and Sekondi-Takoradi. They rely heavily on oil (Obeng-Odoom, 2014, 2021), while the coal towns in the Emalahleni region of South Africa depend on coal (Marais, 2018; Marais et al., 2022). The contribution of Africa’s urban land economy is, therefore, significant. Luanda alone contributed 74% of the Angolan GDP between 2003 and 2007. In 2007, some 55 % of all companies in Angola were located in Luanda, and 77% of all private sector employment was in Luanda around the time (Croese, 2016, p. 5). According to The State of African Cities Report 2018 (UN-HABITAT, 2018), similar comments apply to the other 42 top destinations for foreign direct investments in Africa. The economy of other cities such as Gaborone is based on diamond export and its management (Kent and Ikgopoleng, 2011), but the point is that this urban economic activity, too, highlights the need to consider land in framing the urban economy.

Indeed, much South-South (a common phrase to describe relationship between the so-called ‘developing countries’) co-operation is mostly about resources. Chinese investment in oil resources in Africa is a case in point. According to the UN-HABITAT (2018, p.44), ‘Western Europe invests mostly in Northern Africa (47%) partly because this African region is the nearest to Europe, but also because of its strong resource endowment of the petrochemical and tourism sectors’. Again, according to the UN-HABITAT (2018, p. 45), ‘North America invests mostly into Central (32%) and Western Africa (18%), arguably due to commodities like oil’.

These mineral economies are melting pots, simultaneously open, for example, in trade terms and closed, for example, in terms of racial/ethnic, class, and gendered contradictions. Prosperity fluctuates, but privation persists. ‘Luanda itself had been massively transformed by imposing, shiny glass-fronted buildings, impressive new expressways, enormous new shopping centers, and a multitude of glass-fronted bank branches all across town’ (Shaxson, 2021, p. 39). Yet, most people in Luanda and Angola live under US$2 per day. ‘Property developers sometimes import palm trees from Miami, but mere melons could cost as much as US$100 each’ (The Economist, 2021b, pp. 26-27). With all its wealth, Luanda is quite a segregated city: access and control of urban resources such as housing are largely monopolised (Cain, 2021). Also, between 1986 and 2018, Angola lost some US$103bn in capital flight (Indikumana and Boyce, 2021, p. 17). Similar problems have been discussed in Lochner Marais et al’s (2022), book, Coal and energy in Emalahleni, South Africa. Considering a just transition. Migrants live rough in informal housing. These cities grapple with long-term inequalities, socio-economic stratification, and the expulsion of urban farmers/fishers, soil degradation, the loss of biodiversity, and the disruption of urban food systems.

Conclusion

Urban economists analyse economies in one of two ways: by using supply-side models  or demand-side frameworks . Spatial equilibrium is a supply-based paradigm  to understanding and explaining the urban economy, a principal assumption of which is that capital, firms, business, money and so on drive urban economic growth. The Circuit of Capital approach, on the other hand, is rather a demand-side framework, emphasising a people’s or specifically worker-based approach to the urban economy. So, when, in popular discourse people say ‘people over profits’, what they mean is Circuit of Capital over Spatial Equilibrium. However, when African urban economies are involved, this binary view is not helpful.

Spatial equilibrium, etched in the neoclassical economics school, is almost entirely focused on the formal or formalised economy, and managing the urban economy by focusing on creating the conditions for the expansion of capital as a driver of urban economic growth. The circuit of capital, rooted in Marxist urban economics, is stronger in putting the focus on worker exploitation and, hence, addressing inequalities arising from class conflict. Amalgamating the two approaches might seem like a pragmatic strategy because such an amalgam could provide the basis for a more comprehensive analysis.

The trouble is that these two approaches, even if they have some similarities in describing urban economic change, are fundamentally different in their ontologies, epistemologies, and politics. More fundamentally, both approaches neglect a sustained and serious analysis of land which open the pathway to considering questions about particular ways of rethinking social stratification, social reproduction, and sustainability. When we consider land, labour, capital, and the state in our analysis of the urban economy, we must inevitably conclude that, to manage the urban economy in  Africa is to link our analysis to other spheres of urban life, society, and environment, including migration, housing, transport, sustainability, and governance, both locally and globally.

 

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