On Trash

By Galen Laserson

Visitors returning from emerging markets commonly remark on two problems that plague developing cities: traffic and trash. Admittedly, visitors likely purchase bottled water and do not stay long enough to have to navigate power outages or a local transit system. More viscerally, traffic and trash are both highly visible and unpleasantly familiar enough that there is nothing “charming” or “local” about experiencing them and nothing particularly exciting about fixing them. Saravana’s post (“Roads – Simple, Mundane and Absolutely Vital”) teases out the significance of roads to economic development in West Africa, a concept we have added to in our class discussions about how to capture the lost productivity resulting from traffic. Accordingly, I would like to leave traffic aside for the moment and focus on trash.

At its core, trash is waste – the enemy of sustainability. Continue reading

In the news: Urbanization, Resource Scarcity, Cities, and Political Stalemates

(Updated March 35)

By John Macomber

Once you start tying phenomena together, the topics of our course are in the news everywhere. As we head into the last days of the Q3 term, here are a smattering just from the last week or two. It would be plausible to spring from these into an original post that applies some analysis or frameworks or segmentation to add the “so what” utility. Continue reading

Implementing Residential Energy Efficiency Solutions in Cape Town

By Anonymous

As a complement to our class on Energy Efficiency solutions in US Commercial Real Estate, I thought I would share my experience of working with a residential energy efficiency solution provider in Cape Town, South Africa. We worked on a consulting assignment with a start-up looking to introduce energy efficiency solutions (smart metering and energy auditing services) in Cape Town and came across a number of issues – some of which are similar to our discussion in class while others that were more specific to Cape Town but can be generalized to other developing cities.  Continue reading

How To Get Businesses To Invest in New Cities

By Stacie Chang

Last week, we discussed the creation of new cities all over the world. One question seems to pop up every time – where do we start? Do we get businesses in first or people in first? It’s a chicken or the egg problem. Without businesses, no one will want to live there, and without people, no businesses will want to locate there. If one of the reasons we see massive migration to existing cities is because commerce and opportunities reside there, then I don’t see why it would be any different for new cities. So how do businesses think about investing time and resources into a new country or city? Continue reading

Roads – Simple, Mundane and Absolutely Vital

By Saravana Sivasankaran

Fresh into my first semester in HBS, I took time with a professor to discuss my post-MBA plans in West Africa. The area was developing fast and looked to reap the benefits of political stability. When I finally finishing ranting on about my ideas, the professor looked up and asked, “Can you build roads instead?”

As simple as it may sound, roads are the backbone of a country. The A2 motorway case highlighted the difficulties of financing a project in a developed country like Poland as well as the numerous benefits that the country would derive from the project. Shift to Africa and a well-constructed road could make the difference between a thriving trading town and desolate place with large, unsold, undervalued produce.

Take the case of Sierra Leone – a country that has seen numerous civil wars in the last decade. It has finally shown signs of political stability and relative calm. As the new leaders look to rebuild the country, the number one priority is attracting foreign investment into the country to invest in its transport infrastructure. Sierra Leone is flush with greenery, and agriculture is a major source of employment and a huge contributor to its GDP. For the farmers in Sierra Leone to capture the full value of their produce, they will need transportation infrastructure to be in place.  A good transportation network also means less inventory leading to less working capital needs for small businesses. Investors are also willing to pay more for a country’s resource when it has existing good transportation networks.

The idea of successfully raising financing for a project in an underdeveloped country like Sierra Leone has been discussed for ages. The challenge is finding the middle ground between what the country can afford to pay and investors return expectations for the perceived risk. I will highlight two very different approaches that have emanated through this road-building task that poor African countries have before them.

While the discovery of mining resources have often resulted in what economists like to call the “Resource Curse,” the arrival of mining companies in a country usually leads to better infrastructure, especially in roads. The new companies have a vested interest in ensuring that their output gets transported to their final markets for delivery. Take the case of Olam in Gabon. Olam is on the largest agriculture trader in the world. Olam not only owns plantations in Gabon but is also building roads and ports with cooperation with the Gabonese government. (The counter argument is that the roads are only purpose built for the mines and do not help other industries. This is true but when you are starting with very little road infrastructure, even small marginal improvements have huge visible impact on trade and development).

On the other hand, Zambia provides a completely new framework. China has been busy buying up resources in Africa. Zambia is today a major source of copper in the world and Chinese state owned enterprises have numerous investments in the country. But in order to solidify the relationship further, Chinese companies have opted to build infrastructure, especially roads, in the country. The Chinese companies have been immensely successful in bagging contracts due to their price competitiveness and also willingness to take risks. This new found relationship has not been free of controversy with both sides suffering – contractors not being paid or roads falling apart due to shoddy constructions. But it highlights the importance and urgency with which countries like Zambia are treating the development of roads.

Eradicating poverty in Africa might well be the biggest challenge we face in our lifetime and that would only be possible if African countries become self-sustainable and produce goods that the rest of the world needs. And this boils down to building roads so that the Ethiopian coffee farmer captures a fair share of your Starbucks Latte, so that Sierra Leone palm oil producers can compete with the military efficiency of Malaysian palm oil producers and so that landlocked African countries can count on trade and, not charity to run their countries.

The construction industry has not seen any “Disruptive Innovation” as HBS professor Christenson calls it.  More effort needs to go towards finding innovative ways to construct and finance these critical road projects in Africa.

While mobile banking and Internet start-ups in Africa may appear “uber cool” for the budding Africa-bound entrepreneur, it’s the dull, low margin, high-risk business of building roads in frontier African markets that will inevitably unlock Africa’s full potential.

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Urbanization in Africa

By Anonymous

There is nowhere else in the world where the trend of urbanization appears it will be more pronounced than in Africa. By one estimate African cities will grow 267% by 2050, while global cities will grow by 94%. It’s possible to read these statics and assume that urbanization in Africa will mean a mass of people moving in to the traditional economic centers and burdening these cities that are already struggling under the weight of poverty, scarce resources and inadequate and inefficient infrastructure. While this will undoubtedly continue to be the case, there are factors at work that suggest the picture of urbanized Africa is more nuanced.

Interestingly, the most rapid growth is expected to be in cities in the middle of the continent, such as Lagos and Kinshasa instead of in North African countries or South Africa, which were traditionally the destinations for job-seeking migrants. Much of the economic growth in these regions will be driven by the development of natural resources.

It is no secret that many African countries are rich in natural resources, and minerals in particular, but political instability and a lack of critical infrastructure have historically restricted foreign investment and development. Investors have often been content to limit their large-scale mining ventures to South Africa. However after widespread strikes at mines in South Africa in 2012, many companies have reduced their exposure to that country and investing in other locations such as Ghana, Guinea, Mali and even Ethiopia, which suddenly appear comparatively stable.

As mines are finally developed, and concentrated settlements emerge, roads also must be built to transport the minerals to ports. This in turn creates further economic activities in these centers and drives urbanization. The development of roads alone has important implications for economic development. Calestous Juma, a Harvard professor, points out that people who do not live within close proximity to all-weather roads are not capable of participating in any meaningful entrepreneurial activities. In Kenya, for example, only about 32% of the rural people live within two kilometers of an all-weather road. For Ethiopia that figure is only 10.5%.

With additional investment and economic development comes a growing middle class desiring better living conditions, which are often in the form of more sustainable urban developments. Such developments are becoming more common. One prominent example that has received attention is Tatu City in Greater Nairobi, a planned work-live-play community by a development group planning similar such projects throughout Africa. At the other end of the spectrum, and receiving significant acclaim, the renewal of derelict spaces in Johannesburg is creating instances of more sustainable urban housing.

For much of the continent, urbanization will continue to mean massive slums amidst the same places much of the world expects to hear of. The limited examples of economic development, urban renewal and green-field smart cities presented here, however, show that the story behind the numbers will be more complex and that the future of African cities may look markedly different than many people anticipate.

Opportunities for PPP deals in Enugu, a second-tier Nigerian city

By Bryan

I was born in the South-Eastern Nigerian city of Enugu, with a population of about 3 million, and several other significant features:

  • A hilly terrain (Enugu means “hilltop”)
  • A rich bed of natural resources, specifically coal
  • A relatively homogenous population, a direct result of Enugu’s location in the Igbo tribe-dominated South-East of Nigeria
  • An up-and-coming movie industry scene (Enugu has been called the center of Nigeria’s burgeoning ‘Nollywood’ film industry’)

I return to the city around once every two years, and have been able to follow its development from a traditional ‘coal city’ resource-exporter to a diversified city with the makings of top-tier Nigerian city. One of my visions for the city’s future is for it to develop into the central city of Nigeria’s East and a solid rival to the commercial center of Nigeria, Lagos city.

Mezu - Enugu

Enugu hilly terrain

Mezue - roads

Enugu roads

The good news is that Enugu’s current governor has shown a strong appetite for long-term infrastructure investments to help transform the city into a tier one city. In the context of the Sustainable Cities course, I see several opportunities for private sector involvement in Enugu:

  • Roads: Enugu’s roads have already seen massive transformation in the past 5 years with some major roads widened to double lanes and new roads constructed into rural areas. As the government accelerates this rollout there should be space for expertise and capital from private players, especially in the more difficult terrain in the hilly outskirts of the city.
  • Residential Real Estate: Enugu has been called a ‘civil servant’ city, a reflection of its economy’s reliance on government jobs and its traditional strength in sectors such as education and healthcare. One of the benefits of this status is that many residents of the city have steady incomes and are willing to invest in real estate. In addition, the increasing migration of people from rural areas into Enugu means that there is scope for a public-private partnerships to develop new flats and houses – for both the new buyers and low-cost renters.
  • Rail: Enugu is conveniently located to the trade cities of the South-East, and there are old railway lines (originally constructed by the British) linking the city to the North and the West of Nigeria. These lines have not been maintained and there is a role for a private player to partner with the government to bring them into the modern age.
  • Power: The power sector in Nigeria is nationally regulated, and there is a strong bias towards the petroleum industry (oil accounts for ~70% of the government’s revenue). One of the overhanging political conversations centers on the role of Enugu’s rich coal resources, which are currently less attractive due to pollution concerns. However, there might be some role for clean coal technology providers.
  • Airport: The Enugu airport is being currently transformed into an international airport.

One of the biggest challenges to a PPP deal negotiated with a second-tier developing market city such as Enugu is enforceability. Enugu can learn a lot from Chinese second tier cities, such as Changsha where I visited during an IXP trip last month, and where there is clear alignment between central and local government, yet enough independence at the local level to drive visionary change. Specifically there might be a role for Chinese private sector players to partner with the local government for new projects.

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