BY James Muliro
Nairobi has been rated as the most attractive destination for foreign direct investment (FDI) in Africa, a new report indicates.
The report “Into Africa: The Continent’s Cities of Opportunity” by financial advisory firm, PwC says Nairobi has outperformed 20 major cities in Africa – including Johannesburg, Addis Ababa and Lagos – in terms of its attractiveness to FDIs.
“Kigali finishes at the very top for both ease of doing business and health spending, Abidjan ranks number one in both middle-class growth and diversity, Dar es Salaam is first in GDP growth, and Nairobi outscores all African cities in FDI,” the report indicates.
It also indicates that the Kenyan capital is a regional financial hub, only rivalled by South Africa’s commercial capital, Johannesburg.
The report studies variables like housing, transport, water and power, healthcare, education and public safety on the one hand, and GDP, inequality, middle-class growth, ease of doing business and FDI on the other. The 20 African cities that are considered among the most dynamic and focused on the future include Abidjan, Accra, Addis Ababa, Algiers, Antananarivo, Cairo, Casablanca, Dakar, Dar-es-Salaam, Douala, Johannesburg, Kampala, Kigali, Kinshasa, Lagos, Luanda, Lusaka, Maputo, Nairobi and Tunis. Tanzania’s port city, Dar es Salaam leads in the rate of real GDP growth, while Rwanda’s capital, Kigali, leads in the ease of doing business. Uganda’s capital, Kampala leads in population growth rates, while Abidjan, Ivory Coast’s capital city leads with the fastest growing middle class. Cairo tops in terms of its infrastructure development closely followed by Tunis. The Tunisian capital leads the pack in human resource endowment.
With increasing levels of growth, African cities need to invest massively in infrastructural projects like roads, rail, airports, energy, water and sanitation if they are to enjoy the benefits that come with such growth. Cities that score well in infrastructure also score well in human capital. This underscores the World Bank’s indication that sub-Saharan Africa needs infrastructure investment of about Sh9.2 trillion ($100 billion) annually if it is to achieve real growth capable of supporting increasing FDI flows and a growing middle class. This is despite less than Sh4.6 trillion ($50 billion) committed to infrastructure investments in the region. With poor or less than required investments in infrastructure, cities cannot sustain their current levels of growth.
“State-of-the art infrastructure leads to rich human capital, if for no other reason than the fact that smart, creative, ambitious human beings will congregate where it is easy for them to do so,” says the report.
Of the top five cities that rank very well in almost the identified variables, four – Cairo, Tunis, Algiers and Casablanca – are North African; the fifth is Johannesburg. The dominance of North African cities at the top is attributed to the fact that their development dates many centuries back, which has given them time to develop infrastructure and a regulatory and legal framework, and to establish a socio-cultural ecosystem. Johannesburg is the only exception to this pattern since it was only formed more recently – in 1886 – compared to the other cities. Its infrastructure and services are comparable to those of the more established African cities.
On the other hand, the discovery of oil, gas and other minerals like coal and titanium has also seen increased FDIs in Kenya over the past three years. The country has also seen substantial investment in energy, port and airport projects – partly driven by foreign investor capital, especially from China and Japan. The country has, in recent years, seen an influx of foreign firms setting up base in Nairobi as its hub for regional operations. The report however, does not give the value of the FDI that has been committed to Kenya to date.
The report is part of PwC’s global Cities of Opportunity series with its analysis structured around the critical issues of the business community and those of the office holders and other public authorities responsible for improving the collective life of each city examined here.
“This report assesses how the cities are performing not only on a regional level but also on an international one, which is hugely important in terms of these cities being able to compete and prosper on both of these stages,” says Stanley Subramoney, PwC head of strategy for Southern Africa.
Urbanisation is of particular importance given that by the year 2030, half of the continent’s population will reside in cities where economic activity and growth will be focused. The growing middle class, strong demographic growth, an improving age mix, and technological innovation, like mobile payments and rapid urbanisation, are all shaping what the future of Africa will look like.
Most of the African cities with promise can, with a little effort and organisation, climb to join the cities that top the overall ranking. Furthermore, many of them have already become key regional platforms, for instance, Dar es Salaam and Douala, as centres for port operations, Accra and Lagos for culture and Nairobi for financial services.
“With 5 per cent growth, dynamic demographics and a growing middle class, Africa is extremely appealing to investors. After undergoing a period of pessimism about the future of Africa with some exaggerated optimism, leaders today share a more realistic view of the economic climate of the continent,” PwC says of this trend it calls ‘Afro-realism’.
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