Africa’s smaller cities are usually overlooked. They shouldn’t be

Often when one thinks or writes about urbanisation in Africa, mega or primary cities such as Lagos, Nairobi, Addis Ababa or Kampala come to mind. Little, however, is written about places such as Gabés in Tunisia, Touba-Mbacké in Senegal or Ibadan in Nigeria. Yet these are just three of an estimated 885 secondary or intermediary cities on the continent that account for more than 40% of the Africa’s urban population. Their share is likely to grow over time.

These cities have a critical role to play in the continent’s overall urbanisation trajectory. They have a number of advantages.

First, they’re located closer to rural populations, providing an important market for agricultural goods. This means they provide a crucial link in ensuring more balanced economic growth for a country.

Second, their location also enables people to make the transition from agricultural to non-agricultural work more easily. And, more generally, they make the move from living in the countryside to a more urban existence easier.

There is global evidence from developing countries that demonstrates that for a given level of urban population growth, these intermediary cities are, overall, better in driving poverty reduction than primary cities are.

A further major advantage intermediary cities have is that many still have most of their growth trajectory to come. And unlike many primary cities struggling under the weight of large populations, investment in infrastructure in intermediary cities can happen in advance of settlement.

If this is done it helps avoid the substantial financial, political and social costs of retrofitting. But this requires substantial upfront financing. Yet raising this, with the revenue to repay it, is a challenge.

Where the money is going to come from

Many of the options available to intermediary cities when it comes to generating local revenues are the same as those available to all cities.

The first is administrative reforms to improve the efficiency and effectiveness of the collection of taxes and fees.

Such reforms include updating taxpayer rolls or streamlining payment systems. The benefit of these types of reforms is they usually lie squarely in the city’s remit. And a city doesn’t necessarily need to get approvals from other levels of government.

In addition, the reforms can result in substantial increases in revenue for cities far from achieving optimal efficiency.

But there’s a major drawback. Increasing revenue from these types of administrative reforms is finite based on efficiency being achieved.

Cities can also focus on reforms to change the composition of what they can collect. This includes the types of taxes and fees, their rates and from whom they should be collecting them. Reforms such as this usually require changes to laws and regulations. This makes them longer and more onerous to implement.

Administrative and policy reforms can be supported by improvements in technology. For example, to improve tax collection several secondary cities in Tanzania introduced GIS mapping to help identify and map all the properties in their remit. Despite some challenges in implementation, cities such as Arusha managed to increase their annual revenue from property tax collection accordingly.

Mzuzu in Malawi also used technology to support a policy reform for its property tax valuation system. This change required various characteristics of the property to be captured. This was done digitally. The result was a seven-fold increase in revenue in five years.

This showed technology can be important in supporting reform processes when the availability and integration of data is improved.

But technology can’t replace the need for underpinning reforms to happen.

Opportunities

There are also some opportunities particularly pertinent for intermediary cities. This is true around land value capture.

One of the most important assets for all cities is the land on which they are located. For some, land can make up 90% of their asset base. Urbanisation results in an increasing scarcity of land as people and businesses begin to locate in cities.

With public investments made on land to improve productivity and liveability, these two forces drive up its value. Cape Coast in Ghana, for example, has land values of up to $200,000 (about R3.2m) a hectare, with prices rising more than 50% a year. This is not uncommon for many intermediary cities.

It means intermediary cities, particularly those still at the relative outset of their urbanisation process, should put in place mechanisms that can capture this increased value and then use the revenues from this to reinvest into the cities.

One way for these cities to capture the value of land is through proper planning of urban expansion. Changing or adopting new land use management plans and the resultant impact on land values can provide a major source of revenue for a city.

In Ethiopian intermediary cities where this has been done — Adama Bahir Dar, Hawassa and Mekelle — an estimated $77m (about R1.2bn) in leases have already been sold. This money can be reinvested to service the land and provide further infrastructure in expansion areas.

Another major opportunity is to harness the potential of remittance payments. Research on the impact of remittances on secondary cities in Africa is still scarce. Nevertheless, evidence from Latin America and the Caribbean shows the majority flows into secondary cities and towns.

A study on remittance flows to eight secondary cities in these regions showed certain cities with large numbers of international migrants could receive up to 20% of remittance flows for that country.

The same study shows most of these remittances are spent by households on education, health, housing and insurance.

A similar, smaller study conducted in Gondar, Ethiopia shows about a third of households received remittances monthly, usually reflecting their sole source of income. In these cases remittances were overwhelmingly used to support housing investments, businesses and education.

To tap into remittances as a source finance, cities must have structures in place that allow for the absorption of the funds, as well as their use in the overall economy.

In the near term, intergovernmental fiscal flows will remain a significant portion of intermediary city budgets. This means finding ways to support national governments to improve and stabilise these flows will be key in supporting investments to happen in advance of settlement.

At the same time, it is critical the dependence on these intergovernmental fiscal flows is reduced by increasing intermediary cities’ revenue generation. This is key to ensuring the overall longer-term sustainability for these intermediary cities and in particular their infrastructure and public services, and as such, unlocking the urban dividend for the whole country from the urbanisation process.

Astrid RN Haas is fellow, Infrastructure Institute, School of Cities, University of Toronto. She does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article and has disclosed no relevant affiliations beyond their academic appointment.

This article, first published by The Conversation, is based on the chapter ‘Funding and Financing Secondary Cities’ from Cities Alliance book ‘The Dynamics of Systems of Secondary Cities in Africa: Urbanisation, Migration and Development’.