Tuesday, December 5, 2023

AfDB pledges more investment in cities as engines of Africa’s economic growth

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AfDB pledges more investment in cities as engines of Africa’s economic growth

Marrakech – The African Development Bank (AfDB) has pledged to increase its investment in cities, recognizing their role as the continent’s economic engines. The bank’s president, Akinwumi Adesina, announced at a high-level forum for mayors held Friday on the sidelines of the Africa Investment Forum 2023 Market Days in Marrakech, Morocco.

The meeting, co-organised by the African Development Bank and Big Win Philanthropy(link is external), brought together mayors and governors of several major African cities including Lagos, Dakar, Addis Ababa Abidjan, Kigali and Nairobi, and representatives of governments and financial and development institutions.

Adesina said that the AfDB will provide greater autonomy and fiscal responsibility to cities and towns, use debt securities to deliver greater financing, develop better mortgage financing to make cities more livable with access to affordable housing, and provide additional regulatory space to raise financing on local capital markets by posting municipal and green bonds.

The bank will also direct its Urban and Municipal Development Fund (UMDF) to support cities and municipalities, with 60% of the fund’s $50 million budget for the period 2023-27 going towards urban project preparation, 20% for urban planning, and 20% for municipal access to financial support ecosystems. Additionally, the AfDB will provide projected lending of approximately $2 billion in 2024 to cities and municipalities.

The AfDB’s commitment to cities is timely, as Africa’s urban population is expected to nearly triple in the next 25 years, reaching 1.5 billion inhabitants by 2050. To meet the challenges of urbanization, African countries will need to invest about 5.5% of their annual GDP in their cities, approximately $140 billion per year.

“The Mayoral Forum launches what we hope is the beginning of new collaboration between financial institutions, cities, states and municipalities, to accelerate the growth and development of Africa,” Adesina said in welcoming remarks. “It also shows the priority that the partners and investors in the Africa Investment Forum will place on improving investments in sub-national level projects,” he added.

The session also included a presentation on a new report on African cities, titled From Millions to Billions: Financing the Development of African Cities, commissioned by the AfDB.

The report found that Africa’s urban population is expected to nearly triple in the next 25 years, reaching 1.5 billion inhabitants by 2050. The city of Lagos will be home to approximately 24.5 million people in 2050 – more than 32 times its size when Nigeria gained independence in 1960.

To meet this challenge, it is estimated that African countries will need to invest about 5.5% of their annual GDP in their cities, approximately $140 billion per year.

The report underlines several key strategies for cities: creating enabling environments, increasing revenue flows to cities, vision, and improving fiscal autonomy and creditworthiness.

Adesina said the AfDB disburses $2 billion per year to projects and programs that have a direct positive impact on urban areas across Africa. These projects cover a wide range of areas, including housing, transportation, access to clean water and improved sanitation and sewage systems.

The AfDB also has an Urban and Municipal Development Fund (UMDF), which supports 15 cities with technical assistance, capacity building for integrated urban planning, governance, project preparation, and broader urban management, including municipal fiscal management.

But the institution will go further, Adesina said. “While the Mayors are working hard to tap into this and other sources of public financing, greater priority needs to be given to attracting private investments into cities.”

He outlined four ways in which this could be done: by providing greater autonomy and fiscal responsibility to cities and towns; using debt securities which could deliver greater financing; by developing better mortgage financing to make cities more livable with access to affordable housing; and by providing additional regulatory space to raise financing on local capital markets by posting municipal and green bonds to boost their own financing.

Adesina also announced that the AfDB Board of Directors had approved new funding for cities:

  • The UMDF, which has $50 million mobilized for the period 2023-27, will be directed to support cities and municipalities divided in a ratio of 60% for urban project preparation, 20% for urban planning and 20% for municipal access to financial support ecosystems.
  • The AfDB will provide projected lending of approximately $2 billion in 2024 toward cities and municipalities.
  • The Africa Investment Forum (AIF) will now start to prioritize bankable projects that can secure investments for cities. Special sessions on cities will be a permanent agenda at the AIF.

“AIF will prioritize bankable projects from governors and mayors inside cities and municipalities,” Adesina said.

The commitment to invest in cities is a welcome development, as Africa’s urban population is growing rapidly. Cities are the engines of economic growth, but they need investment in infrastructure and services to keep up with the growing demand.

The AfDB and other development partners are playing a vital role in helping African cities to grow and develop in a sustainable way.

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