Op-ed: The future is urban, we should take advantage of it

08 May 2014, by Admin

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8 May 2014. Ann Bernstein for Business Day. Read this article at BDLive.

WHY are SA’s policy makers so ambivalent about urbanisation? Take, for example, the election manifesto of the African National Congress, which devoted considerable space to promises of rural development, but barely mentioned cities beyond the recognition that housing policies need to be fine-tuned. Nor is this silence confined to a manifesto intended, surely, to secure rural votes. The National Development Plan also devotes insufficient attention to the important role cities could play in transforming SA’s economy and prospects, concentrating more on local government than urbanisation and urban growth.

One of the defining features of apartheid was its commitment to keeping black people out of the cities, so this ambivalence is surprising. It is all the more so because our cities are the best platform for accelerated economic growth that SA is likely to find. Cities are the most powerful engine for economic growth ever devised.

For thousands of years, human labour generated value of the equivalent of about $2 a day. Today, income of this level would be regarded as extreme poverty. In many countries nowadays, human labour generates a hundred times this value and more every day. This is what Oxford’s Paul Collier describes as “the miracle of productivity”, directly linked to the rise of cities.

Big cities generate dramatic improvements in residents’ productivity because the concentration of large numbers of people allows firms to achieve economies of scale, and enables specialisation in the production of goods and services. The results explain why per capita incomes are almost four times higher in those countries where a majority of people live in cities than in countries where a majority of people live in rural areas. The rise in productivity associated with urbanisation also explains why there are few examples of rapidly growing economies that are not also rapidly urbanising.

Given this record, SA’s policy ambiguity on cities is a grave mistake. Already, nearly 60% of the country’s gross domestic product is generated in the six largest metros although they are home to less than 40% of the population. The six largest metros of Johannesburg, Cape Town, eThekwini (Durban), Tshwane (Pretoria), Ekurhuleni (East Rand) and Nelson Mandela Bay (Port Elizabeth) are also responsible for a disproportionate share of SA’s growth, with their economies having grown at an annual average of 3.8% between 1996 and 2011. This is nearly double the output growth in small towns and rural areas, which averaged just more than 2% a year.

The relative dynamism in SA’s cities explains why people move to them.

The rate of urbanisation, however, is slower than many people expected in the 1980s and 1990s. Nearly 30 years after the legal abolition of influx control, SA remains relatively underurbanised. About 60% of South Africans live in urban areas, compared with about 90% of Brazilians.

The relatively small size of our cities and the fact that there are still many South Africans who could conceivably move to them is an opportunity our policy makers should seize to accelerate growth and create the economic opportunities that are not available in most sparsely populated rural areas.

SA’s most pressing need is to create millions of jobs. Dynamic, entrepreneurial cities can do this and, given SA’s status as being relatively underurbanised, policy makers should be doing everything they can to encourage more effective urban management and urbanisation. With cities becoming more efficient engines for faster economic growth and job creation, household incomes and individual quality of life would rise, and generate more jobs for an expanding urban-born population and migrants.

To create large numbers of jobs, our cities need to find niches in the global economy for goods and services. Because transport costs are critical in determining the cost competitiveness of local industries, coastal cities may be better suited to creating large manufacturing industries. Cities in the interior must find niches for higher value-add, lower-volume goods and services where unit transport costs are less significant.

There are, however, some challenges on which cities can and must act:

• South African cities’ competitiveness is slipping as infrastructure comes under pressure and key institutions of governance decay. This must be reversed.

• The spatial legacy of apartheid raises the costs of transportation for workers; it also hampers business development in townships, where low density and limited infrastructure inhibit entrepreneurship and expansion of firms. This challenge needs a creative, practical response.

• In addition to seeking to densify cities, infrastructure and settlement policies should focus on turning housing into productive assets that generate income. Backyard shacks should be included in municipal plans as a necessity for now. Policies governing RDP housing should be reviewed to enable owners to use their homes for rental purposes, as places for business or an asset against which to raise a loan.

• Cities should play active roles in education and skills development within their boundaries. This could require policy changes to enable individual cities to shape education and training policies to their needs.

Cities must lower the costs of doing business and create an environment for economic growth and productivity that builds upon the urban advantages of agglomeration, competition and innovation. Taking advantage of the dynamic of urban growth and increased urbanisation is an opportunity and a challenge. Cities lack the institutional capacity and legal authority to pursue the individual policies that might fit their specific needs.

SA’s future is an urban one. The country needs to focus far more attention on “the where” of economic growth.

How we govern and manage cities so as to maximise our potential for inclusive economic growth will determine the next phase of SA’s development. National policy makers need to provide the environment and local powers required to create cities of hope, opportunity and entrepreneurship.

SA’s prospects for growth and development hinge on events, trends, perceptions and dynamics in the metros. Urban crime, urban transport, urban joblessness, urban politics and perceptions will be most important in determining SA’s future. This insight must determine the priorities of national leaders. The country’s economy depends upon a successful approach to the large cities and the National Development Plan must balance its focus on rural land reform with significant initiatives in big cities.

SA’s future depends upon the metros becoming more globally competitive and more inclusive of the many young people desperate for jobs. National policies need to be assessed for their effect on the metros. Urban strategy needs to become a much higher priority for government. At the same time, metros need to understand their own importance and put concerted effort into persuading national players of their roles in national economic development. These large cities are the drivers of economic activity and dynamism, and policy makers ignore their needs at their — and our — peril.

Bernstein is executive director of the Centre for Development and Enterprise. This article is based on a new report, Cities of Hope: Young people and opportunity in SA’s cities.

 

 

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