Building Nigeria’s urban future
Urbanisation is considered one of a number of macro trends driving the global economy. Others assert that it is the biggest macro trend, opening up entrepreneurial and business opportunities.
As at 2007, 11 Nigerian cities: Abuja, Benin City, Ibadan, Ilorin, Kaduna, Kano, Lagos, Maiduguri, Ogbomosho, Port Harcourt, and Zaria had more than 750,000 inhabitants. These urban agglomerations are increasingly home to Nigeria’s large youthful population.
The annual pace of urbanisation in Nigeria is expected to continue at about 4 percent and by 2030 62 percent of Nigerians could be city dwellers. Similar urbanisation experiences in Brazil, South Korea and the US, show there is a strong link between urbanisation and rising productivity.
Nigeria’s speed of urbanisation, unfortunately, has not resulted in jobs. Unless Nigeria manages its urbanisation process within this period it could lose an additional $640 billion to GDP, according to a report by McKinsey Global Institute.
China, the second-largest economy in the world, is banking on urbanisation on its journey to modernisation and industrialisation, and the largest economy in the world. Last March, Li Keqiang, Prime Minister of China, described urbanisation as “an essential element of and basic strategy for modernization.”
To sustain this growth trajectory, China lately announced it will sell $24 billion of bonds to build railways that will connect less developed areas of the country. China’s plan to add 7,000km of high-speed rail network by 2020 will connect cities with over 500,000 inhabitants. Additional spending by Chinese local government authorities will augment this expansion plan.
In addition, a preferential tax (a 50 percent tax cut for SMEs with taxable incomes below N1.56 million) policy will be extended to small businesses coupled with increased spending on low-cost housing all in the bid to transform shantytowns, spur businesses and boost jobs. The pace and scale of China’s urbanisation has been impressive. In 2030 1 billion Chinese will be living in cities.
With the appropriate reforms and capabilities Nigeria too can benefit from urbanisation. However, we contend that Nigeria must first understand that the process of urbanisation in Nigeria is an “unusual experience”, according to McKinsey.
The farm-to-factory transition, whereby people move from low-productivity subsistence farming in rural areas to more productive high-paying jobs in the cities, is not happening in Nigeria.
Urban migrants in Nigeria either end up unemployed, and become a burden, or employed in low-paying informal sector jobs. Small informal businesses remain small because of punitive transaction costs such as poor contract enforcement, regulation and tax. The McKinsey report says that on the average Micro Small and Medium Enterprises in Nigeria have 1.8 employees.
As a result there are no fast-growing SMEs with access to capital that can generate jobs – 57 percent of MSMEs in Nigeria are sole proprietorships and 25 percent operate from a single location.
Consequently, people who remain in the village to farm don’t receive remittances from their relatives in the cities. If they did it would be invested in better farming inputs e.g. seeds, machinery fertilizer etc.
In summary, there is a weak link between urbanisation and GDP per person in Nigeria because the process is not working as it should and due to historical weaknesses in the agricultural sector.
Nigeria’s urbanisation can be a source of productive manufacturing and service sector jobs. It is critical to further unlocking Nigeria’s domestic consumer market which is likely to hit $350 billion in 2014 and projected to rise to $1 trillion in 2030.
To reap such benefits it must be coordinated, growth poles (cluster industries) must be identified, tax laws and the Land Use Act must be reformed, similar growth-spurring institutions like the Nigerian Mortgage Refinance Company (NMRC) are required, to mention a few, if the benefits of urbanisation are to be broad-based.