Why should Kenyans care about urbanisation?

Today, over half of the world’s population lives in urban areas. Africa, however, is still predominantly a rural region with 40 per cent of its population living in urban areas.

But that will change rapidly. Over the next 35 years, Africa and Asia will be the most rapidly urbanising regions in the world, and by 2050, about 56 per cent of Africa’s population will live in urban areas.

By then, currently at a low urbanisation rate of below 30 per cent Kenya will become 50 per cent urban.

This implies that by 2050 about 40 million Kenyans – the same as the country’s total population today – will be living in cities and towns. This will be the country’s most important transformation of the next generation.

Why is this important? Because how Kenya manages its urbanisation process will greatly determine if it can leverage urbanisation for economic growth, improved quality of life and poverty reduction.

There is a strong positive relationship between urbanisation and economic growth, and no country has become wealthy without urbanising.

Kenya’s Vision 2030 clearly recognises that cities will be one of the primary drivers of the country’s ambition to become an upper middle-income country by 2030.

As an urbanised upper middle-income country, Kenyans should look forward to greater economic opportunity, reduced poverty, and improved living standards.

Kenya has some advantages over other countries is Sub-Saharan Africa. With a Gross National Income (GNI) per capita of $1,280 (2014), Kenya is under-urbanised.

By comparison, most countries in Sub-Saharan Africa reached the 40 per cent urbanisation rate with a GNI per capita of about $1,000.

This should mean that Kenya can invest more money in its urban areas as it urbanises. In addition, Kenya’s vast agricultural potential and increase in agricultural productivity could serve as a major driver for economic growth, and could in turn drive urbanisation.

Also, Kenya’s devolution process should drive a smoother urban transition by bringing service delivery, social accountability and decision making closer to the people. These are positive trends for urbanisation.

However, there are trends that could undermine the urban transition and lock-in potential negative impacts of urbanisation for decades to come if national and local leaders do not take action.

To begin with, economic growth has yet to drive economic transformation; the services sector grew by 2.1 per cent per year from 2000-2011, while manufacturing grew at 0.7 per cent only.

In addition formal employment remains elusive for most Kenyans: unemployment in urban areas stood at 13 per cent in 2015, and only 40 per cent of workers are formally employed.

Wage earnings from industry declined from 20 per cent in 2008 to 10 per cent today.

Kenya is also under-investing in its urban areas. Urban infrastructure services are essential to attract and retain satisfied and productive residents and businesses. However, urban services are failing to keep pace with urbanisation.

For instance, the current water demand in Nairobi and Mombasa outstrips supply by 150,000 and 100,000 cubic meters per day, respectively.

Also, only about 18 per cent of the urban population is covered by a proper sewer system and the existing wastewater treatment plants operate at 15 per cent efficiency, leaving most effluent untreated. There are no proper sanitary landfills anywhere in Kenya.

At current investment rates, it would take 200 years to reach universal urban water and sanitation coverage, and more than 50 years to reach universal electricity access in urban areas.

Lagging supply of basic urban services is manifested in Kenya’s high proportion of informal settlements. Informality has stayed constant in urban Kenya for at least 20 years at 61 per cent of urban households.

Such families on average live in housing of 17 square meters which is overcrowded.

Most formally constructed housing (80 per cent) is affordable only to upper-middle and upper-income households, and only two per cent of formal housing is targeted to low-income households.

By 2050, Kenya will need to produce nearly 300,000 new housing units per year to meet new demand.

Today, most formal sector builders are capable of building only 300-500 units per year. If the current rate of informality continues to 2050, there will be 24 million Kenyans living in informal areas.

Households, especially informal ones, often trade-off housing quality for access to jobs – usually informal ones.

Urban financing will be central to the success of devolution, and ultimately urbanisation, especially for larger counties with major cities and fast growing urban towns.

Without proper financing, there is a major risk that urban services will continue to be under funded and will deteriorate service quality and access even further.

Measures to increase county revenues and manage costs are needed urgently. Recurrent financing of on-going service delivery and maintenance of assets is proving to be a major fiscal challenge for predominantly urban counties.

Property taxes offer the most scope to increase own-source revenues, but counties face political and information challenges to doing so.

Borrowing is another alternative, but the combination of low fiscal surpluses and fiscal conservatism in the emerging county borrowing framework could also play into a continued urban investment deficit.

Other financing alternatives need to be explored and weighed for their impact on fiscal risk and contribution to economic growth and social welfare.

Policy makers need to sort-through the policy trade-offs that will be required to facilitate a smooth urban transition.

While there are many specific policies that must be addressed across various sectors, three policy areas emerge as priorities: ensuring effective urban management and governance; modernising land and planning institutions; and ensuring a sustainable financing framework for investing in urban areas.

These policies will empower counties to better manage, finance and develop their urban areas to become livable, equitable and productive.

Over the next several weeks we will write about some of these policy challenges and actions that can be taken to ensure a brighter urban future for Kenya.

Cira is Lead Urban Specialist, World Bank, Nairobi.