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Lagos set to become 2nd largest African city by GDP

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Lagos set to become 2nd largest African city by GDP

 

Following expected gains from policy reforms that are currently encouraging private investments, the city of Lagos has been touted to become the second largest in Africa by Gross Domestic Product (GDP).
A report by an Associate Director at Oxford Economics, Mark Britton, said the land of aquatic splendour was set to overtake Johannesburg as Africa’s second largest city by GDP by 2035.
According to the study, Lagos is expected to gain from policy reforms focused on improving the support for private firms. The city is forecast to become the most populous African city. Its population is expected to be 28.5 million by 2035 – more than double its current size.
The report released last month is a confirmation of Governor Akinwunmi Ambode’s earlier position that the state had the capacity to drive trade and investment in the African continent.
Ambode had revealed that he was set out to reposition Lagos as the ‘global gateway’ for Africa and an easy place to do business.
He said: “Our strategic imperative is to see Lagos emerge as an International Financial Centre of repute in Africa and beyond. Indeed, I am confident that Lagos stands poised to sustain and further develop a buoyant financial and consumer services’ industry. We have the population and the rise of an emerging middle class to back this up. Lagos is a new market, a new frontier for you to consider.”
He said the need for diversification of the economy in the wake of decline in oil prices with its inevitable consequences on the nation’s economy was not negotiable as Nigeria could no longer rely on a mono economy.
“We require huge investments in public infrastructure, production of energy, health and education to enable us take full advantage of the evolving economic conditions. The World Bank estimates that nearly $93 billion is required annually as investment in Africa and it is estimated that the city of Lagos will require at least a quarter of this figure.” he said.
The Global Cities report looked at urban trends. It provides an overview of the economic outlook for 780 city metros around the world. The data used covered headline economic, demographic and labour market forecasts, as well as household income and spending, growth in employment and output across key sectors.
The study found that Africa is set for rapid urbanisation and GDP growth with city populations to nearly double by 2035. The population of 93 main African cities is expected to rise to a total of 370 million from around 200 million in 2016.
Yet, despite the robust economic growth predicted, Oxford Economics forecasts that the majority of African cities will continue to remain relatively small in terms of scale. Therefore, it is not expected that any of the 10 fastest growing African cities – except Cairo – will enter the top 100 global cities in 2035 based on GDP.
African cities are forecast to experience strong GDP growth of 4.5% per year in the period to 2035, exceeding the global city average of 2.9 per cent.
With GDP growth exceeding population growth, GDP per capita within African cities will rise significantly over the forecast period. However, despite that, GDP per capita levels are expected to remain substantially behind the rest of the world by 2035, according to the report.
Cairo is set to be Africa’s largest city economy and enter the world’s top 100 cities by GDP list at number 84. The Egyptian capital is forecast to record 4.4 per cent average annual GDP growth up to 2035. Cairo will continue to experience growth in services such as commerce and finance as well as an expansion within consumer services.

Despite its economic scale, it is forecast that Cairo will fall to third among African cities in terms of total population.
Among the 10 largest African cities, Khartoum in Sudan is forecast to achieve the fastest growth between 2017 and 2035, at 5.2 per cent. Growth in Khartoum is likely to be boosted by the easing of the US trade embargo, which will help to facilitate an expansion of the city’s export sector.

East Africa will likely lead the African cities’ expansion thanks to greater economic diversification. Seven of the top 10 fastest growing urban centres are in the East Africa region.
Oxford Economics forecasts that Bujumbura (Burundi), Freetown (Sierra Leone) and Dar Es Salaam (Tanzania) will have the fastest GDP growth between 2017 to 2035. In addition to Dar Es Salaam, Tanzania accounts for a further three of the 10 fastest growing African cities. According to the report, the relatively strong performance of these cities can be explained by political and institutional stability providing a basis for increased private sector investment, an increase in regional infrastructure spending and an expansion in the tourism sector.

“The growth prospects of African cities greatly depend on their ability to diversify their industrial structure and establish institutional stability whilst also developing in terms of education, health and infrastructure,” the report predicts.

Oxford Economics explains that industrial structure has played an important role in recent economic performance.
During the 2000s and early 2010s, commodity-rich African countries such as Nigeria and Angola greatly benefitted from the rise in global commodity prices, leading to significant increases in aggregate demand.
However, following the collapse in commodity prices in 2014, a reversal in this trend has emerged with economically diverse East African countries, such as Tanzania and Mozambique, outperforming countries more reliant on natural resources.

“Although the expected recovery in commodity prices in upcoming years will help reduce the gap in economic performance, we forecast that commodity-rich African cities will continue to lag behind the more diversified East African cities in terms of GDP growth,” states the report.
“The combination of further global integration and urbanisation does, however, create challenges for cities at various stages of the development curve. Rapid population growth in emerging cities requires considerable management to ensure the infrastructure can accommodate the additional people,” it added.
This includes the provision of adequate housing, support services and transport networks, while also developing and maintaining the city as an attractive place to live and work. For example, in China, authorities are already having to implement policies to alleviate some of the negative aspects associated with rapid expansion.

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