Monthly Archives: June 2014

Why Should I Invest, It Doesn’t Produce Extra Income?

Simon Batchelor from Gamos offers his thoughts on energy investment and the concept of “temporariness”.

In his last blog, my colleague Mark Borchers from Sustainable Energy Africa (SEA), highlighted some points from a new book, Africa’s Urban Revolution

The point about attitude to living in a city and investment particular caught my eye.  He said:- “In many urban areas a significant proportion of the population regard their homes as elsewhere, and they subsist in the town or city and send remittances back to their homes, where their heart remains. So while they are present in the city, they are not investing in it. It is unclear what this does to the local economy and the tax base and service delivery demands on municipalities.”

It reminded me of a report I read on the Millennium Challenge Corporation (MCC), created by the International Housing Coalition back in 2007.   MCC at that time was an initiative of US foreign Assistance, and was championing a new approach to development assistance.  They were (I have no idea whether they still are – perhaps someone could help me in the comments section), very focused on Economic Rate of Returns (ERRs) i.e. the increases in income or value added as a result of a project.  The report focused on housing projects and asked the question whether the benefit of improved housing in urban situations could truly be measured by increases in income?    In the same way that the extract from the book suggests that people may not invest in their housing and ‘situation’ because it doesn’t necessarily generate more income for them (preferring presumably to send home remittances that support schooling and agricultural production); so too in this report, the donors and development assistance might also question investment because it doesn’t give an  immediate ‘extra income’ return.

They note that “The ‘benefits’ of well-designed urban and shelter reforms can have repercussions not only on the incomes of the individuals served, but also on the larger economy. There are large positive externalities to improved shelter in terms of health and life expectancy.”  However, the report argued – these benefits may not be captured in traditionally calculated ERRs.  They say “Urban shelter and infrastructure investments may indeed have direct economic benefits such as an increase in the rental value of housing, significant improvements in health, or increases in the productive capacity of the household……investments in urban areas can make non-trivial contributions to economic growth from a macro-economic perspective by adding to productive capacity of the city as a whole. Such benefits are also virtually impossible to enter in an ERR calculation.” (My emphasis).

Isnt this the same calculation those families and households are making?  They know instinctively that if they improve their urban situation, they will have a better quality of life and maybe increase their productive capacity in the longer term – but they also calculate that it won’t directly increase their income, and any ‘investment’ in their housing (or energy demand) has such a long return life (and they might not be around that long), that it is better to send money home to invest in the family’s rural ‘shamba’ or plot.   Indeed, what is interesting to me is that the MCC came up with the same conclusion.  The report says that “in practice many of the projects that have been approved are rural projects. These projects have met MCC’s ERR criteria.”

Mark seems to have highlighted an important point about short term thinking or ‘temporariness’ – something we need to keep in mind as we explore energy investments in urban areas as a part of SAMSET.

SAMSET News – June 2014 – Second Network Meeting

Xavier Lemaire from UCL summarises the second SAMSET Network Meeting.

The second SAMSET network meeting took place in Ghana on the 14-16 May 2014. During this meeting, representatives from each municipality partner of the project have described the situation of their town and their expectations for this research-action project.

The six African municipalities – Cape Town and Polokwane (South Africa), Kasese and Jinja (Uganda), Ga East and Awutu Senya East (Ghana) – tend to face considerable difficulties to exert control on land use due to important internal and international migration combined with an important internal population growth rate.

Parnter Municipalities Map

In all countries, power supply does not cope with the demand and power cuts can be frequent which raises the question of the effectiveness of demand-side management policies; some municipalities also face constraints in terms of supply of water which will become even more acute in the near future; waste management can be an important unresolved issue; traffic congestion is also widespread due to the lack of public transport and cannot be solved by just implementing more infrastructure.

It was also emphasized during this meeting how data used by municipalities were inaccurate and misleading because of the importance of the informal sector, and that municipalities were always behind the fast changing situation on the ground. With yearly budgets planned according to the situation at a given time, but implemented with delays, flexibility in planning procedures was needed to allow the taking into account of changes that have occurred in the recent past, and not just to factor the growth rate of the municipality.

It has been underlined that data to be collected for the research did not need to be complete at the beginning of the project, because data collection was an on-going process and that data will get better once they have been started to be collected.

Each of the municipalities have taken the opportunity of this meeting to detail their specific issues and how they try to deal with them, particularly detailing and starting to compare their approach in terms of planning and electrification. After these first exchanges, further network meetings will help to design and implement effective strategies.

SAMSET Team

Members of the SAMSET Team in Ghana, May 2014

“Africa’s Urban Revolution” and African Urban Challenges

Mark Borchers on the launch of a new book, “Africa’s Urban Revolution”, the insights gained from the launch, and their relevance to the SAMSET project.

I was at the launch of the book Africa’s Urban Revolution recently. It has contributions from various authors associated with the African Centre for Cities (ACC) at the University of Cape Town, and covers a range of topics. Even though it does not have an energy focus, I found both the content of the book (tho I have just read a bit of it so far) and the discussions at the launch very interesting for the work on sustainable urban energy transitions which we are engaged in.

The presenters, Edgar Pieterse (director of the ACC) and Caroline Wanjiku Khato (School of Architecture and Planning at the University of Witwatersrand) emphasised that urbanisation in Africa is an issue of global concern given the pace at which it is occurring and the severe lack of capacity of authorities to meet the associated service demands. This we know, but I found it interesting that mainstream academia knows it too! In addition, African urbanisation is distinct from any other such process elsewhere in the world, often rendering existing approaches to urbanisation issues not useful. In no particular order, the following challenges struck me as potentially relevant:

– In many urban areas a significant proportion of the population regard their homes as elsewhere, and they subsist in the town or city and send remittances back to their homes, where their heart remains. So while they are present in the city, they are not investing in it. It is unclear what this does to the local economy and the tax base and service delivery demands on municipalities.
– In the absence of municipal capacity, informal social and economic systems can be quite strong, for example including land registers and social support systems, often via the church. Given that official capacity is unlikely to change drastically in the medium-term, such ingenuity and creativity may be one of the foundations for sustainable urbanisation in Africa rather than relying on more formal structures and systems.
– The urban agenda is often not high on national government’s priority list, sometimes because opposition parties are often able to first gain support in bigger urban areas, thus not endearing such to the ruling party. In one case, national government apparently effectively set up a department to run the capital city, thus ‘hollowing out’ the politically distinct local government’s power.
– Informality is sometimes regarded as an aberration to be rid of by national government. One presenter described how he was invited to the African Development Bank forum for minister’s in 2006, where urban issues were on the agenda for the first time (!). One Housing Minister, who had recently displaced half a million informal dwellers in their capital city through demolishing their settlements, received a standing ovation when he justified this act on the basis of ‘restoring the dignity’ of the city. So the plight of the poor in informal settlements may not always receive enthusiastic national support.

The above snippets obviously only present a partial picture, but some of them are useful in flagging that different players can have very different perspectives on issues, and we need to be sensitive to these. I know in the South African context all of the above are relevant to a greater or lesser degree in different places.

There’s lots more useful information in the book if you are interested.

Book information: Africa’s Urban Revolution. Edited by Susan Parnell and Edgar Pieterse of the University of Cape Town African Centre for Cities. Published by UCT Press in 2014. ISBN: 978 177582 076 5