Foreign firms and investors into African cities can play a critical role in the region’s development, and African governments must connect FDI to sustainable urbanisation by strengthening urban policies and planning, and financial and legal systems. These are among the key findings of a recently released UN-Habitat report.

The 400-page State of African Cities 2018: The Geography of African Investment Report explores how Africa can help finance its development by attracting FDI to cities.

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According to Aisa Kirabo Kacyira, deputy executive director of UN-Habitat, the “groundbreaking” nature of the study is due to its focus on the economic geography of FDI, rather than strictly on urbanisation itself.

The better a city or urban agglomeration is globally and regionally connected as an FDI destination, the more FDI it will be able to attract, the report states. Cities will have stronger economies when they facilitate international trade and link to diverse FDI clusters in the world economy, while at the same time boosting their own local markets and economies. African cities should, therefore, develop strategies to become key nodes for commodities and services in the global marketplace. Spatial policies such as industrial zoning and clustering are conducive to this because they help create opportunities to engage peripheral parts of the urban agglomeration in economic development. They also help provide investments in physical infrastructure and social capital, while enhanced ICT supports improved accessibility and connectivity.

Key aims would be to make major inroads into addressing urban unemployment and poverty, lower urban informal settlement (slum) proliferation and, not in the least, securing critical future urban food security. In this sense, Africa’s urban revolution will have to go hand-in-hand with an agricultural revolution, according to the report.

But FDI is neither a panacea nor the ultimate answer since it has both good and less helpful traits, the authors caution. Commonly recognised negative aspects of FDI are its potential for crowding out local businesses in developing economies; its tendency to prevent or reduce domestic investments; and latent adverse consequences of certain sectors to increase wage inequality and block the development of indigenous skills. Therefore, careful choices should be made by cities in their pursuit of new and additional FDI, which can lead to inclusive economic growth.

The full report can be downloaded here.