Africa's Story

  • Peculiarities of Africa

Urbanization in many African countries has not necessarily been accompanied by industrial growth and the structural transformation that has occurred in other regions; nor the same level of incomes.

For example, Sub-Sahara Africa (SSA) reached 40 percent urban in 2013 with a GDP per capita of $1,018; East Asia and the Pacific reached the same level of urbanization in 1994 at $3,617 per capita…

By 2050, Africa is projected to reach 1.2 billion urban dwellers, an urbanization level of 58 percent and an average density of 79 persons per square kilometer. Within the next two decades, the continent’s total population is projected to overtake Europe, South America, and North America’s combined.

With over a quarter of the world’s fastest-growing cities, Africa is undergoing a massive urban transition rivaled only by that of Asia, although the nature and pace of urbanization vary widely among countries. Though Asia is currently ahead, Africa is expected to undergo the most rapid urbanization in the world from 2020 to 2050. Nigeria, in particular, is projected to contribute 8 percent of the world’s population growth by 2050 (212million out of 2.5 billion).

While Cairo, Kinshasa, and Lagos are the only African megacities in 2014, Dar es Salaam, Johannesburg, and Luanda will follow suit by 2030 (World Bank 2015).

The UN estimates more than 200 million people in Sub-Saharan Africa will live in slums by 2020 (UN‐Habitat 2014). Slum populations are growing at 4.5 percent annually, a rate which will double the population in 15 years (Marx et al. 2013)…

This write-up explores the socio-cultural issues in Africa that hinders her development — with emphasis on housing and the cities.

This is done from a value chain perspective.

  • The first three sections address the supply side of the value chain;
  • The next two sections address the demand side of the value chain;
  • The last two sections are recommendations for overall economic growth and policy directions. The first is a bottom-up approach, while the second is a top-down approach.

This is an adaptation of the World Bank 2015 Study: “Stocktaking of the Housing Sector in Sub-Saharan Africa; Challenges and Opportunities”.



  • [Access, Affordability, Tenure]

Rights to land in Africa can stem from multiple sources: first settlement rights, conquest, government allocation, “land to the tiller” policies, and market transactions. Moreover, these rights may be validated by a number of local and state authorities: community councils, local government, tribal leadership, land agencies, and more.

Customary land rights, which are controlled by a system of typically unwritten customary laws that are administered through the hierarchy of a social or political unit dominate the land systems of many SSA countries. For example, in Malawi, 90 percent of the land is customary land, although there are no legal documents specifying what this means, so land falls under dispute and cannot be easily collateralized. Similarly, in Botswana, 71 percent of the land is held under tribal control.

The principal obstacles to improved land governance in SSA include land grabs, poor documentation, inefficient land administration, a lack of transparency, and low capacity and demand for professional land surveyors.

Many African governments utilize local registration databases, as they do not have the capacity to set up a central system, but this decentralization renders the process more vulnerable to capture by local elites.

Nigeria exemplifies how land administration is prone to inefficiency and a lack of transparency. At the state level, limited capacity and a lack of transparency often impede land development. The states own land, but the mechanisms for generating revenue from land are underdeveloped or undermined by complex local tenure arrangements and lack of property registration…

Multiple tenure systems limit the scope of markets to value and exchange land according to price signals.

This is exacerbated where permissions to obtain, transfer or retain land are given arbitrarily and without transparency. The inability to provide a discrete and objectively verifiable boundary for a piece of real estate property in much of SSA represents a major obstacle to the use of mortgage finance as a form of security to enable capital to flow into the residential property.


  • Road, Water, Power…

Regionally, less than 40 percent of all households have access to piped water, and the dearth of these amenities is particularly acute in rural regions. The infrastructure gap in Africa is greater than that of low‐income countries elsewhere, especially when it comes to paved roads, phone mainlines, and power generation capacity…

Since 1990, the growth in coverage of household services in both rural and urban areas throughout SSA has been stagnant. In a recent World Bank study, 7 out of 13 SSA countries in a sample of household budget surveys saw increases in infrastructure shortages.

Overall, the Africa Infrastructure Country Diagnostic (AICD) estimates that an annual investment of US$93 billion over the next 10 years will be needed to close the infrastructure gap with other regions and meet its stated development goals.

Africa invests US$45 billion a year in infrastructure, two-thirds of which originate from taxes and user charges. Roads and water tend to be financed via development aid from the Organization of Economic Cooperation and Development (OECD) countries. Private financing, seeking the highest and safest returns, concentrates on information and communication technology in countries that are middle-income or resource-rich…

In many parts of urban SSA, the development of land often long precedes the extension of infrastructure and public services to informal settlements. The pattern of urban growth is:

  1. Economic expansion;
  2. Immigration (usually rural to urban);
  3. An increase in informal housing and demand for services;
  4. Overload of the established infrastructure grids; and
  5. The continued expansion of informal areas beyond the grid footprint…

The retroactive extension of network infrastructure connections to these areas can be both disruptive to residents and expensive for governments. The declining access to services speaks to the importance of prioritizing infrastructure expansion during the current rapid urban growth that Africa is experiencing.

It also underscores the important link between reliable tenure security and improved access to services, since most utilities are unlikely to expand services in areas with unclear and insecure tenure systems.



  • Cost and Qualified Labor

In SSA, the cost of formal construction is high relative to household incomes due to factors like the high cost of formal building materials and inefficient building regulations and processes. Buildings that are delivered by the formal construction sector and meet all applicable planning and permitting standards are much less common than those built informally.

A key obstacle to closing the gap is the high cost of standardized construction materials, which can easily add up to 80 percent of the value of a house in the region. This is owing to a dysfunctional building materials industry that suffers from poor productivity, low diversification, and limited technological capacity. Many countries opt to import materials despite the existence of domestic resources, which distorts the local market by raising prices for substitute materials that might otherwise be less-expensive to produce locally.

While the local materials are not preferred by many governments, experience shows that they can be durable in addition to being inexpensive and locally sourced.

For example, the ubiquitous termite hills on Zambia’s Copperbelt are now being quarried for their fine clay to be burnt into bricks in an informal‐sector industry…

On the other front, there are a few major companies that are capable of fulfilling large‐scale, high‐value contracts and thousands of small firms or single artisans, for smaller low-cost jobs. However, there are few or no firms in the middle. Smaller firms do not typically receive government contracts and receive little technical training from the government.

Further, much formal construction is done by foreign firms: in 2013, 37 percent of projects were built by US/European contractors, 12 percent by Chinese companies, and the remaining half by various contractors from countries like Japan, the Republic of Korea, Brazil, Australia, and South Africa.

Notwithstanding, formal private contractors are quite likely to draw from the same labor and skills pool as the informal sector. Such collaboration indicates that the formal‐informal locus is a continuum; firms, artisans and laborers move in and out of formality depending on the job being done.



  • [Mortgage, Microfinance…]

According to the World Bank’s Global Findex Database, SSA’s financial access is low compared to those of the rest of the world, with the exception of the Middle East and North Africa region. Only 24 percent of the adult population 15 years or older in SSA holds an account at a formal financial institution…

To start with, SSA’s mortgage sector is underdeveloped. Apart from financial access, formal housing finance activity is also very limited. This is due in part to very few savings accounts in commercial banks, which in turn cannot be used to develop mortgage products. Consequently, few households in SSA possess an outstanding loan for a home purchase or home construction: 2.0 percent of adults have one for home purchase (3.7% in urban areas), and 4.4 percent have one for home construction (6.0% in urban areas). The indication that construction loans are twice as popular as home purchase loans is consistent with the prevalence of self‐construction in the region.

The most affordable mortgages are still too expensive for most low-income groups. Such a mortgage might require a 22 percent interest rate and a 10‐year term, which is cost‐prohibitive for much of the population. The down payment is also high; usually around 20 percent.

Mortgage finance is a tool that emerges from the intersection of the two complementary housing value chains. On the supply side, there is the delivery of a formal home (including land title, trunk and site infrastructure, construction codes and inspection); which yields on the demand side, an enforceable collateral‐based loan security (including eligibility, underwriting, closing and recordation, funding and liquidity, servicing, and enforcement).

For mortgage finance to operate in volume, both supply‐side and demand‐side value chains must be fully functional.

At a basic level, growth in mortgage lending is constrained by a lack of the long term funds banks need to overcome a maturity mismatch between deposits and mortgages. However, Housing Micro-Finance (HMF), though currently limited in its scope in SSA, could be a way to bridge the gap between small, short tenor microloans and large, long tenor mortgages, with a loan product tied to construction material discounts or technical assistance.



  • Unexplored Impacts

Africa’s total remittance flows (money sent back by emigrants to individuals in their home countries) were estimated at US$40 billion in 2010, half of which went to SSA. In a number of countries, remittances exceed other sources of funds, such as foreign direct investment, portfolio equity, and debt flows. Nigeria’s remittances inflows alone totaled US$20.6 billion in 2012.

Around 40 percent of the adults with formal bank accounts use them for sending or receiving remittances. However, the cost of sending remittances to SSA is the highest in the world, with the fee ranging from 5 to 15 percent of the transaction…

While the importance of remittances for housing finance is widely observed, limited data exist on the size and nature of these investments, particularly in SSA. This trend is not surprising given the high cost of land acquisition and housing construction discussed previously.

Data from one of the few large‐scale studies on African migration suggest that households direct these funds towards lands purchase, new construction, rebuilding, and rent, with variability between countries as to the most significant uses. For recipient households in Burkina Faso and Kenya, households concentrated their resources in new house construction. For Nigeria, it went towards land purchase.

Remittances represent a significant source for enhancing overall household welfare, which can increase expenditures for housing consumption or savings rates.

Also, if African banks are able to securitize future remittance flows — in order to leverage more external financing — they would be better positioned to fund low‐income housing/infrastructure projects.

Further, there is evidence that remittances stabilize borrower’s capacity to repay and therefore reduce the incidence of non‐performing loans.

Lastly, the majority of urban residents build shelter themselves or through the assistance of local laborers.

Without access to mortgage finance to purchase complete homes, housing is consumed incrementally through investments from individual savings, remittance transfers, and participation in savings cooperatives or through the use of microfinance.



  • Inclusive Policies

For the foreseeable future, Africa’s housing stock and future demand will remain largely informal in the continuum from slums to semi-formal structures. This is due to the overarching structural factors of low-income levels limiting demand for formal housing, and constraining factors for supply associated with the poorly functioning housing sector…

Low‐income and informally‐housed groups can improve their access to housing with infrastructure upgrading and support for incremental housing finance.

This approach engages and enhances the shortcomings of existing informal housing development channels and is better suited to the abilities of low‐ and middle‐income groups to pay. This would require developing and experimenting with new Housing Micro-Finance, such as developing tools and best practices and disseminating them throughout the sector across the region.

These financial products could be combined with subsidies for low‐cost materials and construction technology, increasing access to these products and initiating a source of investment in the domestic building materials industry.

Lending institutions also need greater policy support for more flexible lending terms, collateral requirements and more capacity to draw from client savings in order to develop and secure new loan products for housing.

Some suggested action plans include the following:

  • Encourage and support expansion‐planning grid infrastructure or arterial layouts of rapidly growing cities so that the framework of informal settlement and private informal investment allows space for later retrofitting of physical infrastructure grids.
  • Incubate and fund capacity‐building for ‘group owners’ (e.g. co‐operatives) that are formal entities whose members or beneficiaries are or may be wholly informal; so that these entities can be bulk buyers (and even collective owners) of higher‐density multi‐family properties.
  • Support alternative approaches for improving access to credit, such as microloans for home improvement.
  • Develop an effective typology of informal assets and a similar definition of a Qualified Informal HMF Borrower, which can be used across multiple countries in SSA.



  • Overall Economic Growth

Housing affordability will improve not only with general economic expansion and income growth; but also with a housing policy that both supports the incremental improvement of informal housing conditions for the majority of people and improves the function of the housing sector to bring down costs and improve the reach of the formal housing sector to lower income groups.

Though the formal housing sector in most of the region is small, government support can encourage both the expansion of the formal housing delivery system down market, while at the same time enabling the formal housing sector to become an important driver of the national economy.

Presently, most housing investment occurs through household savings or direct government investment, rather than international capital markets.

These policy directions are aimed at improving formal lenders’ access to capital markets, which will strengthen mortgage markets and increase competition between lenders.

Housing delivery also requires the coordination with overlapping sectors, such as construction firms, real estate agencies, appraisers, property managers and others which face impediments to growth…

Key areas for policy attention include:

  • Create domestic national‐level and state‐level development‐finance products and lending as a recognized commercial banking activity, which are in many ways more important than even liquidity facilities.
  • Policy recommendation: Encourage employer‐assisted housing schemes through employer‐based provident funds to lower their employees’ cost of mortgage finance.
  • Continue to support, establish, capitalize, and improve national‐level secondary‐market liquidity facilities, products, and entities.
  • Finally, additional research and data are needed to inform housing policy interventions.

This digest has shown that measures used to assess city maturity in developed economies — with housing affordability as a reference — may be incomplete or misleading in comparison to Sub-Sahara Africa.

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***Adapted from Blaze Monthly Digest – April 2019.

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