Egypt's new capital city moved a step closer to reality with the announcement that Chinese developers will largely fund the megaproject.
The China Fortune Land Development Company (CFLD) agreed to provide $20 billion for the currently unnamed city, after a meeting between heads of the firm and Egyptian President Abdel Fattah El Sisi.
This follows a previous commitment of $15 billion from another Chinese state-owned company, bringing the project close to its $45 billion budget requirements for phase I.
Plans for the new capital were first announced in March 2015. Government officials described the development as a solution to crowding, pollution and rising house prices in Cairo.
"Cairo Capital is a momentous endeavor to build national spirit, foster consensus, provide for long-term sustainable growth," said the project website. "(The) new city will create more places to live, work and visit."
The 700 square kilometer city to be constructed in the desert to the East of Cairo would become the new seat of government, and it is presented as a far grander vision than the current capital.
Proposals for the city include housing for five million people, over 1,000 mosques, smart villages, industrial zones, a 5,000-seat conference center, and the world's largest park.
Interest in the project has been brisk. An Indian company is reportedly planning a vast medical center and university, while a Saudi firm intends to build a 12.6 hectare mosque and Islamic museum.
Construction is already under way. According to Egypt's Al-Ahram newspaper, engineers have begun work on infrastructure including bridges and 210 kilometers of roads.
The first phase of the project will see government ministries and residential blocks rise from the sand. This phase could be complete within five years, with the first residents moving in.
In January this year, the Harare City Council in Zimbabwe accused informal food vendors of spreading typhoid. The council then attempted to confiscate, and destroy, all perishable food items that were being hawked in the central business district. Many vendors fought back, resulting in deadly clashes over a series of days in the opposition run capital city.
Sadly, such violent treatment of workers in informal markets is all too common in African cities. Indeed, based on calculations from the Armed Conflict and Location Event Database, such treatment dramatically increased over the past decade. In 2015, there were more than 250 incidents of violence against informal workers in Africa reported in the media, a more than fourfold increase since 2005.
Other examples of these so-called cleanup operations were carried out in Malawi in 2006 and 2015, in Nigeria in 2009, in South Africa in 2013, and in Zambia in 2007 and 2015. These represent just a few examples of concerted “decongestion” efforts to push informal traders off the streets.
These campaigns typically involve authorities arresting and fining informal vendors. But they extend to confiscating merchandise and demolishing makeshift trading stalls. In addition to inflicting violence on a vulnerable population, government shutdowns of informal food markets deprive city dwellers access to a critical source of food. Food markets in the informal sector are a vital source of both food and income for Africa’s urbanites. Large urban poor populations in Africa rely heavily on the informal economy for accessible, affordable food. These include most of their nutrient dense foods like eggs, meat, fish, and milk.
A study of 11 African cities found that 70% of households regularly purchase their food from informal markets or street vendors. Despite the key role this sector plays in the well-being of Africa’s urban poor, many countries maintain violent enforcement of colonial era laws that criminalise both buying and selling in informal arrangements.
Rather than resorting to draconian measures, governments across the continent must find ways to engage with informal workers that will ensure Africa’s urban populations have adequate access to safe and nutritious foods.
Food safety and tax evasion claims
Often violent shutdowns of informal markets are justified by concerns about food safety and tax evasion. But some research has indicated that these concerns can be overblown. It has also revealed that violent government responses are counterproductive.
Multi-country epidemiological research conducted by International Livestock Research Institute has found that food safety hazards exist in informal market foods. But the risk of illness is not necessarily higher than it is from foods purchased in supermarkets. Studies in Brazil have suggested frequent crackdowns reduce incentives for informal workers to invest in improved food safety equipment and practices.
Concerns about informal vendors skirting tax payments are also based on misperceptions about how informal markets function. The international development organisation Women in the Informal Economy Globalising and Organising has been conducting research on informal market accounting in six developing countries. It found that most informal vendors in fact do pay taxes and fees. This is either through a chairperson in charge of their market or directly to city municipal authorities.
The common conditions of informal markets do create real food safety concerns that must be addressed. Vendors often don’t have access to electricity, waste disposal, or clean water. And ensuring they are tax compliant requires accounting systems for collecting taxes and fees.
Africa’s cities must find better ways
But several countries have recently begun instituting promising attempts at productively engaging informal vendors. This is done in ways that address government concerns about safety without resorting to complete or violent shutdowns that diminish access to food.
Government sponsored training on food safety is one effective measure. In Kenya, a recently established Dairy Traders Association provides training on basic hygiene and quality testing for informal milk traders. Those who complete the training receive a certificate for a licence which spares them from fines from the Kenya Dairy Board.
Zambia has taken a different approach by establishing ostensibly inclusive management boards of informal markets. Local authorities, vendors, and consumers, all provide representatives involved in decision making. This has created a transparent environment which also encourages adherence to fee payments for maintenance and sanitation needs, although it has sometimes been prone to political party interference.
Other regions have also demonstrated successful ways of working with informal vendors that can be applied to an African context. In Vietnam, street vendors and the government have struck a compromise: vendors can work freely during specific hours so long as they clean up street litter at the end of their allowed time. Informal workers in Peru are working with the government to develop laws for self-employment and street vending that allow for effective oversight and safety without stifling commerce or access.
Africa’s future is urban
In the coming years, these reforms to bring the informal sector under effective oversight will become increasingly important. Urbanisation is currently occurring more rapidly in Africa south of the Sahara than anywhere else in the world. The continent’s population is expected to be majority urban by 2030.
Yet there’s a general lack of strong urban development plans in most of these countries. This means that the urban population growth will also surely drive growth in the number of people who rely on the informal economy for their food and income.
To feed these developing urban populations, Africa’s cities must find productive ways to work with the informal traders and markets where they get their food.
Danielle Resnick, Senior Research Fellow, The International Food Policy Research Institute (IFPRI)
The theme of this year’s World Economic Forum on Africa is “Achieving Inclusive Growth”. This is part of the response by global leaders to the urgent need to reduce inequality and increase inclusion in the international economy. The centrality of the banking sector to economic activity makes this a particularly important theme.
This year’s theme provides an opportunity to reflect upon the profound financial sector policy and regulatory changes put in place since then and what they mean for the future. There is no argument that better regulation of financial institutions was needed. Once the extent of the crisis became known it was clear that there had been reckless lending, as well as a proliferation of investment products whose risk profile was not understood by the banks, regulators, rating agencies and the insurance companies that were underwriting them.
Financial stability moved to the top of the agenda and regulators were given more powers to effect tangible change. Arguably the biggest factor impacting the industry was the Basel Committee’s requirement for banks to hold more capital of higher quality.
The costs of complying with Basel III requirements are significant. According to the Wall Street Journal, in 2013, the six largest US banks spent an estimated $70.2 billion on regulatory compliance, double, the $34.7 billion they spent in 2007. These costs have an implication for bank customers in the form of fees, as they need to be covered by income. Not only did the cost of conducting business rise in line with increased regulation, but banks are now incurring large penalties for misconduct.
In response, global banks have reduced total assets, including derivatives, securitised mortgages and other securities, and have shed non-core businesses as they look to strengthen their capital and liquidity positions, reduce risk, and restore profitability. Banks are less vulnerable and are better capitalised, which is positive - but the collateral impact has brought the future of global banking into question. If regulatory reform continues to follow the trajectory we have seen so far, there will soon be no banks that are truly global.
However, increasing global connectedness means there is a growing need for banks around the world to remain connected through “Correspondent Banking” relationships. These relationships enable the provision of cross-border payments and play an important role in facilitating trade and in the transfer of remittances from abroad. This is very common in Africa where many family income providers live and work outside their own country.
However policymakers are also introducing and tightening measures to stop the illicit flow of funds for the purposes of avoiding tax, money laundering, terrorism and other crimes. These rules are starting to lead to a decline in correspondent banking. According to an IMF discussion note published in June, Africa is among the emerging market regions worst affected by the decline in correspondent banking.
It says it is mostly small and medium-sized exporters as well as small and medium-sized domestic banks that have been most affected by the withdrawal of correspondent banking relationships. Angola, Liberia and Guinea are among countries in Africa that have been hardest hit by this trend.
With the decline in correspondent banking, regional banks in Africa are vital to ensure the continued connectedness of the continent to the global economy. Regional banks are also necessary to effectively and efficiently facilitate intra-continental trade and finance infrastructure development on the continent. Regional banks have become the largest participants in new syndicates and large bilateral loans to finance infrastructure, according to a 2015 European Investment Bank report on Trends in Banking in sub-Saharan Africa.
However, I believe regional banks themselves are at risk.
Firstly, just as some banks are classified as globally systemic, we will likely see some of the regional banks being viewed as too big to fail in their region. This means that they too will face higher capital requirements, raising costs.
Secondly, regulations are not consistently implemented, and regional banks will often operate out of jurisdictions which have higher regulatory requirements. For example, South African-based banks have to comply with Basel III not only in South Africa, but also in other markets in which they operate, even if those markets have lower regulatory and capital requirements. Again, this has a significant cost impact for regional banks.
And thirdly, local regulators or policymakers’ actions and requirements may affect how regional banks are able to operate and grow. For example, some countries may require that the local operations of a regional bank are ring-fenced from operations in other geographies in an effort to prevent contagion and ensure sustainability.
There are other complications too. Global anti-money laundering requirements can pit regional banks in some parts of the world against jurisdictions where the political, legislative and judicial systems are weak. This can affect their ability to transact internationally, even after making the required investments in compliance. If the current regulatory-reform trajectory continues and regional banking operations, like global banks, are curtailed, then the logical conclusion is that domestic banks will be the survivors.
A trend to multiple domestic banks potentially means more competition, better products and cost advantages for consumers. However, there are a number of forces that will probably lead to the need for domestic banks to consolidate including:
• That these banks will be systemically important in their own countries which means the need for regulation and rising costs
• Regulators are unlikely to have the capacity to regulate too many banks, and
• Banks from other countries will find it difficult to maintain relationships with too many local banks
There is no doubt that the key reasons for enhanced global regulation of the financial sector are well-intentioned and that many banks have become more resilient as a result – painful as the process might have been.
But it is important to ensure that stakeholders consider the likely end state of the industry. If the outcome is one that is unlikely to benefit the consumers in Africa and the rest of the developing world, then we have to consider a new set of changes that find equilibrium between managing systemic risk and allowing banking to responsively facilitate economic activity.
- David Hodnett, Deputy CEO of the Barclays Africa Group