Policymakers in Rwanda have need to rethink urbanisation and make it work towards the growth of the economy, the latest World Bank Rwanda Economic Update released yesterday in Kigali says.
The report observes that the country’s rapid urbanisation has been accompanied by physical expansion of cities, notably in the periphery of Kigali as well as around secondary cities.
This has also been accompanied by non-farm job creation and poverty reduction primarily in areas with high density and good connectivity, according to Aghassi Mkrtchyan, the World Bank senior country economist.
“There is strong evidence about the links between urbanisation and job creation. What Rwanda needs to do going forward is to make sure the way urbanisation happens, it promotes density and agglomeration which will definitely come with a lot of economic benefits,” he said.
In urban economy, economies of agglomeration are the benefits that firms obtain by locating near each other (agglomerating). This concept relates to the idea of economies of scale and network effects. As more firms in related fields of business cluster together, their costs of production may decline significantly.
Rwanda envisions to become a middle income country in a few years time and the government has identified off-farm job creation and urbanisation as drivers of economic growth and national development. To achieve this, the country is facilitating urbanisation and supporting secondary cities.
But the report says this transformation would require transitioning 50 per cent of the population from farm to off-farm jobs, and creating at least 1.8 million new off-farm jobs. Mkrtchyan said that this is not the target rather projections based on the current urbanisation trends.
Between 2002 and 2015, Rwanda’s urban population increased by almost 2 million people from 1.49 million to 3.46 million at an average rate of 6.7 per cent annually. The report shows that outside Kigali, the urban corridor between Rubavu and Musanze has emerged as the largest concentration of economic activity.
However, some secondary cities have not reached a sufficient size in population or density of firms to create agglomeration economies.
Concerns over Kigali’s size and growth have led to policymakers to promote secondary cities as substitutes for Kigali. However, as observed, businesses are more likely to locate in Kigali where they benefit from a range of financial and related services and a diversity of product and labour market, not available elsewhere in the country.
Secondary cities are growth poles
Mkrtchyan noted that concerns for Kigali becoming a congested and ill-managed city can be addressed through better urban management, while for other cities, they should be part of the economic strategy not of a demographic strategy. He said this is a role of policymakers.
“Secondary cities cannot be seen as substitute of Kigali. Kigali will remain the leading economy that can compete with other regional cities, but not with secondary cities. Secondary cities have an important role to play as growth poles that consolidate the growth of the country,” he said.
The report highlights that the policy approach to internal migration needs reframing with a view to better leverage the gains from population movement, rather than simply controlling it.
Edward Kyazze, the manager of urbanisation and housing division at the Ministry of Infrastructure, said that the biggest concern that the government has is the management of urbanisation trends, especially in terms of managing land use and making decisions on investments.
“The fact is that land in the country is very scarce. This is one of the biggest concerns we have. What we see as an option is to change our building plans by going denser, this can help us easily manage the growing rural-urban migration as well use the little resources available better,” he said, adding that smart cities are also another model being employed to manage urbanisation.
The report says that policies should also focus on strengthening the linkages between rural and urban economies, while Kigali’s rapid expansion can be managed through more efficient urban planning and investments in secondary cities should focus on improving basic services.
Meanwhile, the report projects that Rwanda’s economic growth rate will accelerate to 5.2 per cent by end of this year. It was at 3.4 per cent as of the first half of this year.
It projects that growth will further accelerate in 2018 and 2019 as private and public investment activity picks up and agriculture becomes more productive.