The context:

The report on the Africa Urban Finance Ecosystem responds to the European Union (EU) contract of 01/10/2021.Following a competitive process, the contract was awarded to the UN Capital Development Fund – the United Nations Hub for Sub National Finance.

The European Parliament, the European Commission (EC) and UN Habitat jointly produced the flagship Financing Sustainable Urban Development Report in 2021.The European Investment Bank included a chapter entitled in the 2020 Banking in Africa report (Chapter 7 “Investing Sustainably in Africa’s Cities”).

UNCDF was a member of the advisory council for the Financing Sustainable Urban Development team and built on these publications with its own volume “Local Government Finance is Development Finance”, which incorporated the Malaga Coalition policy agenda for a global financial ecosystem that works for cities and local governments. This policy agenda has been refined through the meetings, podcasts and initiatives of the coalition members – including the EU. Table 1 indicates the interface between EU instruments and the Malaga policy coalition.

The common analysis of the European Union, the European Investment Bank and UNCDF is that financing the sustainable urbanization of Africa corresponds to, inter alia, the following EU policy objectives.

Productivity and livelihoods: Africa is rapidly urbanizing, and the pace of this urbanization is accelerating. Yet to date this has not been accompanied by the concomitant increase in productivity experienced during the urbanization phase in the economic development trajectory of other regions. This is partly due to chronic low investment in fixed capital formation. The result is low productivity urbanization in growing towns and cities with high levels of unemployment and underemployment.

Climate change: The effects of climate change are already a serious challenge. There will be an increasingly catastrophic impact on African towns and cities unless the world can limit global warming to the 1.5 degrees Celsius target of the 2015 Paris Agreement. Significantly increased volumes of investment are required to ensure that expanding the human settlements on the continent can provide a platform for productive, healthy and safe livelihoods, social affairs and economic activities.

Security and Migration: The failure to address the first two dimensions is already fueling multiple security and migration crises that negatively impact both the European Union and Africa. Conflict and migration will continue and will expand in scale unless peaceful, prosperous and stable life opportunities can be provided by African towns and cities for young and aspirational women and men.

This report was commissioned by the EU to explore the potential and the scope for deploying its development funding and financing toolbox (now expanded to include guarantees) to address the challenges of financing sustainable urbanization as defined in the terms of reference. Details of the EU funding and financing toolbox are available on the European Union website.