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The Global Construction Sector Needs a Big Push on Corporate Responsibility

22 August 2016

1024px-Dubai_workers_angsana_burjRoel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

The construction industry employs approximately 7% of the global work force and it is predicted to account for approximately 13% of GDP by 2020. The sector is a major positive force for development. However, large scale construction projects, such as those involving development of infrastructure, can come with significant impacts on local communities such as displacement and environmental damage.  Furthermore, labour rights issues are particularly salient in this sector as it relies strongly on migrant labour and workers are predominantly unskilled and earn low-wages.

Recent high profile events, such as the preparations for the 2022 World Cup in Qatar, have showcased some of the most troubling labour issues related to large scale construction projects, including forced labour, dangerous working conditions, excessive overtime, and inhuman living conditions. Particularly, the kafala system, a system of sponsorship-based employment common in the construction sector in the Gulf, has been heavily documented and criticised. Under the system, migrant labourers are sponsored by employers to come and work in Gulf countries  and their legal residency is tied to their employer, giving employer’s power over working conditions and whether worker’s can change jobs, quit jobs, or leave the country. Additionally workers often arrive in the Gulf significantly indebted due to fees paid to recruitment agencies which employ various middle men.

Certain characteristics of the construction sector make it more vulnerable to abuses. The industry is very competitive and characterised by low profit margins (about 2%); it relies heavily on sub-contracting which can go nine layers deep in certain contexts; and is subject to tight fixed deadlines, such as those related to preparation of global sporting events. It is also often under-regulated by local governments and is recognised as a high-risk sector for corruption.

The construction sector is clearly an area where there is urgent need for global initiatives to promote responsible business conduct and industry actors are feeling increasing pressure in this regard. Widely documented cases of labour abuses related to global sporting events have attracted significant public scrutiny.   For example, Human Rights Watch has carried out detailed investigations of human rights issues in the construction sector in the Gulf region. In December of last year they released a report entitled Guidelines for a Better Construction Sector in GCC, which both describes the human rights impacts associated with this sector and provides recommendations on how companies can avoid and address these risks.   Beyond reputational harms there are increasing legal consequences for construction enterprises that do not behave responsibly.  Recently for example, Sherpa, a French human rights organisation, filed a complaint against Vinci, a large French infrastructure company, in regard to their operations in Qatar and associated labour abuses.[1]

Governments are making efforts to regulate these issues through stronger reporting laws. Under the recent EU Directive on non-financial disclosure, companies incorporated in the EU or listed on EU stock exchanges must report on principle risks and due diligence processes with regard to environment, labour, human rights and corruption.  Under the UK Modern Slavery Act enacted in 2015, companies registered or operating in the UK will have to report annually on their due diligence processes to manage risks of slavery and human trafficking within their operations and supply chains.  The implementation guidance to the UK Modern Slavery Act references the OECD Guidelines for Multinational Enterprises noting that “whilst not specifically focused on modern slavery, they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.”

The OECD Guidelines are the multilateral agreement of 46 governments defining corporate responsibility. They form the most comprehensive set of guidelines for responsible business conduct (RBC) covering all areas of corporate responsibility, ranging from labor and human rights to environment and corruption.  The Guidelines are equipped with a unique globally active grievance mechanism, known as the National Contact Points, where parties can submit complaints regarding non-observance of the Guidelines by companies.

Under the NCP mechanism there have been 12 cases reported involving the construction sector, representing approximately 3% of all cases brought to NCPs. These cases most frequently involved impacts of large scale construction projects on local communities. For example, two cases brought to the Norwegian and Austrian NCPs, respectively, dealt with human rights impacts associated with construction of a large dam in Malaysia and Laos.  Labour issues are also a common theme. A case brought to the German NCP involving labour rights issues at Heidelberg Cement Co in Indonesia ended in a mediated agreement.  Recently a case was brought to the Swiss NCP by Building and Wood Workers’ International (BWI) regarding alleged human rights violations of migrant workers by the Fédération Internationale de Football Association (FIFA) in Qatar. According to the complaint the human rights violations of migrant workers in Qatar were widely documented in 2010 when FIFA appointed Qatar as the host state for the 2022 World Cup and FIFA failed to conduct adequate and ongoing human rights due diligence after the appointment. The case was accepted for further examination and is currently under mediation at the Swiss NCP.

Several months back the UK NCP and the Institute for Human Rights and Business (IHRB) organised a workshop on responsible business conduct in the construction sector.  My take away from the event was that it is high time for the sector to come together to address ongoing issues in this sector.  Many high-impact, high-risk sectors have engaged internationally to launch initiatives to promote responsible business conduct, including development of standards or sectoral codes of conduct. While there are some promising initiatives seeking to improve conditions in the construction sector, there is currently no global corporate responsibility effort underway.  However, given the serious risks associated with this sector as well as the amount of unskilled workers it employs globally, improving standards and performance in this sector will be crucial to advancing the Sustainable Development Goals (SDGs).

A large portion of global construction projects are publically financed. As such, government agencies and public finance institutions such as the World Bank have a significant opportunity to promote better conduct in this sector. Many governments already promote the recommendations of the Guidelines through export credit agencies, which are a significant source of global financing and insurance, specifically with regard to financing of large scale infrastructure projects in developing countries. The 2016 OECD Common Approaches for Export Credit Agencies signed on to by all OECD member countries explicitly recognise the recommendations of the Guidelines, and provide that “[m]embers should… [p]romote awareness of the [the Guidelines] among appropriate parties.” Governments could also build in criteria associated with RBC into bid evaluations for construction projects and public procurement criteria generally. Public finance institutions can build in conditionality measures associated with strong due diligence systems and standards into their financing terms.

The construction sector is a critical industry: it is crucial to sustainable development and a significant source of employment globally. However, serious impacts associated with the sector can no longer go unnoticed and mounting pressure on the industry makes this an opportune time to take significant steps internationally to address ongoing problems in the sector. However, companies cannot solve these problems on their own. Governments and public finance institutions also have a critical role to play.  Governments should push construction companies to launch or participate in global corporate responsibility efforts. They should also put their money where their mouth is and condition contracts and financing for construction projects on a demonstrated commitment to international RBC standards.

Useful links

Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit

OECD Guidelines for Multinational Enterprises

OECD CleanGovBiz initiative

[1] Vinci has responded denying the allegations and filing a defamation suit against Sherpa.

There will be no Shark Week without Sharks

19 August 2016
by Guest author

ROTMAN_N13VZweb_1Grace Hanley, OECD Environment Directorate

As an American, it’s nearly impossible to go through summer without hearing the chatter or joining in on the festivities around “Shark Week.” In case you haven’t heard of it, it’s an annual week-long television series produced by the Discovery Channel that features all sorts of action-packed shark videos. People host parties carving shark heads out of watermelons, while sporting fin hats and snacking on all sorts of marine-themed appetizers. It’s a week to celebrate and learn about these amazing creatures that have been around for over 400 million years, surviving 5 major planet extinctions. But right now, sharks are fighting against becoming the sixth major extinction, and it’s our fault.

It’s important that we expose the ugly truth about the endangerment of sharks so that we can start taking action to adequately protect them.  To start, humans are their number one predator.  This is largely attributed to overfishing—and illegally for that matter.  Humans reportedly kill 100 million sharks each year. As highlighted in “Racing Extinction,” a film that exposes the threats to shark endangerment, wildlife trade is second to the drug market in terms of profit.  This makes conservation an even greater challenge, as there are significant economic incentives for traffickers.

To make matters worse, sharks have a low reproduction rate and thus cannot recover their populations quickly or easily. For some species, such as whale sharks, maturity  is reached at the age of 30, and most are caught before they have the chance to repopulate. In extreme cases, the wait can be a century—no, that’s not an exaggeration. The Greenland shark, which was recently reported to shatter the longevity record as the longest lived vertebrate, is predicted to live for more than 400 years.  With this considered, the females becoming ready to reproduce after they turn 156 seems to prove that it really is all relative.  However, it also speaks to the challenges of reproduction, as it takes a substantial amount of time.

Over-fishing affects even deep-sea sharks, as they are targeted by the cosmetic industry for their liver oil, which has a desirable moisturizing appeal. On top of this, sharks are also exposed to threats directly caused by humans such as climate change, pollution and habitat destruction.

We should care because biodiversity matters and sharks play a key role in balancing their marine ecosystems. In fact, they have an efficient method of preying that is also beneficial to other marine life. They target the old, sick and slower fish, which helps maintain the health of other species populations.  So contrary to their Jaws-inspired portrayal of being human-threatening cold-blood killers of summer beach-goers, sharks tend to target their feedings in a strategically balanced manner. Hence, our deep fear of sharks is unfounded, as the likelihood of humans being attacked by sharks is extremely low.

We need to be realistic about our fears and the statistics that support them. Despite the fact that it is also quite unlikely, we are much more likely to be killed by fireworks than sharks. Yet, we intentionally play with fire to celebrate events such as national holidays and then act as if stepping into the ocean is a summoning for certain death.  The truth is we are much more aggressive toward sharks than they are to us and that needs to stop. With only 3% of the 500 species of sharks known to attack humans, we shouldn’t be so worried about attacks.

However, we should be worried about losing sharks because we need them. Without sharks, the marine ecosystem will lose its balance as it loses its top predator. Removing sharks will trigger a trophic cascade effect on the marine ecosystem, with the potential to permanently alter it.  The presence of sharks—and even the fear they incite, has a positive influence on ecosystems. For example, a group of scientists in Hawaii found that their presence encouraged turtles to graze over a broader area of sea grass rather than focus on the best quality of sea grass and deplete a concentrated area, which they would do had they not had the lingering threat of sharks influencing their feeding patterns.

The stability of our planet requires a balance—and unfortunately, humans tend to be at fault for disturbing that balance. Maintaining a healthy equilibrium of biodiversity is critical to the well-being of the planet and we have the power to responsibly control this, so long as we are willing to change our habits. The enthusiasm for Shark Week is a positive example of celebrating our biodiversity, but sitting down to a “delicacy” meal of shark fin soup shows we still have a long way to go. If we want to continue celebrating our biodiversity, it is important that we educate ourselves on the best ways to protect it.

The good news is, now is the perfect time to act. In 2010, the Parties to the Convention on Biological Diversity (CBD) declared 2011-2020 to be the “Decade of Biodiversity.” More importantly, the CBD set forth the concept of mainstreaming biodiversity to eliminate the idea that biodiversity and ecosystem services are separate from the goals of development and growth. In November of this year, the Parties will meet again in Mexico for COP 13 to discuss the integration of biodiversity into relevant policy sectors.

It has become increasingly evident that the biodiversity within our ecosystems is a vital component to our life and we must implement policies that not only reflect that message, but also sufficiently protect it. Moreover, ecosystems have proved to be adaptable in both positive and negative ways as species have become transient due to changes in their habitats caused by climate change, pollution, and other factors. Therefore, the importance of a global consensus that encourages the integration of biodiversity protection into legislation will be an integral part of our sustainable development as it will allow us to collectively protect our planet and shared heritage.

Useful links

OECD work on fisheries

I see a sea shell on the sea shore. Or is it a plastic bottle?

16 August 2016
by Guest author

Manan-VastsyayanaGrace Hanley, OECD Environment Directorate

An Ellen MacArthur Foundation report predicts that by 2050, there’ll be more plastic in the ocean than fish. One result is so-called ocean “garbage patches” like the Great Pacific Garbage Patch, which scientists have estimated to be about twice the size of Texas (See a NOAA map of the garbage patches here). An astounding 90% of this floating garbage pile is plastic, which should alarm us; but it shouldn’t surprise us considering every piece of plastic created still exists. It is a material that the Earth cannot digest and thus the way we use it and dispose of it must be carefully considered.Unfortunately, according to the Foundation’s report, only 14% of plastic packaging is collected for recycling globally, and that 95% of the value of plastic packaging material is lost to the economy, or around $80 to $120 billion a year.

I’m not suggesting that we suddenly stop using plastic. That would be both impossible and impractical. In fact, there are great benefits to plastic. Plastic is a resource that cross-cuts every industry imaginable and on some levels can even help protect the environment by containing hazardous waste and preserving the life of machines and other products that would otherwise lose their ability to function, or corrode and be discarded. Plastic packaging can extend the shelf life of food that would otherwise be wasted and its light weight can also help reduce the amount of fuel needed to transport goods. In the medical industry antimicrobial plastic helps to stop the spread of diseases in hospitals and can both repel and kill bacteria on surfaces highly trafficked by patients and doctors.

Yet, the disadvantages of plastic use are severe and although we have the ability to drastically reduce our plastic production, consumption and waste, we are not in the habit of doing so. Whatever happened to recycling? Reduction relies on human behaviour, but humans are inherently lazy. It is much easier to dump everything into one bin than deal with sorting your glasses, cardboards, plastics, papers, compostable food and materials, and general rubbish.

However, it also important to note that it doesn’t always come down to individual choice. Often, infrastructure does not make recycling an easy option, which is why policymakers should strongly consider the benefits of creating comprehensive recycling infrastructure and incentives to engage in recycling. It’s hard enough to get people to recycle when ready-made clear recycling systems are in place, so when the infrastructure is confusing, inefficient or seemingly unattainable, the likelihood of recycling is drastically decreased.

Another issue is that waste quickly becomes something that is out of sight, out of mind. Most of us do not see where our rubbish goes. You take out the trash, a truck comes to collect it and poof—you never think about it again, until you start to see plastic bottles in the ocean and realise you should have taken those extra ten steps to put your bottle in the recycling bin.

Forecast of plastics volume growth and impact

plastics forecast

Source: Ellen MacArthur Foundation

The reality is that we’re not going to stop using plastic, but we can and we should start using it more responsibly. We can minimise our economic losses and environmental impacts by putting responsibility before convenience. Change the way you use, consume and discard plastic and convince others to as well so that we can collectively mitigate environmental and economic losses. This can be done by making lifestyle decisions that are equally beneficial to the consumers, the environment and the economy. For example, instead of buying a disposable plastic water bottle every day, you can buy a reusable one. This will both save you money and reduce potential pollution.

Moreover, it is the responsibility of governments to create and enforce laws that provide awareness and give people economic incentives to change their behaviour. A positive example of this is the plastic bag ban. The first city to implement a ban was Dhaka in 2002 in response to drain blockages caused by plastic bags responsible for flooding. This increased the spread of water-borne diseases and put pressure on infrastructure. In 2003, a surcharge on plastic bags in Ireland had a significant impact on consumer behaviour—the public almost unanimously opted for reusable totes in favour of plastic bags. Today, we continue to see a number of cities jump on board to ban or tax the bag in Rwanda, Australia, South Africa, Kenya, China, Italy, the United States, France and several others. Recently, England added a £0.05 surcharge on plastic bags and immediately saw an 85% drop in usage.

Another important legislative trend fighting plastic pollution is the microbead ban. These tiny pieces of plastics used in cosmetic products to exfoliate are so small that they cannot be filtered out of our water systems, meaning they end up in our rivers, lakes and oceans. Even worse, we end up eating them in our seafood. According to a Greenpeace analysis of 58 international studies, 170 types of widely consumed seafood products were found to contain microplastics. So if the idea of eating plastic makes you uncomfortable, you should push your government to reconsider selling products containing microbeads. One of the first politicians to bring attention to the issue was the Dutch Minister of Environment, Jacqueline Cramer in 2009 . Since then, Denmark has been pushing for a microbead ban in Europe; and in 2015 President Obama signed a bill prohibiting products containing microbeads in the United States.

Over the last decade, the environmental degradation caused by plastic has become increasingly apparent. In response, we have seen positive changes in legislation that aim to minimise and reduce our plastic usage in order to protect our marine ecosystems. However, our plastic habit is still unsettling and we must continue to push ourselves and our neighbours to change the way we use and dispose of it. On top of this, we must ensure that our government leaders and laws reflect responsible practice. Old habits die hard, but when we look at the damage that plastic causes to ourselves and our planet, it’s evident that it is a habit well worth breaking.

So, if you don’t want to see plastic floating in the waters on your next beach holiday—and I truly hope you don’t – act. It’s difficult to justify the dissatisfaction of those who choose inaction.

Useful links

Policies for Bioplastics in the Context of a Bioeconomy OECD Science, Technology and Industry Policy Papers

OECD project on the future of the ocean economy

The New Plastics Economy World Economic Forum

Aligning Investment with Development Goals in Central America

12 August 2016

siecaJavier A Gutiérrez, Executive Director, Secretariat for Central American Economic Integration (SIECA)

Central America has an important opportunity over the next few years to build inclusive and sustainable development through deepening regional economic integration, both to further the development of its internal market at sufficient scale, and to present the region as more attractive for investment. At the Secretariat for Central American Economic Integration (SIECA), we view coordinated regional integration as crucial to the implementation of the 2030 Agenda for Sustainable Development and its Sustainable Development Goals (SDGs). Key priorities are facilitating trade, promoting sustainable, resilient infrastructure and ensuring the integration of small-scale enterprises into value chains and markets (SDG 9), as well as promoting gender equality through women’s economic empowerment (SDG 5).

Regional action to support trade

Central America has made considerable progress in fostering trade openness and economic integration. The majority of trade within the region is now conducted under a free trade regime – tariffs apply to only 1.8 percent of originating products. Because of this progress, intraregional trade went from accounting for 16 percent of total exports in 1960 to 32 percent in 2015.

However, the World Bank estimates that around 12 percent of the value of consumer goods in Central American countries is still associated with the burdensome procedures and out-dated infrastructure in borders. It also takes an average of 13 days to export and 14 days to import products, and freight moves at an average speed of only 17 km per hour. Costs associated with road transportation are particularly high in the region. In advanced economies, freight transport prices are as low as 2-5 US cents per ton-kilometre, but they average 17 US cents per ton-kilometre on main Central American routes; prices stand out even against other developing economies. This is why trade facilitation has become one of the region’s priorities.

In addition to taking part in the implementation of the World Trade Organization (WTO)’s Trade Facilitation Agreement (TFA) – El Salvador, Honduras, Nicaragua and Panama have already notified the WTO of its ratification, and the rest of countries are in the process of doing so –, Central America adopted its Strategy for Trade Facilitation and Competitiveness (STFC) in October 2015. The Strategy will involve the implementation of five short-term measures to streamline border management procedures, and a medium and long term plan to consolidate a Coordinated Border Management (CBM) system in Central America, following the guidelines and best practices from the World Customs Organization (WCO). Successful implementation of the Strategy could enable an increase of between 1.4 and 3 percent in the region’s GNP and a surge in exports between 4.2 and 11.9 percent, according to the UN Economic Commission for Latin America and the Caribbean (ECLAC). The STFC, moreover, is conceived only as a step towards deeper economic integration. A roadmap to be implemented from now to 2024 has also been approved with the aim of establishing a Central American Customs Union (CACU).

Investment priorities

Besides trade and integration, Central America is seeking to improve its infrastructure. Panama is the most ambitious; having recently invested US$5.58 billion in the expansion of the Panama Canal; they’re also creating a second metro line, and have already announced a third one valued in US$2300 million. Meanwhile, Honduras has focused in infrastructure supportive of trade facilitation, and Guatemala and El Salvador have devoted resources to energy-related projects.

Despite this the region still faces a sizeable investment gap. According to ECLAC estimates, Latin America needs to spend some 6.2 percent of GDP per year on average to fund infrastructure investment needs in transport, energy, telecommunications, and drinking water and sanitation, but spending is currently below 3 percent of GDP in Central America. The region also needs to revamp its existing infrastructure, building resilience to the effects of climate change, and improving adaptive capacity to face climate-related hazards and natural disasters, reflecting the targets under SDG 13 on climate change.

Just as crucial is investment in boosting micro, small and medium enterprises (MSMEs). Around 96 percent of Central America’s companies are MSMEs, which support 54 percent of employment and contribute to 34 percent of the region’s GDP. It is thus crucial to harness the potential of the regional market – which is large, with similar cultural background and a shared language – to offer small firms the opportunity to engage in international trade. SIECA has intervened to bolster MSME participation in value chains for key export products, including bovine meat, natural honey, foliage, cardamom, tilapia and shrimp, through the Regional Programme for Quality Support of Sanitary and Phytosanitary Measures in Central America (PRACAMS), which operates with funds from the European Union.

Moving forward, the region is looking to support MSMEs in other sectors of industry, creating a path for entrepreneurs to join the formal economy, create better jobs, and – because 46 percent of micro enterprises are owned by women – boost women’s participation in regional and global value chains and their economic empowerment.  A recent SIECA study shows that the sectors with the most potential for participation in value chains include food preparations, vegetables, cardamom, coffee, and cattle.

Addressing financing gaps

All these efforts require a substantial amount of support. Overall, SIECA managed US$9.3 million in cooperation funds in 2014 and US$11.7 million in 2015, including for the work on MSMEs and GVCs above. As the sustainable development agenda moves forward, however, regional efforts will also require improved monitoring and evaluation mechanisms to ensure effective allocation of funds and an overarching strategy that ensures resources are aligned with the region’s own development goals.

Preventing overlaps or contradictions between each countries’ fund allocation will be crucial. To achieve this, the Council of Ministers of Economic Integration is expected to soon approve the Central American Aid for Trade Programme (AfTP), and later submit it to the Summit of Presidents for its adoption, a systematic investment plan to address regional trade-related investment needs in a coordinated way.

In SIECA’s experience, aid is more effective when there is a close collaboration between countries and donors. Clear communication and feedback mechanisms have helped us enhance the effectiveness of our collective actions. We’ve also learned the importance of coordinating the execution of projects at the regional level, to avoid redundancies and ensure regional efforts are coherent. Instruments to assist leaders in identifying financing gaps and seek investment and funds to cover them are also crucial.  Applying these lessons will be crucial for success as Central America moves ahead with the implementation of the 2030 Agenda.

Useful links

The OECD and Latin America and the Caribbean

OECD Latin America Economic Outlook 2016: Towards a New Partnership with China

Africa’s urbanisation and structural transformation

3 August 2016
by Patrick Love

AEO 2016We don’t know the name, or the place and exact date of birth, of the baby who changed world history. My guess is that she was born somewhere in Africa in 2007. Not that she cared as she lay there all wrinkled and raging at the disagreeable turn her life had just taken, but it was thanks to her that for the first time ever, the world had more urban dwellers than country folk.

Africa itself won’t pass that landmark until sometime in the 2030s, but when you look at the numbers rather than the percentages, you can see why this year’s African Economic Outlook from the OECD Development Centre, African Development Bank, and UNDP is focusing on “Sustainable Cities and Structural Transformation”. In 1990, Africa was the world’s region with the smallest number of urban dwellers: 197 million. Now it has more than twice that at 472 million, and the urban population is expected to almost double again between 2015 and 2035. By 2020, Africa is forecast to have the second highest number of urban dwellers in the world (560 million) after Asia (2348 million).

Most of us, including many of the people who live in them, probably have a negative impression of African cities. Lagos-based Bayo Olupohunda warns that “intractable traffic gridlock, breakdown of law and order due to social exclusion, amenities crises are the signs of population apocalypse…”. Likewise, The Guardian is running a series on cities just now, and the headlines of its articles about African metropolises like Kinshasa and Nairobi talk about chaos and pollution.

It’s worth noting, though, that African urbanisation isn’t mainly due to the megacities we always hear about. In fact, between 2000 and 2010, urban agglomerations with fewer than 300,000 inhabitants accounted for 58% of Africa’s urban growth, compared with 29% for those with populations over a million. Nor is it due to rural-urban migration: migration accounts for less than a third of urban population growth in 22 African countries. It accounts for over 50% in only 7 countries (Burkina Faso, Cabo Verde, Lesotho, Namibia, Rwanda, Seychelles and South Africa, whereas it contributed to half of Asia’s urban population growth. The Outlook groups African countries into five types according to their stages in three processes: urbanisation, fertility transition, and structural transformation.

Whatever their individual characteristics, the Outlook, exposes a daunting series of problems facing Africa’s urban areas. In many African countries, a large portion of the urban labour force remains trapped in low-productivity informal services activities, and access to public goods is unequal. Moreover, despite Africa’s slow industrialisation, the costs of environmental degradation are large and increasing, adding to the economic and social challenges of urbanisation.

The speed of the economic transformation could be a problem as well. Some economists are concerned that African countries – and developing countries generally – are moving into the service sector too early in their development trajectory and that this “premature deindustrialisation” may damage future growth prospects by depriving economies of the benefits of industrialisation for sustained growth and economic convergence. For example, if people are moving out of farming into hotel and restaurant work or street trading, especially informal jobs, the sectors they move into are likely to see productivity growth slowed by this influx of cheap labour.

And yet, despite all the readily available negative evidence, the Outlook argues that urbanisation could boost structural transformation – moving economic resources from low to higher productivity activities, essentially from traditional agriculture to manufacturing or services. In part, this view is based on economic history. Cities everywhere have traditionally provided “a large and diversified pool of labour, a more dynamic local market, more cost-effective access to suppliers and specialised services, lower transaction costs, more diversified contact networks and greater knowledge-sharing opportunities, and an environment that encourages innovation”.

They are also ideal for cashing in on one of the trends defining the new economy. Often this is referred to as the “sharing economy”, but as Diane Coyle argued at an OECD seminar earlier this year, “matching” is a better term to describe what platforms like Uber or AirBnB do – they match the demand for something to those supplying it. Cities help firms match their requirements for labour, materials, and premises better than towns or rural area. Larger markets bring more choices and opportunities. Cities also afford firms access to a wider range of shared services and infrastructure because of the scale of activity. Firms gain from the superior flow of information in cities, which promotes more learning and innovation, and results in higher value-added products and processes.

Bayo Olupohunda recognises this, arguing that if well-managed, Lagos could be efficient, “enabling economies of scale and network effects. Furthermore, the proximity and diversity of people as seen in Lagos can spark innovation and create employment, as exchanging of ideas breeds new ideas”. He also recognises that these benefits don’t come automatically though, and that “the availability and quality of infrastructure are at the core of many of the challenges faced by a rapidly urbanized Lagos.”

The Outlook makes the same diagnosis for African cities in general, citing three policy-related issues: public and private actors have not sufficiently upgraded the urban infrastructure; steadily high fertility rates in urban areas have contributed to overcrowding through fast urban growth; and dysfunctional real estate markets have led to the explosion of informal housing. To tackle the problems, governments and the private sector will have to invest twice as much by 2050 as they have since the years of independence, but policies to restrain urbanisation have tended to be more popular than policies to use urbanisation to boost structural transformation.

This may be changing. The Draft Africa Common Position on Habitat III, the Third UN Conference on Housing and Sustainable Urban Development taking place in October, states that Sustainable Development Goal 11 to make cities and human settlements inclusive, safe, resilient and sustainable, “needs to be considered together with goals 8, 9 and 10 on matters relating to promoting economic growth as well as full and productive employment; building infrastructure, industrialization and innovation, as well as reducing inequality within and between countries”.

Useful links

A 21st Century Vision for Urbanisation Dr Joan Clos, Executive Director, UN-Habitat on OECD Development Matters blog

OECD Development Centre work on Africa and the Middle East

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