The political economy of structural transformation in African cities: Insights from the Deals and Development framework

An important stylized fact about African economic development is the phenomenon of urbanization without structural transformation. This paper provides a political economy analysis of the lack of structural transformation in African cities, drawing on the Deals and Development framework. It argues that limited structural transformation in African cities is due to the nature of state-business relations in the cities, where manufacturing and tradeable services firms in the formal sector face semi-ordered deals while 'workhorses', which constitute the large proportion of the economic structure of cities, face disordered deals. Such deals, whether semi-ordered or disordered, are not conducive to long-term growth and structural transformation. In contrast, political and economic elites share rents through closed ordered deals in construction, real estate, and utilities, which disincentivizes investment in productive sectors as well as leading to high costs of inputs for downstream firms in manufacturing and services. Our analysis points to the need to pay closer attention to political economy factors that constrain structural transformation in African cities, in addition to conventional explanations that highlight the role of economic factors such as the lack of agglomeration economies and poor infrastructure in urban Africa.