The challenge of service provision in intermediary cities: In search of solutions

Why are intermediary cities important?

Kisumu, an intermediary city in Kenya and the most recent host of Africities Summit
Source: Flickr

By 2050, two billion additional people are expected to live in urban areas meaning that two out of three people in the world will be living in cities. While this statistic has been at the forefront of urban development discourse, the composition of this growth gets less attention. In this context, a greater focus on intermediary cities and secondary cities, which will be a major contributor to urban growth over the next decades, is critical. Part of this population increase in intermediary cities will be fuelled by rural-urban migration as climate change and economic hardships push people into cities in search of better livelihoods. Consequently, many intermediary cities are likely to face challenges associated with rapid urbanisation such as widening urban inequality and inadequate service provision stressing the need for forward-looking urban planning interventions. 

According to the UN-HABITAT, intermediary, often called secondary, cities (with the terms being used interchangeably) are small and mid-sized agglomerations that connect metropolitan and rural areas and have a population of fewer than one million people. However, the broader definition is not limited to just population. Function and economic status also define these cities. As such, for high-income countries with developed urban systems, intermediary cities might refer to metropolitan areas with a population of less than five million people. Globally, intermediary cities are home to 20 per cent of the population, and more than a third of the total urban population. In Africa, intermediary cities are home to more than 250 million people, which represents 44 per cent of the total urban population on the continent. While there are different methodologies that exist to calculate African urban population based on the defined geographical scope of a city, data from Africapolis shows that cities with a population between 100,000 and 300,000 are the fastest-growing at an average annual rate of 4.5 per cent. By 2040, two-thirds of people moving to urban areas will be moving into intermediary cities. This is proof that intermediary cities should be receiving more attention as their importance increases over time.

Recently, the Digital Utilities programme attended the 9th Africities Summit under the theme, ‘The Role of Intermediary Cities of Africa in the implementation of Agenda 2030 of the United Nations and the African Union Agenda 2063’. The Summit, convened by the United Cities and Local Governments of Africa’s (UCLG-A), brought together the leadership of cities and sub-national governments and their associations. This year’s summit was held in Kisumu, the third-largest city in Kenya, making it the first ever intermediary city to host the Africities Summit. During the summit, the mayors and leaders made a 20-point declaration that outlines their vision to make intermediary cities in Africa the focal point in the implementation of the development agendas. They recognised that small and intermediary cities account for nearly 50 per cent of the African GDP and that the expected structural transformation from the implementation of the African Continental Free Trade Area will not materialise if these cities are not considered. More importantly, the delegates were aware that the acceleration and the use of digital technologies and smart solutions requires local governments to revise their governance structures, citizen engagement mechanisms, and partnerships with the private sector.

The GSMA Digital Utilities programme was delighted to engage local government stakeholders, donors, and enabling organisations at the event and is committed to continue to enable access to essential urban utility services through digital solutions and innovative partnerships. As such, we shall be hosting a closed-door workshop later in the year with intermediary cities and the relevant county governments through the Sustainable Urban Economic Development Program (SUED), supported by the UK Government through the Foreign, Commonwealth and Development Office (FCDO), and Open Capital Advisors. The workshop will bring together technical staff from municipalities, private urban innovators, enabling organisations and representatives from key regulatory institutions. To learn more about this workshop, please email Jisas Lemasagarai for more information.

The unique challenges to intermediary cities

Intermediary cities play an important role as many serve as the first stop for people migrating from rural areas to larger cities. They are also crucial to national supply chains in agriculture and other specialised industries. Besides their economic importance, they are often the administrative centre for majority of the population that cannot easily access primary cities. Research has shown the proximity of cities of any size to rural areas helps reduce rural poverty by facilitating access to market opportunities and better infrastructure. 

Despite their importance, intermediary cities are facing multiple challenges in providing essential infrastructure and utility services to their residents. Only slightly above 30 per cent of residents of African cities of a population between 50,000- 250,000 have access to piped water. While the gap in access to some essential utility services between cities with more than 50,000 residents and large cities with more than one million residents is not that large, intermediary cities are growing at unprecedented rates and local governments will struggle to meet growing demands for services.  

Figure 1
Source: Africa’s Urbanisation Dynamics 2022: The Economic Power of Africa’s Cities 

The challenge of inclusive and reliable urban utility services can be attributed to several factors that are prevalent across most intermediary cities. First, these cities are often left out of national urban policies. With national government coordination mechanisms failing to adequately involve intermediary city authorities in policymaking, financial, and institutional building processes, this creates an imbalance between primary and intermediary cities. This leaves some of the cities with systems and plans that do not correspond with their needs and priorities. 

Second, as governing entities become more decentralised across the world and local governments take up more responsibilities, the levels of fiscal decentralisation have remained relatively unchanged. Municipalities are still relying on the central government for funding while struggling with domestic resource mobilisation. The investment needs for intermediary cities are continuing to grow, and the dependence on intergovernmental transfers is proving to be detrimental as these funding flows are often insufficient and inconsistent. In an article published by UCLG-A, the authors noted that intergovernmental revenue as a share of the total revenue was as high as 98 per cent for Iwo city in Nigeria as compared to proportions as low as 16 per cent for Saskatoon in Canada. Furthermore, most intermediary cities do not often have the fiscal authority to borrow from capital markets to finance their investments. Besides not having the autonomy to access external finance, another factor that limits this access include low creditworthiness due to the high cost of capital, poor municipal fiscal health, and smaller ticket sizes that investors might not be as attracted to. Data is critical for better and inclusive policymaking for local governments. However, intermediary cities also often have weak data systems that limit data collection thus affecting the ability to make evidence-driven decisions. Spatial planning is therefore lacking as most local governments are not set to design solid urban expansion plans, make future projections, or allocate resources effectively. 

The case for decentralised service provision

Despite these constraints, intermediary cities still need to provide affordable, reliable, safe, and sustainable urban utility services to their residents. This challenge is exacerbated by the fact that capital costs of infrastructure by density are lower in larger cities as compared to smaller cities, as the unit cost is significantly higher in areas with a low population density. Adopting decentralised services will allow city authorities to respond to the needs of residents while maximising administrative efficiencies and improving service delivery. Decentralisation in service provision is the transfer of responsibility to actors outside of the administrative central government, and are often small-scale, private-run models that respond to the needs of the local population they serve. Decentralisation also encourages more collaboration among the private sector, non-governmental entities, and the local governments in designing and implementing the solutions.

Digital technologies are unique placed to enable such collaboration and can a critical role in improving infrastructure and service provision in intermediary cities. With the expansion of mobile connectivity and the proliferation of technological innovations in big data, Internet of Things (IoT) and GIS, innovative business models that leverage these digital solutions have also become more relevant for intermediary cities and their residents. 

The role of digital technology in accelerating decentralised services

The provision of essential urban services such as energy, water and sanitation are a key determinant of the quality-of-life of urban residents. However, cities are still struggling to address these needs. 

Off-grid energy solutions can scale up access to reliable and clean energy in intermediary cities. Given the density of intermediary cities, extending the national grid can be quite expensive and time-consuming as many energy utilities across the continent struggle with profound financial and structural challenges. A recent World Bank report found that mini-grids are the most cost-effective energy solution for over 500 million people of the 1.2 billion people lacking to electricity globally, and they are uniquely placed to electrify intermediary cities with sufficient levels of energy demand. This is exemplified by Nuru, a mini-grid developer and operator, connecting urban households to electricity in the Democratic Republic of Congo (DRC). With the sector becoming more financially viable and increasingly digital, as well as an increasing appetite from investors and donors to support the sector, intermediary cities are uniquely positioned to benefit. 

Stand-alone solar home systems (SHS), which are often pay-as-you-go (PAYG) enabled, are another energy solution that can help close the electricity access gap, especially for low-income urban residents. PAYG enables customers to access financing options for assets such as solar panels and pico-solar systems that provide lighting and charge a range of devices. SHS are particularly attractive in urban areas with low energy access rates, unreliable grid power and a high reliance on diesel generators. While energy from SHS is not sufficient to power industrial activity, larger capacity SHS can provide electricity to households and small businesses, hence narrowing the access gap. Since 2013, the GSMA has awarded grants to several frontier companies that provide PAYG solar home systems (SHS) such as M-KOPA, Mobisol, PEG Africa and Fenix International (now part of Engie Energy Access Africa). 

One of SWN’s water station in Ghana
Source: Safe Water Network

As for the water sector, most cities struggle with connecting households to piped water once built infrastructure is already in place. Moreover, the process is complex and costly to the utilities. To unleash the potential of intermediary cities, cost-effective and sustainable methods are needed. Safe Water Network (SWN) is a not-for-profit that funds the development of small water enterprises in Ghana and India. SWN has established stations that take water from a nearby source, purify it, then distribute it via household connections or water ATMs. In 2015, the GSMA provided a grant to SWN to develop five new mobile-payment enabled water stations. From these five stations, 78 water ATMs and 762 prepaid household connections were installed, directly benefiting over 11,000 people. This shows the scale of reach and impact that can be achieved from small scale projects. 

Decentralisation can increase financing options

Decentralised services can provide the opportunity to bridge the existing funding gap in intermediary cities by attracting innovating financing options. Private investors and development finance institutions are more willing to lend to the private sector on competitive terms. Programmes such as SUED are also supporting market driven growth by helping intermediary cities attract investment to address pressing challenges. 

In the sanitation sector, most decentralised services are provided by the private sector as is the case with Sanivation. one of our past grantees. Sanivation develops and operates city-wide sanitation solutions for African ‘secondary’ cities. They provide sanitation services such as faecal sludge management and waste treatment, in which they later turn the waste into biomass fuels. Sanivation has so far worked in intermediary cities such as Naivasha, Malindi, Wajir and Kisii in Kenya. They have received funding from impact investors such as FINCA Ventures, helping Sanivation scale their innovative infrastructure across cities. In an ongoing project in Malindi, Sanivation unlocked about $7 million to launch a 20-year sanitation plan involving pit emptying services, transfer stations and a treatment plant. Decentralised systems such as small-scale treatment plants can operate with minimal power, require minimal maintenance and investment and operating costs can be relatively lower. On-site, non-sewered and innovative solutions are beginning to gain ground in most cities and are great fits for intermediary cities that do not have developed traditional systems yet.

Conclusion

Intermediary cities should receive more attention in Africa’s urbanisation discourse. A stronger focus on these cities would also imply stronger and potentially more sustainable linkages between urban and rural sectors and alleviate pressure from already highly populated metropolitan cities. It will also offer opportunities to advance more inclusive and climate-resilient urban development models. We can all agree that access to affordable, reliable, safe, and sustainable utility services such as energy, water, sanitation, and wate-management is essential for making intermediary cities attractive places to work and live.

Unfortunately, as the population and geographical size of these cities rapidly expands, the challenges in service provision will intensify. Decentralised services are therefore among the best immediate long-lasting solution for intermediary cities. Moreover, government support, supporting legal and regulatory framework, organised institutional arrangements, technical expertise, and provision and access to financing mechanisms are also key to ensure sustainability and efficiency.

The Digital Utilities programme is committed to supporting intermediary cities and their private sector partners to build impactful partnerships for inclusive service provision. We look forward to sharing take-aways from our workshop in Kenya later in the year and will continue to drive the conversation on the importance of essential utility service provision in supporting intermediary cities.

The Digital Utilities programme is funded by the UK Foreign, Commonwealth & Development Office (FCDO), and supported by the GSMA and its members.

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