If you’ve been following my blog posts you know I spent the last week in Mumbai, India. I was there on a consulting project for school, working with a multi-billion dollar company involved in several areas of commerce- but specifically with their real estate business. The end goal was to help them figure out ways in which to make their affordable housing more sustainable and environmentally-friendly, given Mumbai’s over-population and the ever rising pressures on social amenities and infrastructure in the region.
For me, it was also an opportunity to look at a topic I’ve always been interested in practically: comparative growth between Africa and Asia. In effect, I finally had the opportunity to look firsthand at models for growth and development in India, and see the ways in which they might be applied or adapted for the Ghanaian development dilemma.
Now, let me first say, spending a week in India has definitely given me a new appreciation for Ghana’s current situation. While we may have it bad, we by no means face the dire situation of overpopulation and underemployment I saw in Mumbai. However, this only makes the reality of our underdevelopment vis-a-vis that of India’s only sadder. We seem to be better off socially, and yet we still have not achieved half of the economic growth and development India has in spite of their circumstances.
While real estate may seem like an odd angle from which to view the development dichotomy between these two countries, I know now that it was actually the perfect case study. The real estate sector in India has been geared towards the problems at hand: overpopulation and poverty. These are also very serious issues that exist within Accra, and other capital cities in Ghana, even if to a lesser degree. Because Accra is the capital city, and about 60% of the rest of the country remains underdeveloped, people flock towards the city in search of nonexistent greener pastures and employment opportunities, putting pressures on the already poorly functioning social infrastructure in the capital. This is the exact same situation that exists in Mumbai. However, instead of relying solely on aid and Foreign Direct Investment (which is still low and has not exceeded 49% in top industries), they have managed to find creative ways to help alleviate the situation through Public-Private Partnerships, and in doing so helped fuel economic growth and development in the region.
India as a country, like most developing countries, does not have the resources to solve the problems within it’s borders. However, also like most developing countries, there exists a strata of wealthy upper-class citizens and corporations who do. But it isn’t the capitalist mindset to lend itself to development efforts without some return on investment- and the government in Mumbai has provided just that: the incentives private companies and investors need to pour into the development of their societies.
One of the most impressive examples of PPPs I saw in Mumbai was the construction of expansive highways by private developers. In this instance, private contractors build public roads on which tolls are taken. The tolls are used to repay the construction- with interest- after which the road becomes public property. There were even signs at each toll port with details of the scheme: how much was owed, how much had been collected, the expected repayment period, interest accrued, etc. So not only is the private constructor earning a profit on his investment, he also gains the benefit of improved infrastructure that could help reduce any over-costs he may have due to poor transportation/logistics.
In terms of real estate, Mumbai has managed to create a system of incentives that has allowed PPPs to reduce overcrowding and poverty in the region. Their slum rehabilitation program has allowed private developers to purchase slum land in exchange for providing free housing for slum inhabitants. It works something like this: A private developer approaches a slum community with the rehabilitation offer. The developer has to obtain 70-80% vote from all legal inhabitants of the slum (legal being based off the last census) to start the project. Once this approval is received, slum inhabitants are paid a relocation stipend by the contractor for the period in which the new housing is being developed. Once the housing is in place- high-rise apartments with stores and some social infrastructure such as daycare facilities- and the inhabitants are settled into their fully-owned homes, the developer is free to use the rest of the land for commercial purposes. Part of the profits from this commercial venture are used in the upkeep of the rehabilitation housing.
In addition to slum rehabilitation schemes, there are redevelopment programs where companies can bid to reconstruct older buildings in exchange for incentives like extra FAR (Floor Area Ratio- the ratio of a buildings floor area to the land on which it sits set by government authorities that essentially sets an upper limit on the building height). Land is leased out for periods of 30-99 years, after which any buildings/structures may be put up for redevelopment bids. This fact, tied with the scarcity of land in the city in comparison to the population it’s supporting, makes increased FAR an effective, profit-driven motive for private investors to take up redevelopment contracts. Here, once again, the inhabitants of the area (assuming it’s residential) are provided with relocation stipends as well as the opportunity to resell their new homes after 20/30 years of ownership.
Where land is privately owned, the story is almost no different. The government still holds some controls over what can be constructed where, especially in underdeveloped regions that have been designated as future satellite cities that will help reduce decongestion in inner Mumbai. These areas are primarily located around the new rail/metro services and highways being constructed in the region, to allow for easy commute in and out of the city center, where most employment is located. Private land owners are once again incentivized by extra FAR and tax reductions to use land for its planned purposes- be it schools, religious buildings, hospitals, shopping centers, etc. Having assessed and understood the level of profitability that comes with building affordable housing communities around these social amenities that will not only draw inner city dwellers outwards with improved standards of living, but also with the employment opportunities to support it, private contractors have more than enough reason to build entire settlements.
Now, I’m by no means saying that the ways in which PPP in the real estate sector are helping to improve development in the region are without flaws. But the Indians are on to something here. We’ve reached the point where governments of developing countries no longer have the means to sustain growth on their own- whether for lack of resources or just plain incompetence is up for debate. It remains that it is now up to the private sector- to private land owners and businesses- to pick up the slack, but like any good capitalist, they will only do so if there is some profit-bearing benefit to providing the social good.
I’m still trying to figure out how such systems would work in a country like Ghana where land, especially outside the city, is primarily owned by chiefs/ethnic people. Land is seen as private wealth, as opposed to a potentially profitable development prospect. It’s sold off to the highest bidder without regard for what it’s future purpose will be. And so we see more and more homes popping up without the commercial and social infrastructure to support them. We see commercial structures popping up in areas that do not have the amenities to support them, creating extensive and unsustainable pressures on that which already exist. Our government has no invested interest in the use of our land and takes neither the development initiative nor provides incentive to the private development of areas outside city centers.
We need to find ways to incentivize the private sector to pour into public development- solutions that go beyond simple social responsibility. In the next three decades, Accra may very well begin to mimic inner city Mumbai in terms of over-population, poverty, and income disparity. The sooner we figure out creative ways to alleviate these social issues and pressures on our city centers, the better.