Nairobi tops African cities on innovation – report

Nairobi is the top city in Africa for innovation and ranks among the top 100 globally, the Knight Frank’s 'Africa Horizons Report 2021/22' indicates.

The Kenya's capital ranked ahead of Cape Town which was second, Kampala third with Cairo and Johannesburg at fourth and fifth place respectively.

Dar es Salaam came in sixth folowed by Lagos, Dakar (Senegal), Accra (Ghana) with Addis Ababa closing the top ten list.

The survey was based on statistical modelling techniques to determine which observable variable best represented innovation and create an innovation score for each city.

This score comprises three components of innovation activity such as the total number of start-ups, level of innovation funding and innovation infrastructure, such as the number of research institutions, where Nairobi stood out.

The ease of doing business also propelled Nairobi to the top position, according to the report.

Scores allocated are between zero and 10, with 10 being the highest.

The ranking comes as lower risk investors are reported to favour cities with above-average innovation scores and a robust economy.

These include Cairo, Egypt – the stand-out performer – and Johannesburg, South Africa.

These cities have the greatest potential to remain economically resilient in the long term despite  undergoing short-term shocks, according to researchers in the report released on Wednesday.

Cities that score higher for innovation but have less robust economies will attract those willing to take more risk, such as private equity investors.

These cities include Nairobi, Kenya, Cape Town in South Africa and Kampala, Uganda.

"The city (Nairobi) offers a good balance between the number of research institutions, available innovation funding and innovation activity (including start-up activity), as well as ease of doing business," Knight Frank notes in its report.

Notably, smaller cities such as Kampala also scored highly for innovation, resulting from an agglomeration of research institutions and increased start-up activity.

“Innovation coupled with economic growth will drive the next decade of investment in Africa," Tilda Mwai, Knight Frank Researcher for Africa notes.

The research interrogated over 100 data points applied to 29 capital cities from a long list of over 500 cities in Africa to arrive at a unique innovation score.

According to the report, the move towards innovation has been amplified in the resultant opportunities in asset classes.

Data centres in particular are anticipated to grow.

While the markets remain underserved, the main drivers towards the growth of this asset class is the move towards localisation of data, rising demographics and the influx in capital focused on data centres.

In terms of data centres capacity, leading markets such as Johannesburg and Nairobi have a total live IT power of 54.9MW and 19.04MW, respectively, compared to data centre hubs such as Dublin and London whose live IT power stands at 795.8MW and 728.25MW respectively.

Africa’s data centre markets are categorised into three distinct tiers.

Tier one markets include Johannesburg, Cape Town and Nairobi, which are already becoming Africa’s leading data centres markets.

Tier two markets are such as Addis Ababa, Dar es Salaam and Kampala, essentially cities in the most populous of countries or those with strategic positioning.

Tier three markets are categorized as low population centres with relatively low ease of doing business.

Meanwhile, researchers have identified climate change to be the biggest threat to the future of African cities.

The report states that African cities are getting warmer and extreme weather changes are going to have a direct impact of the environment within cities and increase the move towards urban migration.

The most affected areas are expected in the Central and Southern parts of Africa including the capitals of Lilongwe and Lusaka.

This prediction is based on the firm’s modelling of geographical information systems data using the Köppen Geiger climate change predictions for 2050.

The model illustrates that climate change will impact African cities in two different ways.

Firstly, a combination of the urban heat island effect resultant from the impact of ongoing human activities on the urban environment, leading to higher temperatures in urban areas compared to rural areas, combined with global warming will have a direct impact on the environment within cities.

Secondly, extreme weather changes in rural areas are anticipated to have an impact on agriculture as the main source of livelihood, ultimately driving more people to cities.

This is mainly anticipated to take place across West Africa in countries such as Togo, Nigeria and Cameroon.

“Like many crises before, Covid-19 is likely to inspire an evolution. Fixing the city is anticipated to be the most urgent post-Covid challenge. While there is no simple solution to climate change itself, it is the built environment that poses the greatest challenge to climate change,” Mwai said.

The Africa Horizons Report 2021/22 also highlights themes such as Environmental, Social and Governance (ESG) as a factor that will continue to take centre stage for property investors across the continent.

“This rapid shift in perspective around ESG factors has resulted in property investors now having an additional set of criteria to consider when buying, selling or redeveloping assets," notes Anthony Duggan, Head of Global Capital Markets research-Knight Frank. 

Appraisals and valuations will increasingly be looking across factors such as the performance of the physical asset itself, the locational risk of where the asset is located and, increasingly, an understanding and measure of the tenant counter party risk.

The built environment landscape across Africa is therefore set to change, adapting to the local needs for real estate with a greater emphasis on sustainability underpinned by increasing urbanisation and rising population.

There are currently approximately 700 certified green buildings in hotspots across the continent with the most dominant rating tools being the Green Star (GBCSA), LEED (USGBC) and EDGE (IFC).

While South Africa continues to account for more than three quarters of these buildings, rapid green growth has been witnessed across the continent underpinned by a range of factors.

These include the turning legislative tide, the availability of a broad range of financing to investors and developers of green buildings and great tenant retention capacity for green buildings resulting in income resilience and increased investor interest.

Already as the report indicates, green bonds in excess of $2 billion (Sh216.1 billion) have been issued across Africa.