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Reuters/Philimon Bulwayo
Clear and present danger.
RISKY BUSINESS

Charted: Market crashes threaten African cities more than natural disasters

By Sibusiso Tshabalala

By 2030, more than 50% of Africans will live in cities. As the continent urbanizes, mitigating the effects of manmade threats and natural disasters will play an important role in guaranteeing the social and economic stability in African cities.

Insurance firm Lloyd’s teamed up with the Centre for Risk Studies at the University of Cambridge to produce an index quantifying the negative economic impact that natural and manmade threats could have on 301 cities across the world. The Lloyd’s City Risk Index calculates the economic loss—measured as a share of average annual GDP—that 18 natural and manmade threats could have over a 10-year period.

Financial market crashes emerged as the top threat, and could cost African cities up to $38.1 billion in lost annual output by 2025. Overall, African cities could lose $154.4 billion in forgone GDP each year due to manmade and natural threats.

Market crashes, like the one that followed the collapse of Lehman Brothers, also rank as the world’s number-one threat, costing some $1 trillion is lost annual output. Manmade threats like market turmoil, cyber attacks, and the like are becoming more costly for cities than natural disasters, Lloyd’s says. This reflects the changing nature of the global economy: highly connected and interdependent.

The threats that Africa’s top cities face

Home to the largest stock exchange in Africa, Johannesburg, South Africa’s financial center, stands to lose out on 35% of annual GDP output in the event of a serious market crash. A brief (pdf, pg. 2) on Johannesburg from Lloyd’s notes that the country’s exposure to the global demand for commodities—it is one of world’s biggest producers of gold—makes it particularly vulnerable to market shocks.

Human pandemic is the second biggest threat, influenced by Johannesburg’s high HIV infection rate. There were an estimated 6.1 million people living with the disease in the city as of 2012, according to Lloyd’s.

Lagos, the engine for the continent’s largest economy, Nigeria, and the most populous city in sub-Saharan Africa, risks losing up to $4.6 billion in annual GDP over the next 10 years from human pandemics. This represents the city’s gravest threat, worth nearly 28% of its average annual output.

The city could also lose an estimated 5% of its GDP due to terrorism, as Nigeria continues to battle with the six-year long insurgency of Boko Haram.

Cairo, Africa’s biggest city after Lagos, looks especially vulnerable to shocks. Egypt is undergoing a halting transition to democracy after the 2011 Arab Spring, and its largest city faces the fourth-highest potential losses, relative to its size, in the world. A third of Cairo’s GDP output could be lost a sovereign default, given the country’s heavy reliance on borrowing—public debt is worth more than 90% of GDP—and big budget deficit.