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OverviewE U R O P E A N D C E N T R A L A S I A S T U D I E STIDES of ChangeIgniting Productivity Growth in Europe and Central AsiaLeonardo IacovoneHenry Aviomoh Matias Belacin Laurent Bossavie Ana Cusolito Rafael de Hoyos Gianmarco Ottaviano Fabian Scheifele Ivn Torre Yutaka Yoshino TIDES of ChangeThis book,along with any associated content or subsequent updates,can be accessed at https:/ the QR code to see all the titles in this series.E U R O P E A N D C E N T R A L A S I A S T U D I E SOverviewTIDES of ChangeIgniting Productivity Growth in Europe and Central AsiaLeonardo IacovoneHenry AviomohMatias BelacinLaurent BossavieAna CusolitoRafael de HoyosGianmarco OttavianoFabian ScheifeleIvn TorreYutaka Yoshino This booklet contains the overview from TIDES of Change:Igniting Productivity Growth in Europe and Central Asia,doi:10.1596/978-1-4648-2287-2.A PDF of the final book,once published,will be available at https:/openknowledge.worldbank.org/and http:/documents.worldbank.org/,and print copies can be ordered at .Please use the final version of the book for citation,reproduction,and adaptation purposes.2025 International Bank for Reconstruction and Development/The World Bank1818 H Street NW,Washington,DC 20433Telephone:202-473-1000;Internet:www.worldbank.orgSome rights reservedThis work is a product of the staff of The World Bank with external contributions.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank,its Board of Executive Directors,or the governments they represent.The World Bank does not guarantee the accuracy,completeness,or currency of the data included in this work and does not assume responsibility for any errors,omissions,or discrepancies in the information,or liability with respect to the use of or failure to use the information,methods,processes,or conclusions set forth.Theboundaries,colors,denominations,links/footnotes,and other information shown in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.The citation of works authored by others does not mean TheWorld Bank endorses the views expressed by those authors or the content of their works.Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank,all of which are specifically reserved.Rights and PermissionsThis work is available under the Creative Commons Attribution 3.0 IGO license(CC BY 3.0 IGO)http:/creativecommons.org/licenses/by/3.0/igo.Under the Creative Commons Attribution license,youarefreeto copy,distribute,transmit,and adapt this work,including for commercial purposes,under the following conditions:AttributionPlease cite the work as follows:Iacovone,Leonardo,Henry Aviomoh,Matias Belacin,Laurent Bossavie,Ana Cusolito,Rafael de Hoyos,Gianmarco Ottaviano,Fabian Scheifele,Ivn Torre,and Yutaka Yoshino.2025.“TIDES of Change:Igniting Productivity Growth in Europe and Central Asia.”Overview booklet.WorldBank,Washington,DC.License:Creative Commons Attribution CC BY 3.0 IGOTranslationsIf you create a translation of this work,please add the following disclaimer along with the attribution:This translation was not created by The World Bank and should not be considered an official WorldBanktranslation.The World Bank shall not be liable for any content or error in this translation.AdaptationsIf you create an adaptation of this work,please add the following disclaimer along with the attribution:This is an adaptation of an original work by The World Bank.Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by TheWorldBank.Third-party contentThe World Bank does not necessarily own each component of the content contained within the work.The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties.The risk of claims resulting from such infringement rests solely with you.If you wish to re-use a component of the work,it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner.Examples of components can include,but are not limited to,tables,figures,or images.All queries on rights and licenses should be addressed to World Bank Publications,The World Bank,1818HStreet NW,Washington,DC 20433,USA;e-mail:pubrightsworldbank.org.Cover design:Melina Rose Yingling,World Bank Group.vEurope and Central Asia Studies The Europe and Central Asia Studies series features analytical reports on main challenges and opportunities faced by countries in the region,with the aim to inform a broad policy debate.Titles in this series undergo extensive internal and external review prior to publication.Previous Books in This Series2025Greater Heights:Growing to High Income in Europe and Central Asia(2025),Leonardo Iacovone,Ivailo V.Izvorski,Christos Kostopoulos,Michael M.Lokshin,Richard Record,Ivn Torre,Szilvia Doczi2024 The Journey Ahead:Supporting Successful Migration in Europe and Central Asia(2024),Laurent Bossavie,Daniel Garrote Snchez,Mattia Makovec2018Toward a New Social Contract:Taking on Distributional Tensions in Europe and Central Asia(2018),Maurizio Bussolo,Vito Peragine,Ramya Sundaram Critical Connections:Promoting Economic Growth and Resilience in Europe and Central Asia(2018),David Michael Gould 2017 Reaping Digital Dividends:Leveraging the Internet for Development in Europe and Central Asia(2017),Tim Kelly,Shawn W.Tan,Hernan Winkler Risks and Returns:Managing Financial Trade-Offs for Inclusive Growth in Europe and Central Asia(2017),David Michael Gould,Martin Melecky 2015 Golden Aging:Prospects for Healthy,Active,and Prosperous Aging in Europe and Central Asia(2015),Maurizio Bussolo,Johannes Koettl 2014 Shared Prosperity:Paving the Way in Europe and Central Asia(2014),Maurizio Bussolo,LuisF.Lopez-Calva All books in the Europe and Central Asia Studies series are available for free at https:/ ixAbout the Authors xiMain Messages xvOverview 1Productivity is essential for economic growth 3The pathways to productivity growth 4Misallocation:The productivity killer 5Unleashing productivitythrough trade and foreign direct investment 10Technologies for productivitydigital and low-carbon 13People for productivityjobs,skills,and human capital 18Policy agenda for productivity and prosperity 22Notes 26References 27FIGURESMM.1 ECA economies have not regained the rate of GDP growth experienced before the global financial crisis xviMM.2 ECA countries could improve productivity significantly by achieving the allocative efficiency of advanced economies xviiiO.1 For countries in ECA,efficiency gaps with the United States are larger thancapital gaps,2022 4O.2 Markets and the business environment affect productivity growth in several ways 5O.3 ECA countries could improve productivity significantly by achieving theallocative efficiency of advanced economies 6O.4 Missing trade is pervasive among ECA countries 11O.5 Exporters in ECA contribute disproportionately tokeyeconomic indicators 11O.6 The positive relationship between productivity and firm digitalization is visible at the firm level 14O.7 Energy efficiency and productivity are closely linked 17O.8 ECA countries display moderate returns to experience at best,especially compared to countries in Western Europe 19ixAcknowledgmentsThis report was written by a team composed of World Bank staff and external academic advisors led by Leonardo Iacovone under the supervision of Cecile Thioro Niang(Practice Manager,Finance,Competitiveness,and Investments,Europe and Central Asia)and the overall guidance of Antonella Bassani(Vice President for Europe and Central Asia),Asad Alam(Regional Practice Director for Europe and Central Asia),and Ivailo Izvorski(Chief Economist for Europe and Central Asia).Chapter 1 was prepared by Henry Aviomoh,Matias Belacin,and Yutaka Yoshino,with inputs from Ana Cusolito,Denis Medvedev,and Antonio Nucifora.Chapter2 was prepared by Leonardo Iacovone and Gianmarco Ottaviano,with inputs from Matias Belacin,Arlan Brucal,Yewon Choi,Francesca de Nicola,Ana Margarida Fernandes,Philippe-Leo Mengel,Felipe Yudi Yamashita Roviello,Shawn Tan,and Aaron Tang.Chapter 3 was prepared by Fabian Scheifele,with inputs from Manolis Chatzikonstantinou,Xavier Cirera,Chiara Criscuolo,Charmaine Robles Crisostomo,and Caique Luan De Santana Melo.Chapter 4 was prepared by Matias Belacin,Ana Cusolito,and Fabian Scheifele.Chapter 5 was prepared by Laurent Bossavie,Rafael de Hoyos,and Ivn Torre,with inputs from Diva Barisone.The team thanks its academic advisors for inputs and guidance throughout the study:Kalina Manova(University College London),Fabiano Schivardi(Luiss University),and Chad Syverson(Chicago University).The team thanks the peer reviewers and colleagues who provided comments at various stages:Anna Akhalkatsi,Tatiana Didier,Michael O.Engman,William Maloney,Denis Medvedev,Michal Rutkowski,Indhira Santos,and Achim Schmillen.The team would also like to thank Martha Mora Alvarez,Daria Gulei,Ingrid Jaklitsch,and David Islas Orduno for administrative support throughout the different stages of the report preparation and dissemination.Cindy Fisher,Amy Lynn Grossman,and Devika Seecharan Levy managed editing,design,and production.Sandra Gaines and Honora Ann Mara,edited the report.Melina Rose Yingling designed the cover.Finally,the team acknowledges and is thankful for feedback from various policy makers during discussions and consultations with government counterparts.xiAbout the AuthorsHenry Aviomoh is an economist in the World Banks Economic Policy department for the Europe and Central Asia region.His research focuses on the role structural policies play in driving growth and development as well as the role fiscal and monetary policies play in stabilizing economies from both external and domestic shocks.He holds a PhD in Economics from Durham University,an MPhil in Economics from the University of Cambridge,an MSc in Economics from University College London,and an MA in Economics from the University of Aberdeen,all in the United Kingdom.Matias Belacin is a consultant in the World Banks Finance,Competitiveness and Investment department for the Europe and Central Asia region.His work focuses on productivity,firm dynamics,international trade,and energy efficiency.Before joining the World Bank,he worked at the What Works Centre for Local Economic Growth and the Ministry of Labor and Production of Argentina.He holds a Master of Public Policy from the London School of Economics,an MA in Economics from the San Andres University,and a BA from the University of Buenos Aires.Laurent Bossavie is a senior economist in the World Banks Social Protection and Jobs department for the Europe and Central Asia region.His main areas of expertise are labor markets and international migration.His research on those topics has been published in peer-reviewed economics journals such as theJournal of Development EconomicsandJournal of Human Resources,among others.Prior to joining the World Bank through the Young Professionals Program,he was a research consultant at the Inter-American Development Bank and at the World Bank,and a researcher at the Department of Economics of the European University Institute.He holds a Master of Research and a PhD in Economics from the European University Institute in Florence,Italy.Ana Cusolito is a senior economist in the World Banks Office of the Chief Economist,Europe and Central Asia region.Her research focuses on firm and aggregate productivity and its determinants,including foreign competition,digital-technology adoption,innovation,and corporate governance.Herresearch has been published in international journals such as the AmericanEconomic Review:Insights,IZA Journal of Labor and Development,Journal of Development Economics,Journal of Development Effectiveness,xii TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaJournalofEconomics and Public Finance,Review of Economics and Statistics,and World Bank Economic Review,among others.Before joining the World Bank,she worked at the Inter-American Development Bank as a country economist for Costa Rica and the Ministry of Finance of Buenos Aires Province,United Nations Development Programme.She holds a PhD in Economics from Universitat Pompeu Fabra,a Masters from the University of CEMA,and a BA from Universidad Nacional de La Plata.Rafael E.de Hoyos is a lead economist for Human Development in the World Banks Europe and Central Asian region.He is also a founding partner of Xaber,a nongovernmental organization promoting the use of evidence to design and evaluate education policies in Latin America.He has published in peer-reviewed journals and advised governments on school-based management,evaluation policies,strategies to reduce dropout rates,and other topics.Previously,he was the chief of advisers to Mexicos under-minister of education(200811).He worked in the Development Economics Vice Presidency at the World Bank(200608),the Judge Business School at the University of Cambridge(200506),and as a consultant for the United Nations Economic Commission for LatinAmerica and the Caribbean in Mexico and the United Nations World Institute for Development Economics Research in Finland.He holds an MA in Development from the University of Sussex and a PhD in Economics from theUniversity of Cambridge.Leonardo Iacovone is a practice manager in Finance,Competitiveness and Investment for the World Banks Western and Central Africa region.He works on productivity,firm dynamics,innovation,and entrepreneurship.He is an adjunct professor at the Hertie School and is affiliated with the Abdul Latif Jameel Poverty Action Lab and the Small and Medium Enterprise Initiative of Innovations for Poverty Action.He has published in top journals such as American Economic Journal:Macro,American Economic Review:Insights,Econometrica,Economic Journal,Journal of Development Economics,Journal of International Economics,PNAS,Review of Economic Studies,Science,World Bank Economic Review,and World Development.In 2009,he received the Paul Geroski Prize,awarded by the European Association for Research in Industrial Economics for the most significant policy contribution by young economists.Hestudied at Bocconi University,Torcuato Di Tella University,and the University of Sussex.Gianmarco Ottaviano is a professor of economics at Bocconi University where he is co-director of the Research Unit on Globalization and Industry Dynamics of Baffi-CAREFIN.He is also affiliated with the Centre for Economic Policy Research,Centre for Economic Performance(London School of Economics and Political Science),Centro Studi Luca dAgliano,Kiel Institute for the World Economy,Centre for Research and Analysis of Migration,and Leverhulme About the Authors xiiiCentre for Research on Globalisation and Economic Policy.His research focuses on international trade,the competitiveness of firms in the global economy,and the effects of immigration and offshoring on employment and wages.He has published in the American Economic Review,Journal of Economic Geography,Journal of the European Economic Association,Journal of International Economics,Review of Economic Studies,and Review of Economics and Statistics.He studied at Bocconi University Milan,London School of Economics and Political Science,and Universit Catholique de Louvain.Fabian Scheifele is an economist in the World Banks Finance,Competitiveness and Investment department for the Europe and Central Asia region.His research focuses on the impact of green and digital technologies and public policies on firm performance and employment.His work has been published in Energy Economics,Energy Policy,and Renewable and Sustainable Energy Reviews.Prior to joining the World Bank,he worked as a project manager for the German Development Bank KfW and as a consultant for the Organisation for Economic Co-operation and Development.He holds a PhD in Economics from the Technical University of Berlin,an MSc in International Political Economy from the London School of Economics,and an MA in International Economic Policy from Sciences Po Paris.Ivn Torre is a senior economist in the World Banks Office of the Chief Economist,Europe and Central Asia region.His work focuses on inequality,labor economics,human development,and political economy.His research hasbeen published in peer-reviewed journals such as Economics&Politics,Journal of Comparative Economics,Journal of International Economics,Review of Development Economics,Review of Income and Wealth,World Bank Economic Review,and World Development.Before joining the World Bank,he worked as a consultant for the Inter-American Development Bank.He has a bachelors degree in economics from Universidad de Buenos Aires and holds a PhD in Economics from Sciences Po Paris.Yutaka Yoshino is an economic adviser in the World Banks Office of the Regional Vice President for Europe and Central Asia.Since he joined the WorldBank in 2003,he has held economist positions in the areas of research and operations and led policy-based lending operations as well as analytical and advisory products in the areas of macroeconomic and fiscal policies,growth and structural transformation,trade and investment,economic geography,and natural resources for development.Prior to his work at the World Bank,he served as an economic attach at the Permanent Mission of Japan to the United Nations in New York.He holds a Bachelor of Laws from Sophia University in Tokyo,a Master of International Affairs from Columbia University,and an MA and PhD in Economics from the University of Virginia,with specialization in international economics,public finance,and industrial organization.xvMain MessagesThis report finds that the prolonged growth slowdown in Europe and Central Asia(ECA)presents an opportunity to refocus on three key areas:1.Productivity first:ECAs growth challenge centers on productivitysince the global financial crisis,gains from capital and labor have remained stable,but total factor productivity growth has halved.2.Investments are necessary but not sufficient:Increasing investment alone is not enough to accelerate growthaddressing efficiency gaps is now more important than overcoming capital shortages alone.Without productivity improvements,the returns to additional capital investments yield less output than they used to.3.Reforms are central:Renewed reform momentum is neededrecently stalled progress has allowed distortions to persist and resources have not been allocated where they can yield the highest returns,limiting the regions potential.Together,these findings underscore the urgent need for a revitalized reform agenda to boost productivity,through targeted action across trade,investment,digitalization,efficiency,and skills(TIDES).This report uses new and unique firm-level data to offer new insights into ECAs productivity challenges.A novel data exercise underpins the reports core diagnostics and policy simulations.More than 40 million firm-level observations were assembled from national statistical offices,tax revenue offices,and complementary sources,and then harmonized.Spanning 200823,multiple sectors,and more than 15 countries,allows original analysis of the magnitude and drivers of ECAs productivity challenge.Why does productivity matter?Welfare and jobs.Boosting productivity ultimately leads to increased welfare,more jobs,andhigher wages.If ECAs post-2008 TFP growth had matched its pace before theglobal financial crisis,the regions GDP would be roughly 62percent xvi TIDES of Change:Igniting Productivity Growth in Europe and Central Asiahighertoday(figure MM.1).Therefore,reforms that close efficiency gaps can generate large welfare dividends over the medium term.Furthermore,a 10 percent increase in productivity could add close to 2 million jobs in the ECA region.Estimates suggest that the effects are strongest among frontier and exporting firms that scale.What happened?The growth downshift is a productivity story.After the global financial crisis,the regions productivity growth collapsed,but factor accumulation did not.Compared with 200008,TFPs contribution to growth fell sharply over 200823,explaining about 91 percent of the regionwide growth slowdown.In contrast,East Asia broadly maintained its growth drivers.While investments continued,returns waned,indicating a lower efficiency of capital.Despite a faster rise in the real capital stock after 2008,gross domestic product growth slowed,and the incremental capital-output ratio rose.These are classic signs of diminishing returns when efficiency lags.Simple counterfactuals underscore the point:If capital alone explained income gaps relative to the United States,many ECA economies would have already converged,but they have not.Efficiency gaps are in fact the binding constraint.A benchmarking analysis shows that ECA workers operate with about 60 percent of US-level capital per FIGURE MM.1 ECA economies have not regained the rate of GDP growth experienced before the global financial crisisCummulative GDP growth(constant PPP-adjusted$,2000=1)50100150200250300350400200020022004200620082010201220142016201820202022Actual GDPProjected GDPSource:Analysis based on data from World Bank,World Development Indicators.Note:Projected GDP assumes that economic growth would have continued with the same growth trend as observed prior to the global financial crisis.ECA=Europe and Central Asia;PPP=purchasing power parity.Main Messages xviiworker and achieve about 62 percent of US efficiency in using that capitalevidence that how resources are allocated and used matters at least as much as the amount of capital.The collapse in productivity has overlapped with stalled market-oriented reforms.Since circa 2010,indicators of regulatory efficiency and open markets have plateaued or declined,mirroring a weaker competitive environment and slower financial sector reforms that hamper an efficient allocation of capital,which impede efficient credit allocation.Why has productivity stalled?Misallocation has been the main cause.Structural change has delivered too little.Over the past 25 years,in most ECA economies,labor has reallocated from industry to services,but the economic gains have been modest.Granular evidence shows that much of the reallocation has been toward low-skill,nontradable services rather than higher-productivity tradables,limiting the payoff from sectoral reallocation.At the micro level,distorted markets have blunted selection and scaling.The large state footprint,concentrated market structures,and restricted access to finance have reduced competitive pressure and slowed the reallocation of capital and labor toward more productive firms.As a result,inefficient firms have survived or even expanded,while productive firms have been constrained from growing.Removing these distortions to a level observed in advanced economies(eight European countries and the United States)could lift aggregate productivity by 10 to 70percent in most of ECA,with especially large potential in the regions less developed economies(figureMM.2).State-owned enterprises(SOEs)and weak competition have depressed market dynamism.Sectors with heavier SOE presence are more concentrated,less allocatively efficient,and less dynamic.SOEs have been markedly less productive than private firms and foreign-owned firms have been substantially more efficient than domestic ones.Uncompetitive public procurement and distorted access to finance have further skewed outcomes in ways that can hamper an efficient allocation of resources.Trade and investment can be leveraged more fully to drive productivity and growth.Trade patterns have remained inward-looking,with“missing trade”in higher-value markets and insufficient export diversification,while foreign direct investment(FDI)spillovers have been uneven because of weak domestic links and absorptive capacity.Evidence shows that,when competitive conditions and capabilities are in place,trade and FDI activate four reinforcing productivity pathways:structural transformation,within-sector reallocation,creative destruction,and incumbent firm upgrading.xviii TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaFIGURE MM.2 ECA countries could improve productivity significantly by achieving the allocative efficiency of advanced economiesProductivity gains,by country,latest data available for 201623North Macedonia(2019)Kyrgyz Republic(2019)Kosovo(2022)Serbia(2019)Poland(2021)Romania(2023)Croatia(2019)Moldova(2018)Georgia(2019)Bulgaria(2019)Trkiye(2022)Tajikistan(2023)Armenia(2019)Kazakhstan(2019)Montenegro(2022)Ukraine(2016)Productivity gains(%)020406080100120140160Sources:Estimates based on firm-level data from national statistical offices,Ministries of Finance,and Orbis.Note:Productivity gains are reported relative to eight European advanced economies and the United States,based on Cusolito et al.(2024)and Hsieh and Klenow(2009).Relative productivity gains are calculated as the ratio between the country-year gains and the EU and US average as follows:.The included advanced European economies are Austria,Estonia,Finland,France,Germany,Italy,Norway,and Spain.For the date ranges and national sources of the data,refer to table 1A.1 in online annex 1A,available at https:/ sample includes manufacturing firms with at least 10 employees.New digital technologies have been widely accessible for firms,yet thin in use.Most firms have access to enabling digital technologies,but few have used advanced digital tools at scale and thus have missed out on the associated productivity benefits.The analysis in this report shows that convergence to the EU average cloud uptake is associated with productivity gains of up to 7 percent,and convergence to the European frontier is associated with gains of up to 25percent.However,translating access into intensive use requires complementary skills,managerial capabilities,greater competition through facilitated entry of more domestic and foreign firms,and correct incentives through price signals(including energy pricing).Main Messages xixWhile low-carbon technologies align efficiency and productivity,energy subsidies have lowered the incentives to upgrade.The findings reveal that More productive firms have consistently demonstrated higher energy efficiency.However,fossil fuel subsidies and low electricity tariffs have dampened the incentives to upgrade equipment and optimize energy use,thus slowing the diffusion of resource-efficient technologies that raise productivity.Workforce skills have also been misallocated and underdeveloped.Despite increasing educational attainment,proficiency in cognitive skills among the population has not improved.Furthermore,a significant share of the workforceexceeding 30 percent in many ECA countrieshave been employed in jobs for which they are overqualified.Returns to experiencea proxy for human capital accumulation in the workplacehave been low and,in some ECA countries,the returns to experience have been nearly flat across workers life cycle.The poor quality of education,lack of robust demand,and frictions in the labor market have been some of the drivers of this skill misallocation.What to do?Riding TIDES to higher productivity.Restoring productivity growth is the regions most powerful lever for prosperity.The evidence assembled in this report suggests that tackling misallocation and catalyzing firm upgrading through the TIDES reforms could unlock large welfare gains,reverse the postglobal financial crisis slide,and put ECA back on a convergence pathone with more and better jobs,faster wage growth,and greater resilience.The region is not constrained by a lack of capital or connectivity,but by how effectively these are used.Addressing this is now the central task.Trade:Reconnect to dynamic markets and reduce trade costs.Igniting trade-led productivity in ECA requires a renewed reform push to deepen the regions integration into global and regional value chains.The focus should shift from simply expanding trade volumes to enhancing firms ability to connect,compete,and move up the value chain.This entails reducing the costs of cross-border commerce,aligning trade frameworks with the realities of digital trade,and ensuring that export promotion efforts foster firm-level learning and survival in global markets.By tackling barriers at and behind the border,governments can unlock the reallocation,scale,and learning effects that drive sustained productivity growth.Investment:Anchor FDI and amplify spillovers.A credible,predictable investment climatecombined with open and well-regulated service sectorscan attract high-quality investors.xx TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaHowever,reclaiming productivity momentum from foreign investment requires not only attracting more FDI but also turning it into a catalyst for domestic upgrading.This means integrating foreign investors into the domestic economy so that competition and collaboration drive innovation and productivity gains.At the same time,strengthening domestic capabilities,supplier networks,and innovation ecosystems ensures that foreign investment drives broader structural transformation rather than creating isolated enclaves.By anchoring FDI and amplifying its spillovers,ECA economies can accelerate firm-level upgrading and push frontier practices deeper into domestic production networks.Digitalization:Diffuse frontier technologies,strengthen capabilities,and deepen effective use.Realizing the benefits of closing the regions digitalization gap requires more than improving connectivity.It demands stronger firm capabilities,better incentives,and a more competitive environment that encourages technology adoption.Governments should shift from policies that simply subsidize technology purchases toward those that promote the effective and intensive use of digital tools.Equally important are complementary investments in human capital,competition,and finance,which enable firms to absorb and deploy new technologies productively.By creating the right incentives,skills,and market conditions,ECA countries can turn connectivity into competitiveness.Efficiency:Level the playing field and unleash reallocation.Policies to promote efficiency should focus on removing distortions that trap resources in low-productivity firms and enabling markets where productive firms can enter,grow,and replace less efficient ones.This translates into making markets contestable,eliminating distortions that shield incumbents and restrict new entrants.Ensuring competitive neutrality for the state itself is equally critical.For instance,SOEs engaged in commercial activities should compete on equal terms with private firms.Efficient reallocation of resources also depends on mitigating a misallocation of finance.Governments should promote modern and inclusive financial systems that direct financing toward productive and innovative firms.Strengthening the core enabling environment for access to finance can deliver significant impact with limited fiscal costs.These reforms can be complemented with well-designed,targeted,and proven financial interventions.These interventions often carry significant fiscal costs and can introduce distortions.Careful design and selection are therefore critical,since each intervention has unique characteristics that influence its impact and feasibility.Main Messages xxiSkills:Align talent and drive lifelong upskilling.Policies to enhance skills should focus on rebuilding foundational competencies,improving the alignment of talent with labor market needs,and fostering lifelong learning.Education systems should ensure strong foundational skills,while also promoting competency-based,flexible learning that adapts to evolving labor market demands.Complementary measures can encourage continuous upskilling to enable firms and workers to fully leverage productivity-enhancing technologies and practices.By aligning talent with private sector needs and embedding lifelong learning,ECA countries can boost firm-level productivity and drive economywide growth.1OverviewYears of reform-driven growth have given way to a persistent slowdown,leaving the Europe and Central Asia(ECA)in need of new ways to regain economic momentum.Once buoyed by the transformative effects of postsocialist transitions and early waves of global integration,the region has experienced a marked slowdown in economic growth over the past 15 years.Weaker productivity,coinciding with a deceleration in reforms,is at the core of this slowdown.Capital deepening alone is no longer sufficient to fuel income convergence with high-income countries.This report argues that the path forward lies in igniting productivity growth through better resource allocation,greater technology adoption,deeper international integration,and more effective use of human capital.Three findings presented in this report support this overarching message:First,productivity growth has been the main contributor to sustained economic growth and income convergence in ECA.As is true for many other countries around the world,the growth engine of ECA countries has decelerated because of low-productivity growth and falling returns to capital accumulation.After nearly a decade of robust growth in the early 2000s,growth in ECA slowed with the global financial crisis(GFC)of 200809,more than in all other regions.What caused the sharp deceleration?Nearly 91 percent of the decline in growth stems from falling productivity growth.Second,the misallocation of resources,both across and within sectors,is key to understanding productivity growth in the region.This misallocation,where labor and capital flow to less productive activities and firms,is a key factor dragging down aggregate productivity growth while also reducing incentives for firms to invest in capabilities.Online annexes for this report are available at https:/ TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaStructural changes in most ECA countries over the past 25 years,with manufacturing sectors contracting and service sectors expanding their labor shares,have contributed little to productivity gains.The contribution of such resource reallocation between sectors has been more limited in ECA than in other regions.Although labor shifts from the manufacturing sector to the service sector could have enhanced productivity,because of higher average levels of productivity in services,a more granular sectoral disaggregation reveals that this has not been the case in the region.For example,in several economies,high-productivity industries like manufacturing have contracted,while less productive sectors,such as low-skill,nontradable services,have expanded.Substantial gains in productivity are possible by reducing resource misallocation through reforms shrinking the states economic footprint and strengthening competition in domestic markets.Priority measures include boosting competition,enhancing capital allocation,redesigning labor institutions and public procurement,limiting the role of state-owned enterprises(SOEs),and reducing skill mismatches.Sectors with a larger SOE presence are less competitive,have lower allocative efficiency,and are less dynamic(lower job and firm turnover).In addition,SOEs are crowding out access to finance for more productive private enterprises.Overall,ECA needs to remove distortions to complete the transition to market economies and pave the way for aggregate gains in productivity and welfare.Most ECA countries could increase aggregate productivity by 10 to 70 percent by removing market distortions to the level of advanced economies(eight European countries and the United States).The potential gains would be largest for the less advanced economies in the region,as shown by the analysis in this report,which relies on a novel firm-level data set covering more than 40 million observations across 15years(200823).Policies to reduce misallocation and strengthen competition need to be accompanied by appropriate incentives and programs to increase firms managerial and technical capabilities.Although removing distortions is a necessary condition for productivity growth,past work by the World Bank and others has shown that it may not be a sufficient condition(Cusolito and Maloney 2018;Iacovone etal.2025).Studies have highlighted the importance of firm upgrading to face the competition unleashed by more efficient markets.Recent evidence from ECA has shown that the regions middle-income countries,which represent the majority of ECA,are struggling to boost within-firm productivity(Iacovone etal.2025).If firms capabilities are not strengthened,competition-and entry-enhancing policies might eliminate not only inefficient incumbents but also high-potential firms that lack managerial skills or sufficient skilled workers to grow their business.Chapters 3,4,and 5 of the report shed more light on this firm upgrading channel by providing evidence on the importance of technology adoption and skills development for productivity growth.Overview 3Third,boosting productivity growth is key to creating more and better jobs.Firms in ECA countries grow less on average and more slowly than firms in the United States,for example.ECA start-ups are smaller than their US peers and grow less over their life cycle,generating fewer jobs.Firms that are more productive have higher employment growth rates,and productivity increases have larger effects on job creation in higher-productivity firms than in lower-productivity firms.Productivity growth also contributes to higher wages(both higher levels and higher growth rates)and thus helps create better jobs.Estimates indicate that a 10 percent increase in productivity could add close to 2 million jobs in the ECA region.Productivity is Essential for Economic GrowthPer capita income in most ECA countries has been constrained mainly by low levels of efficiency(efficiency gaps)rather than low levels of accumulation of productive factors(capital gaps).Comparing the gap in gross domestic product(GDP)per worker between ECA countries1 and the United States with the gap in the capital-output ratio provides a clear message:ECA countries capital-output ratio gap cannot explain the gap in GDP per worker(figure O.1).Estimates of the gaps for ECA countries show that,on average,not only do workers in ECA countries have about 60percent of the human and physical capital per worker as a US worker(capital gap),but the efficacy of their use of those factors is only 62percent of that in the United States(efficiency gap).Because both human and physical capital are highly susceptible to changes in efficiency,the capital gap and the efficiency gap contribute to the overall productivity gap.To close the efficiency gap with the United States,ECA countries need to improve both factor allocation and factor efficiency.The large contraction in the contribution of total factor productivity(TFP)to growth after the GFC explains the regions weaker growth performance compared to East Asia.The combined contribution of capital and labor to economic growth in ECA remained constant between 200008 and 200823,but TFPs contribution to growth fell by half.Over the same period,countries in the East Asia and Pacific(EAP)region,excluding China,maintained roughly similar contributions of capital,labor,and TFP to their growth.Including China makes the contribution of TFP to EAP countries growth proportionally less pronounced,but not to the extent of the contraction in the ECA region.If the ECA region had maintained the same TFP growth after the GFC as before,its growth in the later period would have been comparable to that of the EAP region including China.It would in fact have been stronger than that of the EAP region excluding China.Even more important,GDP in 2023 would have been 62percent higher.4 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaThe Pathways to Productivity Growth Four main pathways are essential to understanding ECAs productivity challenge.Aggregate changes in productivity growth can occur through these pathways,which operate within or across sectors(figure O.2).Within sectors,productivity growth can take place through three channels.The first pathway is market reallocation between firms,which can occur through shifts in the market shares across incumbents,toward more productive firms.The second pathway is within-firm upgrading and refers to changes in a firms productivity level over time,which could be driven by efficiency-or quality-improving investments in technology,organization,or skills.The third pathway is firm selection,through the entry of more-productive firms and the exit of less productive firms,often referred to as creativedestruction.Finally,aggregate productivity can grow through a fourth mechanism:structural transformation.In this pathway,shifts in FIGURE O.1 For countries in ECA,efficiency gaps with the United States are larger than capital gaps,2022Relative GDP per worker and relative capital-output ratio020406080100120140200220240260160180GDP per worker relative to the United StatesPhysical capital relative to that in the United StatesGDP per worker averagePhysical capital average%,relative to the United States26133341142887429355994413062120561274810112116301033711744104578958105511483412113212621022324116139ALBARMAZEBGRBIHBLRGEOHRVKAZKGZMDAMKDMNEPOLROURUSSRBTJKTURUKRUZBSource:Estimates based on Penn World Table Data 11.0(Feenstra,Inklaar,and Timmer 2015).Note:The dark blue bars show GDP per worker relative to the United States,and the turquoise bars represent the capital-output ratio relative to the United States.The dashed lines indicate the unweighted means for all countries displayed.For a list of country codes go to https:/www.iso.org/obp/ui/#search.ECA=Europe and Central Asia;GDP=gross domestic product.Overview 5the relative weights of sectors over time can lead to higher aggregate productivity if more resources are allocated to sectors with higher levels of productivity.These four pathways do not operate in isolation but interact with each other.For example,Greater misallocation within sectors can negatively affect the entry and exit of firms,as distortions affect which firms survive.Misallocation can also reduce the returns to upgrading investments,thus reducing the incentives for firms to invest in new skills or technologies.Misallocation:The Productivity Killer Misallocation of resourcesbetween and within sectorsstands at the heart of the regions underwhelming productivity performance.Structural change in ECA has not always been productivity-enhancing.Rather than shifting toward high-productivity tradable sectors,labor has often moved into low-skilled,nontradable services.These changes have resulted in limited aggregate gains,particularly when compared to more dynamic regions like East Asia.Within sectors,the picture is even starker.Despite decades of market-oriented reforms,many ECA economies continue to exhibit features of incomplete transitions.Large SOEs,concentrated market structures,and restricted access to finance have dampened competition and hindered the reallocation of labor and capital to more productive firms.As a result,inefficient firms survive and expand,while productive firms are held back.FIGURE O.2 Markets and the business environment affect productivity growth in several waysAllocation offactors of production(between firms)Within sectorsAcross the economySectoral structuraltransformation(including creativedestruction)Creative destruction(entry/exit)Upgrading(within firms)Markets(international and domestic,including procurement)Business environment(including SOEs),human capital,management,and technology(including digital and green)Source:World Bank based on Cusolito and Maloney 2018.Note:SOEs=state-owned enterprises.6 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaA novel firm-level data set reveals large potential gains from reducing resource misallocation.Firm-level data covering more than 40 million observations across 15 years(200823)reveal a sobering reality:If ECA achieved the efficiency of advanced economies(eight European countries and the United States),it could raise aggregate productivity by 10 to 70 percent in most countries(figure O.3).Thegains would be especially pronounced in the regions less advanced economies,where market frictions are more pervasive and the state footprint is larger.FIGURE O.3 ECA countries could improve productivity significantly by achieving the allocative efficiency of advanced economiesProductivity gains,by country,latest data available for 201623North Macedonia(2019)Kyrgyz Republic(2019)Kosovo(2022)Serbia(2019)Poland(2021)Romania(2023)Croatia(2019)Moldova(2018)Georgia(2019)Bulgaria(2019)Trkiye(2022)Tajikistan(2023)Armenia(2019)Kazakhstan(2019)Montenegro(2022)Ukraine(2016)Productivity gains(%)020406080100120140160Sources:Estimates based on firm-level data from national statistical offices,Ministries of Finance,and Orbis.Note:Productivity gains are reported relative to eight European advanced economies and the United States,based on Cusolito et al.(2024)and Hsieh and Klenow(2009).Relative productivity gains are calculated as the ratio between the country-year gains and the EU and US average as follows:.The included advanced European economies are Austria,Estonia,Finland,France,Germany,Italy,Norway,and Spain.For the date ranges and national sources of the data,refer to table 1A.1 in online annex 1A,available at https:/ sample includes manufacturing firms with at least 10 employees.Overview 7Structural transformation and misallocations across sectors In the early 1990s,as many countries in the ECA region began to transition to a market economy,the sectoral structure of their economies changed.During the first 10 years of the transition,the employment and output shares of industry,the largest employment sector in most ECA countries,declined,while the shares of services expanded.Over the following 10 years,the shares of services in employment continued to expand relative to those of industry,although at a slower pace,while agriculture gradually shrunk.Most ECA country groups have experienced the same falling-industry dynamic,except for the agricultural and less advanced Eastern European groups,and the concurrent rise in the share of labor in services,except for the less advanced Eastern European group.However,the pace of the shift toward services has varied across country groups.Structural change has played a positive but limited role in driving productivity growth across both the formal and informal sectors.Productivity growth within sectors has accounted for most of the growth in overall labor productivity(GDP per worker)in ECA,whereas the effects of labor shifts between sectors(structural change)have contributed only minor shares.The effect of structural change on labor productivity growth has been larger in EAP than in ECA,and the difference has widened in recent years.The service sector has led structural transformation across ECA,driving both labor productivity and wage growth.In all the ECA country groups,the service sector has been the main driver of structural change and,thus,the main reason for the contribution of structural change to labor productivity growth.However,the service sector encompasses subsectors with heterogeneous skill requirements.Furthermore,it is evident from firm-level data that low-skill services have driven the growth in labor productivity in services,whereas high-skill services have driven wage growth.Thus,the labor shifts that underpin structural change are dominated by employment shifts toward low-skill services,stunting the productivity growth potential of the service sector and its contribution to the overall labor productivity gains from structural change.A more granular sectoral analysis of the formal economy,based on firm-level data,reveals a consistent story of limited contribution of structural change to productivity growth.The minor role of sectoral shifts in driving productivity growth across ECA countries is observed not only at the broad sectoral level but also at a more granular level.The correlation between changes in sectoral labor shares and initial value added per worker over 200624,although positive in many countries,was weak and close to zero.This correlation implies a limited contribution of the reallocation of labor between sectors(structural change)to productivity growth.8 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaEconomic distortions can also reduce the productivity growth arising from structural change by allowing economies to deindustrialize prematurely.Two factors could account for the contraction in industrys shares of employment and output:the natural forces of structural transformation,as resources shift from industry to services,and policy distortions that disproportionately burden industrial firms and workers.The expansion of low-skill services in ECA,combined with a contraction of the industrial sector,suggests that the structural shift to services has not been entirely productivity-inducing.In a majority of ECA countries,the share of labor in low-skill services increased in the period after the GFC.On average,technological change,specifically digitalization,has been labor-augmenting for both high-and low-skill workers.However,technological change has been biased toward high-skill workers in the manufacturing sector and biased toward low-skill workers in the service sector.Thus,technological change has resulted in higher wages in the manufacturing sector,reduced demand for labor in manufacturing,and reallocated labor to the service sector.Misallocation among firms and activitiesResource misallocation affects aggregate economic outcomes through three main mechanisms:resource allocation across firms,firm entry and exit,and technology upgrading and innovation.First,distortions can result in resources such as labor and capital not being directed to the most productive firms in a sector.Second,by affecting firms entry and exit decisions,distortions can influence which firms survive and operate.Third,distortions can lower the returns to firms from technology adoption and innovation.Removing misallocations in labor and capital markets could achieve the largest gains in economic growth.Eliminating distortions is the quickest way to increase the value of the marginal product of workers and capital without increasing labor and capital costs.Removing distortions in factor and output markets that lead to misallocations could increase productivity by 10 to 70percent in most ECA countries,if they moved to the levels of allocative efficiency observed in advanced economies(eight European countries and the United States).Ukraine,and other countries at earlier stages of development,could increase productivity on average by more than 90 percent.This increase would be over three times more than the average gains from removing distortions in EU accession countries.These productivity gains are also nearly 60 percentage points higher than those from removing factor market distortions in Estonia,France,Germany,and the United States.Countriesinthe Caucasus and Central Asia,including Armenia,Georgia,and Kazakhstan,could increase productivity by 35 to 80 percent if they moved to the efficiency levels observed in advancedeconomies.Overview 9The higher prevalence of distortions in less advanced ECA economies implies that a better reallocation of resources would lead to higher gains in lower-income countries.Using the correlation between revenue-based TFP and quantity-based TFP as a measure of allocative efficiency(a higher correlation indicates less allocative efficiency)shows that misallocation at the economywide level is greater in less advanced ECA economies than in those that are more advanced.Therefore,the potential productivity gains from reducing misallocation would be larger in less advanced ECA economies.Removing distortions,especially those related to the states footprint in the economy,is key to fostering productivity growth in the region.Although ECA countries started shifting from planned economies to market economies in the early 1990s,a strong state footprint remains in many countries,and this incomplete market transition affects productivity growth today.Three developments have recently reignited the debate about the distortionary effect of SOEs.First,the state is present in competitive sectors where no economic rationale exists for state economic involvement.Second,SOEs underperform private enterprises on average.Third,there is a need to rebuild fiscal buffers in several economies that have limited fiscal space or are in debt distress.Not only does the presence of SOEs reduce market dynamism,but SOEs themselves are also less productive than private companies.On average,a worker in an SOE produces only about 60 percent of the value added produced by a domestic private company,even when the companies operate in the same sector and geographic region,are the same size and age class,and display similar capital intensity(capital per worker).The differential is similar for foreign-owned firms,which are nearly 60 percent more efficient than domestic firms.Market concentrationa proxy for weak competition and measured as the combined market share of the five largest companies in each sector(at the 3-digit level)negatively correlates with the labor productivity of firms.Therefore,in addition to the negative association between SOE presence and market dynamism,SOEs are less productive than their private counterparts.As firms in ECA mature,on average they do not become more productive.In competitive,well-functioning markets,selection mechanisms coupled with learning,should make continuing firms increasingly productive,following an up-or-out dynamic as less productive firms exit.In highly competitive sectors,businesses innovate and upgrade to beat the competition,reducing marginal costs relative to noninnovative firms.However,the average productivity of firms tends to decline faster in older cohorts in less advanced ECA economies,compared to a less pronounced decline in the more advanced ECA economies.This tendency suggests that firms in ECA,especially in less advanced economies,struggle to become more productive as they mature and market forces are unable to weed out less efficient firms.10 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaProductivity differences are larger for younger cohorts and shrink only slowly as firms age,supporting the idea that selection mechanisms can increase resource misallocation.In more advanced ECA economies,especially high-income ones,the relationship is negative between productivity dispersion and age,but this pattern does not hold in less advanced ECA economies(except the Kyrgyz Republic,where the relationship is negative and initial dispersion is high).Productivity dispersion typically declines during the first five years of a firms life and then flattens.Patterns in productivity dispersion suggest that market selection mechanisms and expected postentry growth of incumbents do not work to benefit more productive firms.In other words,misallocation,driven by inefficient market functioning,seems to be dampening aggregate productivity growth in ECA.Unleashing ProductivityThrough Trade and Foreign Direct InvestmentGlobal economic integrationthrough trade and foreign direct investment(FDI)offers some of the most powerful yet underused levers for productivity growth in ECA.ECAs trade patterns are not fully aligned with what would maximize productivity.Exports are not diverse enough and are tilted toward lower-complexity products and nearer markets,suggesting unexploited opportunities to“trade up”in quality and reach.Although recent shocks have reshaped trade flows(including a shift toward intraregional trade and“friendshoring”),ECA still trades below its potential with the most dynamic global markets(figure O.4).Many countriesparticularly resource-dependent and Central Asian agricultural economiesexport less than expected to key partners such as Organisation for Economic Co-operation and Development(OECD)members and China,largely because of weak trade logistics and restrictive trade policies.Much of this unrealized trade lies in manufacturing,limiting the regions ability to leverage the four channels of growth and innovation.ECA countries substantial missing trade reflects the challenges that firms face in engaging in international markets and the forgone opportunities of not serving foreign markets.After all,it is not countries that export,it is firms,and those that export show an outstanding performance.Despite being few,ECA exporters disproportionately contribute to their countries value added,employment,salaries,and fixed assets and are the main drivers of growth in these performance measures(figure O.5).In other words,exporters can be key pillars for creating new and better opportunities and enhancing productivity across the region.Overview 11FIGURE O.5 Exporters in ECA contribute disproportionately to key economic indicators020406080FirmsValue addedEmploymentWage billFixed assetsExporters share of total(%)Serbia(2019)Romania(2022)Kyrgyz Republic(2022)Poland(2021)Trkiye(2023)Croatia(2019)Kosovo(2018)Sources:World Bank estimates based on firm-level data from national statistical offices and Orbis.FIGURE O.4 Missing trade is pervasive among ECA countries7264635958565454484745454444363636282726261901020304050607080Share of total trade(%)TurkmenistanTajikistanKyrgyz RepublicUzbekistanAzerbaijanMontenegroAlbaniaArmeniaGeorgiaBelarusKazakhstanNorth MacedoniaBosnia and HerzegovinaMoldovaUkraineSerbiaCroatiaRomaniaBulgariaTrkiyeRussian FederationPolandResource-richCA agriculturalEE advancedEE less advancedHigh-income and EMDESource:World Bank based on data from UN Comtrade database,United Nations Statistics Division(accessed October 30,2024),https:/comtrade.un.org/.Note:The estimates are from a gravity model.For a description of this model,refer to online annex 2B,available at https:/ Asia;ECA=Europe and Central Asia;EE=Eastern Europe;EMDE=emerging markets and developing economies.12 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaFDI inflows,often concentrated in a few sectors,are not sufficiently embedded in the domestic economy.Although FDI holds the potential to boost domestic firm performance,whether these benefits materialize depends on specific conditions.In ECA,there are additional untapped productivity gains because the presence of foreign firms in the region does not lead to significant improvement in performance for domestic companies,at least for those in the supplying sectors.Four interconnected pathways highlight the multifaceted ways in which trade and FDI can enhance productivity.A robust competitive environment facilitates creative destruction and incumbent upgrading.Foreign investment plays a role across these channels.The overall productivity impact depends on these linked effects and supportive domestic policies and institutions.For ECA,this means continued structural reforms,competition-friendly regulation,flexible labor markets,and accessible finance.Investments in education,skills,and innovation empower firms to learn and upgrade.When these conditions are in place,the gains from trade and FDI can be substantial.Conversely,domestic barriers can mute these benefits.Given current global uncertainties,getting the domestic basics right is crucial.Adapting to shifting trade patterns may require finding new markets or investment sources.A flexible,productivity-oriented economy can navigate these shifts.By strengthening the enabling environment for the pathways,ECA countries can better harness trade and FDI for growth,leading to more competitive,innovative,and dynamic economies.To leverage structural transformation(pathway 1),policies should facilitate resource mobility across sectors.To address the challenge that resources are trapped in low-productivity sectors,policies should facilitate the mobility of labor and capital toward more productive sectors.Doing so involves removing distortions that trap labor or capital in unproductive areas,such as reducing subsidies for declining industries and enhancing labor market flexibility for retraining and relocation.Similarly,improving infrastructure to connect lagging regions with dynamic economic centers can help reallocate resources.To translate the benefits of integration through reallocation of resources between firms(pathway 2),policies should unlock constraints to firms growth.Resourcereallocation requires pro-competition reformsfor example,streamlining business licensing,simplifying regulations,and breaking up monopoliesthat complement trade by enabling the growth of efficient new firms that challenge incumbents.Removing reallocation barriers is crucial,including improving access to finance for high-performing small and medium enterprises and phasing out support for failing(“zombie”)firms.Flexible labor markets and adequate schemes for reskilling also assist workers transitions to expanding firms.Overview 13To maximize the benefits from integration through creative destruction(pathway 3)requires a dynamic business environment with easy entry for new firms and orderly exit for inefficient ones.Policy makers should reduce bureaucratic hurdles for start-ups(including by enabling foreign investments)and reform insolvency frameworks to expedite the exit or restructuring of unviable firms.Strengthening bankruptcy laws and removing barriers that discourage firm exit are vital in many ECA countries.Flexible labor market policies,supporting retraining and relocation,enable quicker replacement of shrinking firms with expanding ones.Fostering access to risk capital is also keyfor firm creation.Active labor market policies can cushion displaced workers during trade liberalization,maintaining support for openness.Overall,a policy framework prioritizing economic flexibility and innovationensures that global integration yields net positive productivityeffects.To foster the benefits of firm upgrading from integration(pathway 4),policies should facilitate firms learning and absorptive capacities.Promoting upgrading requires investing in human capital and encouraging technology adoption(for example,through tax incentives for research and development).Building domestic capacity is essential for local firms to partner with and learn from foreign companies.Supplier development programs linking domestic suppliers with multinationals can amplify FDI spillovers.A competitive services market(for example,telecommunications and logistics)provides manufacturers with better inputs.Trade facilitation(simplifying customs and improving airports)reduces the costs of engaging in importing and exporting.For export promotion,targeted support,like helping firms meet international standards,can be beneficial,as can addressing information externalities through targeted interventions such as“meet-the-buyer”events and providing information about prospective market opportunities.Technologies for ProductivityDigital and Low-CarbonThe adoption and intensive use of modern technologies are another important driver for productivity growth and complementary to the gains from reallocation.Digital and modern low-carbon technologies can be sources of within-firm upgrading(figure O.2),because they enhance the efficiency of operations and resource use inside the firm or provide access to new markets.Atthe same time,removing market distortions can foster technology adoption because doing so increases firms incentives to invest.14 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaDigital technologiesproductivity engines within reachDigital technology can boost within-firm productivity growth in ECA.Although most firms have access to digital enablers such as broadband and computers,the promise of digital transformation in the ECA region has been largely unrealized.The gap is not one of access but of effective utilization and integration of digital technologies into core business processes.Addressing this gap requires upgrading firms organization,expanding investments in digital skills,and removing barriers to growth to sharpen the incentives to invest and increase the returns to those investments.First,digital technology adoption is clearly associated with higher productivity growth.Both sector-and firm-level evidence confirms significant productivity benefits from greater digital technology adoption(figure O.6).Asimulation at the country level suggests that if ECA economies reached the EU average in cloud adoption,productivity could rise by up to 7percent,and by up to 25percent if they reached the European frontier.FIGURE O.6 The positive relationship between productivity and firm digitalization is visible at the firm level11.211.311.411.511.611.711.811.912.012345Log of sales per workera.Productivity and software adoptionNumber of software types adoptedECA countriesNon-ECA countriesAll typesTypes with reported AI features101234567Digital index(intensive margin)Log of subnational regionlevel firm productivityb.Productivity and digital sophistication5678910111213Sources:Panel a:Orbis and Spiceworks Ziff Davis;panel b:World Bank Firm-level Adoption of Technology survey.Note:In panel a,the regression controls for firm size,ownership(foreign or domestic),and two types of fixed effects(sector at the 1-digit statistical classification of economic activities NACE and country levels).In panel a,AIrelated software is software that has publicly reported AI features.In panel b,the digital index indicates whether the most frequently used technology to perform tasks across six general business functions(administration,planning,sourcing,marketing,sales,and payments)is manual(value of 0),basic digital(value of 1),or advanced digital(value of 2).The values on the y axis are the regional averages of the digital index.Subnational region-level firm productivity is the average value added per worker in each subnational region,after controlling for sectoral differences,adjusted by purchasing power parity.AI=artificial intelligence;ECA=Europe and Central Asia.Overview 15Second,despite almost universal access to basic digital enablers(such as internet,personal computers,and smartphones),a significant gap remains in the use of these technologies,and it has been widening in most ECA countries.ECA firms struggle with the effective incorporation of digital technologies into their routine and productive processes.Although firms may initially purchase and adopt new technologies,they often do not use them intensively in their core business functions.Simply promoting access to and adoption of new technologies might not be enough,because firms might require complementary managerial or technical skills to make full use of these technologies.Third,the adoption and use of digital technologies depends on two enabling and connected channels:within-firm upgrading and more efficient markets.Within-firm upgrading through digital technology adoption requires both workforce and managerial skills.Wider availability of digital skills in the workforce is associated with lower labor costs and higher adoption levels.Similarly,higher levels of managerial skills are associated with more intensive use of advanced digital technologies,because skilled managers enable firms to integrate new solutions into their workflows successfully.In addition,more efficient market conditions play an equally important role in digital technology adoption.Higher levels of competition,whether through lower market concentration or greater exposure to trade,correlate with increased investments in digital technologies.Conversely,greater presence of SOEs in a sector is associated with lower levels of digital technology adoption.One potential explanation for lower technology adoption in more distorted markets is that firms perceive lower returns to investment.Firms in ECA are becoming more digital,but they need to speed up their use of digital technologies to avoid falling further behind the frontier and to reap important productivity benefits.The productivity gains from digitalization can be significant.Catching up to the European frontier in cloud services would boost productivity between 18 and 25 percent;however,firms may need to overcome a variety of barriers to integrate novel technologies into their business processes.Skills,market competition,and access to finance stand out as the three main facilitators to promote the digitalization process.What can governments do to lower these barriers and help firms digitalize faster and more deeply?Concrete policy solutions require a deeper understanding of each countrys context,the country-specific constraints that firms face,and how different firms react to these challenges.Subsidizing access and adoption of digital technology alone is insufficient,because governments need to incentivize its widespread use within firms.The report shows that universal access to basic digital enablers,like the internet or computers,does not guarantee the widespread use of more advanced digital technologies in firms.Policy instruments that solely incentivize the purchase of 16 TIDES of Change:Igniting Productivity Growth in Europe and Central Asiadigital technologies might thus fall short,because companies could have difficulties in integrating more advanced technologies into their routine processes.Policy makers should also prioritize results-based support for technology adoptionfocusing not just on access but also on effective use.This support includes conditional subsidies tied to performance outcomes and tailored advisory services for firms navigating the digital transition.Different policies are needed across different countries and firms because constraints differ.The considerable variation in terms of digitalization across different types of firms suggests the need for tailored solutions.For example,the distance to the frontier in the intensive use of digital technologies is driven more by older firms than younger ones,suggesting that firms that are more mature have greater difficulties in digitalizing their business functions.Similarly,in the use of basic digital enablers(such as the cloud or e-commerce),smaller firms in less advanced ECA countries struggle to catch up with the frontier countries,although this is not the case for Croatia and Poland.Low-carbon technologiesaligning resource efficiency with productivity Becoming more energy efficient is strongly linked with firm-level productivity.Energy is an essential input for production and a key cost component for firms.More productive companies(those using production inputs more efficiently)also use energy more efficiently(figure O.7,panela).Moreover,firm attributes that are positively associated with higher productivity(such as foreign ownership or larger size)are also correlated with greater energy efficiency(figureO.7,panel b).Similarly,factors that are negatively associated with productivity(such as state ownership or operating in highly concentrated markets)tend to correlate negatively with energy efficiency.Energy efficiency and low-carbon technologies offer a dual benefit for ECA countries,which lag in aligning their climate and economic strategies.Modern low-carbon technologies can both mitigate environmental impact and improve firm productivity.However,fossil fuel subsidies,artificially low electricity prices,and weak carbon pricing provide perverse incentives for firms.ECA has some of the worlds highest fossil fuel subsidies.Paired with low,subsidized electricity prices,these subsidies introduce strong distortions by decreasing production costs for fossil fuelbased technologies and reducing overall incentives for resource efficiency because of low energy prices.Firms that adopt resource-efficient technologieswhether cleaner machinery,smart lighting,or energy monitoringtend to be more productive.Although they create up-front costs for firms,technologies or processes that are more energy efficient ultimately pay off through higher productivity.However,these gains are largely achieved through within-firm Overview 17improvements rather than market-driven reallocation.The market dynamics in many ECA countries often move in the wrong direction,rewarding less efficient firms,because of price signals that distort incentives.Theresult is a misalignment between efficiency and competitiveness.SOEs and highly concentrated sectors perform worse both environmentally and economically.Improved resource allocation toward productive sectors and firms would not only benefit productivity but also foster resource efficiency,by altering firms incentives to adopt more efficient technologies.Policy reforms must start by rationalizing fossil fuel subsidies and moving toward cost-reflective pricing.Doing so creates a level playing field for clean technologies.At the same time,investment in public research and development,access-to-finance tools,and green innovation programs can accelerate technology uptake.Evidence from countries like Georgia shows that even modest tariff reforms can spark significant efficiency improvements and lead to equipment upgrading.Reforms of the policy mix are crucial.ECA must also improve the targeting of itsenvironmental spending and shift toward first-best instruments such as FIGURE O.7 Energy efficiency and productivity are closely linkedEnergy efficiency(ln)gap relative to firmsin the 1st labor productivity decileFactora.Firm-level energy efficiencyand productivity,by countryb.Firm-level energy efficiency andother firm characteristics00.30.60.91.21.51.82.1Foreign-owned*State-ownedAge(years)Employment(in)Fixed assets perworker(in)Marketconcentration(C5)2nd3rd4th5th6th7th8th9th10thDecile of value added per workerwithin country-sectorEstimated coefficientMoldovaGeorgiaSerbiaTajikistanMontenegroKazakhstanKyrgyz RepublicCroatiaRomaniaEnergy efficiencyLabor Productivity0.40.50.3 0.2 0.100.10.20.30.4Source:Calculations based on firm-level data from national statistical offices.Note:Energy efficiency is measured as sales divided by energy costs.Labor productivity is measured as value added per worker.The cross-country sample covers 200623(different time periods per country).C5=joint market share of the five largest firms in a sector;LP=labor productivity;VA=value added.18 TIDES of Change:Igniting Productivity Growth in Europe and Central Asiaemissions pricing,rather than relying solely on command-and-control measures.Aconsistent and credible green policy framework would improve resource efficiency and boost productivity and economic resilience.People for ProductivityJobs,Skills,and Human CapitalStart-ups and other new firms tend to enter the market at a small scale in ECA,at less than half the size of new firms in the United States.Although smaller firm size at entry may suggest lower entry barriers firm creation can be the result of entry due to necessity rather than opportunity.Although the share of necessity-driven entrepreneurs in ECA is similar to the share in OECD countries,the share of purely opportunity-driven founders is slightly lower in ECA.Firms created because of necessity tend to remain in a low-growth,subsistence equilibrium and contribute little to jobs and productivity.Creating an enabling business environment that rewards productive firms and investment by improving access to finance and increasing trade integration is key to encouraging larger,capital-intensive,and innovative companies.Boosting the entry of high-productivity firms matters for job creation and job quality.When firms are more productive,they can decide to rely less on workers,because their efficiency is higher.They are also likely to have larger output,which may lead them to expand their workforce.Which of these forces dominates is an empirical question.This reports firm-level analysis suggests that the positive output effect dominates,because the average five-year employment growth rate has a strong positive association with the initial productivity of the firm.For instance,a firm whose productivity is within the first quintile of the distribution displays an average employment growth rate that is substantially lower than that among firms in higher productivity quintiles.Frontier companies(those in the fifth quintile)exhibit average employment growth that is two times higher than that of firms in the fourth quintile and 10times higher than that of firms in the first quintile.Promoting the entry of innovative,more capital-intensive firms is good for economic growth and employment creation.Similarly,wages rise faster in frontier firms than in lower-productivity firms,although the relationship is weaker than for job creation.Productivity growth drives job creation,and this link is stronger among high-productivity firms.Productivity growth can be labor-reducing if efficiency is achieved through the adoption of labor-saving technologies.However,productivity growth may also lead to labor expansion as output expands and the firms scale up.On the basis of firm-level analysis,the report finds a positive association between productivity growth and employment creation.Firms with larger productivity gains tend to have greater employment growth in the long term(over five years).Although this finding could be interpreted as smaller firms Overview 19making larger efficiency improvements and employment changes,these job-growth patterns are robust to the initial employment of the firm and its position in the productivity distribution.Human capitalnot only the stock but also the match between worker skills and job demandsis both a source of strength and a critical constraint across ECA countries.Skills gaps have been constraining,and several key findings should guide policy makers to improve productivity in the region in the coming years:There is significant skill misallocation,particularly in middle-and low-income ECA countries.Skilled workers are often not placed in larger,more productive firms,and vertical skill mismatchessuch as,for example,when workers education differs from what their jobs requireare common,especially with overqualification.The misallocation results in considerable productivity losses.Overqualified workers are approximately 12 percent less productive than their well-matched counterparts.Furthermore,returns to experiencean indirect measure of learning on the jobare significantly lower in middle-and low-income ECA countries than in advanced European economies,suggesting ineffective skill accumulation in the workplace(figure O.8).FIGURE O.8 ECA countries display moderate returns to experience at best,especially compared to countries in Western Europe0420020406080Difference in hourly wage from workers with 04 years of experience(%)5910141519Years of potential experience20242529303435 or moreCentral Asia andSouth CaucasusTrkiyeWestern BalkansEuropeanhigh incomeCentral EuropeSources:Bossavie,de Hoyos,and Torre 2025,based on data from national labor force surveys and the Organisation for Economic Co-operation and Developments Programme for the International Assessment of Adult Competencies.Note:The sample includes only wage employees.The data correspond to 201023(different time periods per country).20 TIDES of Change:Igniting Productivity Growth in Europe and Central Asia Underwhelming proficiency in foundational skills is both a drag on productivity and a critical reason for skill misallocation.Proficiency in foundational skills among ECA workers is low,and learning outcomes for 15-year-olds on international assessments,such as the Programme for International Student Assessment(PISA),have stagnated or declined in many countries,threatening future human capital development.This low proficiency has a direct effect on productivity,because poorly skilled workers are,per se,less productive.It also has a compounding effect on workplace learning,because only workers with high levels of proficiency in foundational skills experience substantial skill accumulation,reflected in a steep earnings-experience profile.Insufficient demand for skills plays a significant role in skill misallocation.In some ECA countries,a large public sector may be restricting the private sectors demand for high-skill workers.Furthermore,employment in small firms and low-skill service sectors does not foster human capital accumulation throughout a professional career.Although on-the-job training can enhance workplace productivity,it remains underused in ECA relative to high-income countries.Structural characteristics of the labor market matter as well.Although some institutional features of the labor marketsuch as minimum wage laws and strict employment protectiondo not have a clear relationship with efficient skill allocation,structural characteristics,such as the extent of informal employment,are linked to higher levels of mismatch and lower returns to experience.Poor managerial skills and inefficient firm organization can lead to weak labor outcomes.Overall managerial skills across firms in ECA are lacking,which contributes to both skill misallocation and poorer firm performance.These findings point to a multipronged policy approach.First,education systems should focus on building strong foundational skills to ensure a steady pipeline of adaptable,trainable workers.Second,firm-level policies should expand access to on-the-job training and promote skills development through modular certifications and cost-sharing partnerships between the public and private sectors.Last,labor market policies should foster an environment that supports skill use and accumulation by minimizing mismatches,encouraging job mobility,and enabling integration into dynamic,innovation-driven markets.Education reforms should guarantee that all students attain mastery in essential competencies such as literacy and numeracy at an early stage.This mastery is especially critical given the rise of automation and the increasing complexity of tasks in labor market dynamics.Effective interventions might include high-dosage tutoring,personalized instruction,and strategies to enhance teacher effectiveness,especially in underperforming school systems.Overview 21Reforms should target all levels of education,particularly vocational training and higher education.ECA countries education systems are characterized by a large footprint of vocational education in upper secondary and high enrollment rates in higher education.These subsystems are usually not the focus of reform efforts aimed at improving foundational skill proficiency.However,graduates from both vocational and tertiary education have disappointing levels of cognitive skills,indicating the need to address these skills gaps even at these levels of education.Credentialing systems require reform to reflect actual competencies more accurately.Excessive reliance on formal degrees obscures significant disparities in skill proficiency among graduates and contributes to overqualification.By transitioning to modular,competency-based certification frameworks that acknowledge both formal and informal learning,policies should enhance labor market signaling and promote lifelong learning.Such reforms would not only help mitigate skill mismatches but also enable workers to acquire and demonstrate their skills in more flexible and job-relevant ways.Policies should enhance workplace learning by increasing access to training opportunities.Although most firms provide limited on-the-job training,productivity gains are significant when such training is available,particularly for workers with stronger foundational skills.Governments can support cost-sharing initiatives for training,promote diagnostic assessments of skills to tailor programs to workers specific needs,and ensure that foundational skills gaps are addressed before investing in more advanced technical training.When implementing these policies,it is important to include mechanisms such as retention incentives and strong certification systems:Without them,firms investment in broad-based training will remain limited.Improving managerial practices can enhance skill allocation and firm performance.Global experiences indicate that governments can assist firms in enhancing their managerial practices cost-effectively,especially by using both individual and group-based consulting services.Labor markets require improved tools to address the mismatches between workers skills and job requirements.Enhancing labor market observatories that monitor skill demand and wage returnstogether with modern,data-driven public and private employment servicescan assist job seekers,especially youth,in making more informed decisions about training and employment opportunities.Implementing better-matching mechanisms is crucial for reducing both the prevalence and persistence of skill mismatches and overqualification.22 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaPolicy Agenda for Productivity and ProsperityECA countries need to complete the transition to market-based economies and address the misallocation of resources across and within sectors,while also strengthening firms capabilities through technology adoption and skills development.They need to complete the transition to market economies and embrace a productivity-centered development strategy.To do so,reforms must address distortions,support technology adoption,and equip people and firms to adapt.Removing frictions and distortions in labor and financial markets would facilitate the reallocation of economic resources to more productive firms and increase productivity.In labor markets,governments should increase flexibility in labor market regulations,byeliminating preferential treatment for SOEs and any type of preference not based on fundamentals,such as size-based subsidies.Modernizing insolvency regimes can also support the reallocation of resources to the most productive firms and activities.Welcoming FDI(both public and private,with know-how and expertise in key upstream sectors)can increase aggregate productivity.These business environment reforms need to be accompanied by policies and programs that increase the use of digital and resource-efficient technologies and strengthen the foundational skills of workers and managers.This report lays out priority actions for trade,investment,digitalization,efficiency,and skillsto ride the“TIDES”to higher productivity.Priority 1:Ignite trade-led productivity by launching a fresh reform push that deepens ECAs integration into regional and global value chains.Tradeconnect and compete.Igniting trade-led productivity growth in ECA requires a renewed reform push to deepen the regions integration into global and regional value chains.The focus should shift from simply expanding trade volumes to enhancing firms ability to connect,compete,and move up the value chain.This entails reducing the costs of cross-border commerce,aligning trade frameworks with the realities of digital trade,and ensuring that export promotion efforts foster firm-level learning and survival in global markets.By tackling barriers at and behind the border,governments can unlock the reallocation,scale,and learning effects that drive sustained productivity growth.Depending on country context,specific recommendations may include:Lower trade costs by,for example,simplifying customs procedures,harmonizing standards,and improving logistics infrastructure,especially to help smaller and first-time exporters.Modernize trade frameworks to enable digital trade and cross-border data flows,positioning firms to compete in knowledge-intensive services.Overview 23 Facilitate value chain integration by,for example,advancing regional cooperation and streamlining border processes.Priority 2:Maximize the benefits from foreign investment by improving links with and spillovers to the domestic economy.Investmentsanchor FDI and amplify spillovers.A credible,predictable investment climatecombined with open and well-regulated service sectorscan attract high-quality investors.But reclaiming productivity momentum from foreign investment requires not only attracting more FDI,but also turning it into a catalyst for domestic upgrading.This means integrating foreign investors into the domestic economy so that competition and collaboration drive innovation and productivity gains.At the same time,strengthening domestic capabilities,supplier networks,and innovation ecosystems ensures that foreign investment drives broader structural transformation rather than creating isolated enclaves.By anchoring FDI and amplifying its spillovers,ECA economies can accelerate firm-level upgrading and push frontier practices deeper into domestic production networks.Depending on the country context,specific recommendations may include:Enhance the investment climate through,for example,transparent rules,efficient administrative processes,and predictable incentives that attract and retain high-quality FDI.Deepen services liberalization in,for example,digital,logistics,and finance,to support the operations of multinational firms in the local economy and improve local market efficiency.Foster strong linkages between foreign investors and domestic firms,for instance through supplier development programs,partnership platforms,and targeted capacity-building support.Align fiscal incentives with productivity goals by,for example,redirecting tax breaks toward initiatives supporting innovation,research and development partnerships,and workforce mobility that spread foreign know-how across the economy.Priority 3:Foster investments in upgrading and technology adoption through incentives.Digitalizationdiffuse frontier technologies,strengthen capabilities,and deepen use.Realizing the benefits of closing the regions digitalization gap requires more than improving connectivity.It demands stronger firm capabilities,better incentives,and a more competitive environment that encourages 24 TIDES of Change:Igniting Productivity Growth in Europe and Central Asiatechnology adoption.Governments should shift from policies that simply subsidize technology purchases toward those that promote the effective and intensive use of digital tools.Equally important are complementary investments in human capital,competition,and finance,which enable firms to absorb and deploy new technologies productively.By creating the right incentives,skills,and market conditions,ECA countries can turn connectivity into competitiveness.Depending on the country context,specific recommendations may include:Address market distortions that discourage private investments in digital solutions,for example,by strengthening competition.Integrate digital skills into educational and training systems to better align them with evolving labor market needs.Pair digital technology support with management and organizational capacity building support to help firms use new tools effectively and improve internal processes.2 Promote responsible adoption of digital financial services to expand access to financeespecially for underserved firmsenhance financial management practices,and support broader business digitalization.Priority 4:Remove distortions and misallocation of resources by fostering competitive domestic markets.Efficiencylevel the playing field and unleash reallocation.Policies to promote efficiency should focus on removing distortions that trap resources in low-productivity firms and enabling markets where productive firms can enter,grow,and replace less efficient ones.This requires making markets contestable and removing distortions that shield incumbents and restrict new entrants.Ensuring competitive neutrality for the state itself is equally critical.For instance,SOEs engaged in commercial activities should compete on equal terms with private firms.Efficient reallocation of resources also depends on mitigating a misallocation of finance.Governments should promote modern and inclusive financial systems that direct financing toward productive and innovative firms.Strengthening the core enabling environment for access to finance can yield substantial impact with limited fiscal costs.These reforms can be complemented with well-designed,targeted,and proven financial interventions.These interventions often carry significant fiscal costs and can introduce distortions.Careful design and selection are therefore critical,since each intervention has unique characteristics that influence its impact and feasibility.3Depending on country context,specific recommendations may include:Promote contestability by,for example,conducting systematic reviews of regulations,licenses,tax incentives,and procurement rules to identify measures that protect incumbents or restrict market entry,exit,and expansion.Overview 25 Ensure competitive neutrality for SOEs by,for example,requiring SOEs to operate under market-based financing,transparent governance,and clear accountability mechanisms,while also phasing out preferential treatment such as subsidies.Strengthen the enabling environment for finance,drawing on international and regional good practices by,for instance,enhancing credit infrastructure,diversifying the range of financial providers and products,and leveraging fintech innovation,while ensuring associated risks are adequately managed.Improve the effectiveness of targeted financial interventions by,for example,improving targeting of beneficiaries and financial intermediaries,financial additionality,especially through private capital mobilization,and accountability through robust monitoring and evaluation systems.Priority 5:Unlock productivity through foundational learning by aligning talent and driving lifelong upskilling.Skillsalign talent and accelerate learning.Policies to enhance skills should focus on rebuilding foundational competencies,improving the alignment of talent with labor market needs,and fostering lifelong learning.Education systems should ensure strong foundational skills,while also promoting competency-based,flexible learning that adapts to evolving labor market demands.Complementary measures can encourage continuous upskilling to enable firms and workers to fully leverage productivity-enhancing technologies and practices.By aligning talent with private sector needs and embedding lifelong learning,ECAcountries can boost firm-level productivity and drive economywide growth.Depending on country context,specific recommendations may include:Strengthen foundational skills by,for example,ensuring universal early mastery of literacy,numeracy,and digital reasoning,tracked through national assessments benchmarked internationally.This effort should also include interventions in underperforming vocational and higher education.Support lifelong learning by,for example,supporting on-the-job skill development,especially in digital and technical areas.Enhance educationemployer linkages by,for example,facilitating collaboration between firms and education providers.Support better labor market matching by,for example,strengthening mechanisms that connect workers with opportunities,ensuring that skills are fully utilized.Gains from improved resource allocation and firm capabilities are often interdependent,highlighting the importance of addressing holistically all five elements of TIDES.Building capabilities alongside competition is key.26 TIDES of Change:Igniting Productivity Growth in Europe and Central AsiaWithoutinvestments in technical and managerial skills and new technologies,domestic firms might struggle to respond to new competition unleashed by market reforms and improved integration.Empirical evidence suggests that,without firm capabilities,even the least distorted economies might fail to reap the benefits of reallocation(Cusolito and Maloney 2018).However,this interdependence runs both ways:Eliminating misallocation also increases firms incentives to invest in technologies and skills,because the returns to these investments tend to be higher in more efficient markets(Bloom etal.2022).Beyond these priorities,it is crucial to mainstream the productivity agenda in countrywide growth strategies,underpinned by strong institutions and robust statistical data and analytics,alongside an independent national productivity board empowered to keep score.Every ECA government issues multiyear development plans,yet few make productivity their organizing principle.Each new plan should contain a dedicated productivity pillar with hard targets for TFP growth,misallocation reductions,and skills upgrading,to be monitored with the same rigor as fiscal rules.OECD experience has shown that national productivity boards work when they are independent,multidisciplinary,and data rich.Their toolkits should include a“red-flag”mechanism requiring ministries to justify measures that harm productivity,a public dashboard tracking key indicators,and peer reviews with other national productivity boards to share lessons.Delivering this agenda hinges on statistical upgrades,especially richer business microdata and modern data service functions,to enable timely and high-quality diagnostics to guide policymaking and improve accountability.With these enablers,ECA can convert reform blueprints into measurable productivity gains.Notes1.For the purpose of this report,ECA economies were classified into five groups using k-means clustering based on a variety of economic,geographic,and institutional factors(GDP share of agriculture,natural resource rents percent of GDP,trade openness,distance to the geographic center of the European Union,and Bertelsmann Stiftungs Transformation Index):(1)high-income and emerging markets and developing economies(Croatia,Poland,Romania,and Trkiye),(2)Eastern Europe advanced economies(Belarus,Bosnia and Herzegovina,Bulgaria,Georgia,Kosovo,Montenegro,North Macedonia,and Serbia),(3)Eastern Europe less advanced economies(Albania,Armenia,Moldova,and Ukraine),(4)natural resourcerich economies(Azerbaijan,Kazakhstan,the Russian Federation,and Turkmenistan),and(5)agricultural Central Asia economies(the Kyrgyz Republic,Tajikistan,and Uzbekistan).However,completeness of groups may vary due to data availability.Notes below figures list the exact countries included in each group.2.Strengthening managerial practices increases firms capabilities to integrate and intensively use new technologies(Cirera,Comin,and Cruz 2024;Cirera and Maloney 2017).For a detailed review of policy instruments to build firm capabilities and accelerate technological catch-up,refer to Cirera et al.(2020).3.See Carvajal and Didier(2024)for specific recommendations based on an assessment of the effectiveness of policies to improve access to finance for under-served businesses.Overview 27ReferencesBloom,N.,L.Iacovone,M.Pereira-Lopez,and J.Van Reenen.2022.“Management and Misallocation in Mexico.”Working Paper 29717,National Bureau of Economic Research,Cambridge,MA.Bossavie,L.,R.de Hoyos,and I.Torre.2025.“Human Capital Accumulation at Work:Insights from Returns to Experience in Europe and Central Asia.”Background paper for this report.World Bank,Washington,DC.Carvajal,Ana Fiorella and Tatiana Didier.2024.Boosting SME Finance for Growth:The Case for More Effective Support Policies.Washington,D.C.:World Bank.Cirera,X.,D.A.Comin,and M.Cruz.2024.“Anatomy of Technology and Tasks in the Establishment.”Working Paper 32281,National Bureau of Economic Research,Cambridge,MA.Cirera,X.,J.Frias,J.Hill,and Y.Li.2020.A Practitione
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Global Shapers CommunityAnnual Report 2024-2025Foreword 3How we create impact 5By the numbers:2024-2025 7Centres 10Meetings 13Stakeholders 15Impact 17Looking forward 20Appendix 21Leadership 25 Acknowledgements 27Contents 2025 World Economic Forum.All rights reserved.No part of this publication may be reproduced or transmitted in any form or by any means,including photocopying and recording,or by any information storage and retrieval system.Disclaimer This document is published by the World Economic Forum as a contribution to a project,insight area or interaction.The findings,interpretations and conclusions expressed herein are a result of a collaborative process facilitated and endorsed by the World Economic Forum but whose results do not necessarily represent the views of the World Economic Forum,nor the entirety of its Members,Partners or other stakeholders.Global Shapers Community:Annual Report 2024-20252ForewordFor more than 50 years,the World Economic Forum has worked to bring together leaders from governments,businesses and civil society to tackle the most pressing challenges of our time.But today,leadership is no longer confined to established institutions,heads of state or top executives.It belongs to everyone and especially to young people.The Global Shapers Community was created from this belief.Established in 2011,the Global Shapers Community is a movement of young people working together to address local,regional and global challenges.In more than 500 cities in over 150 countries and territories from Accra to Auckland and Zurich to Zagreb Global Shapers are accelerating climate action,safeguarding mental health,advancing economic equity,driving digital inclusion and more,often where traditional approaches have fallen short.What makes this community unique is not just the scale or diversity of its 10,000 members but the way it bridges local insight with global systems.Global Shapers engage directly with the Forums Initiatives,ensuring global priorities translate into tangible local action.Through flagship meetings such as the Annual Meeting in Davos and the Sustainable Development Impact Meetings(SDIM)in New York,Global Shapers contribute grounded perspectives on everything from artificial intelligence(AI)to humanitarian action.They bring urgency,foresight and lived experience to the global agenda helping shape policies and partnerships that work for all.This report demonstrates how Global Shapers are translating the Forums mission to improve the state of the world into measurable,people-centred and place-based results.Whether organizing town halls on trust in democracy,creating jobs through apprenticeships and social enterprise,or restoring mangroves and urban spaces to fight climate change,Global Shapers are working not only for their communities,but for the collective future we all share.This is more than a community.Its a movement.And our momentum is growing.To our members,partners and supporters across the globe:asincere thank you.Your passion,collaboration and belief in thepower of young people fuel everything we do.Together,we are shaping a world that is more inclusive,sustainable andhopeful for all.Natalie PierceHead,Global Shapers CommunityGlobal Shapers Community:Annual Report 2024-20253 The great challenges of our time cannot be solved by any single leader,sector or generation.They require collective imagination and shared responsibility.Global Shapers remind us that young people are not only the leaders of tomorrow,but co-creators of solutions today.Their energy,insight and commitment give me greater confidence in our collective ability to improve the state of the world.The Global Shapers Community is not just a network of young leaders;it is a movement that challenges us to reimagine how change happens.By bringing young peoples creativity,urgency and moral clarity into dialogue with established institutions and leaders,the community builds the bridges we need between generations,sectors and cultures.Global Shapers remind us that transformation is not the work of the few,but the responsibility of all and that the courage to act often begins with the youngest among us.Professor Klaus Schwab,Chair,Global Shapers Community;Founder,World Economic ForumSebastian Buckup,Managing Director,World Economic ForumGlobal Shapers Community:Annual Report 2024-20254How we create impactYoung changemakers drive Forum impact by collaborating with centres,stakeholders and at meetings translating global agendas into local action worldwide.The Global Shapers Community transforms the Forums missioninto outcomes through three interconnected activities centres,meetings and stakeholders ensuring young people arenot only in the conversation but shaping decisions and long-term solutions.Fatima-Zahra Ma-el-ainin,Co-Lead of the Future50 Initiative;Global Shaper,Rabat Hub No generation can shape whats ahead alone.It takes all of us,imagining,building and governing together.Thats why we created the Global Shapers Future 50 Initiative to equip emerging leaders with the capacity to apply intergenerational foresight,both as a tool and a mindset,to real-world governance challenges.Were not here to inherit the future.Were here to co-create it.Transformative change begins when people across generations and geographies share decision-making power,not just seats at the table.Global Shapers Community:Annual Report 2024-20255Centres:turning ambition into actionAt the core of the Forums work are its 11 centres platforms that unlock public-private collaboration to tackle todays most complex challenges,from planetary and monetary systems to frontier technologies,urban transformation,and equitable economies and societies.Global Shapers amplify these agendas by translating global priorities into tangible community projects that deliver measurable outcomes in over 500 cities worldwide.In 2024-2025,young leaders delivered more than 830 hub projects aligned with over 20 Forum initiatives.Meetings:elevating youth voices on the world stageGlobal Shapers bring local perspectives into the Forums flagship summits,including the Annual Meeting in Davos,the Annual Meeting of the New Champions in Tianjin and Dalian,and the Sustainable Development Impact Meetings(SDIM)in New York.By engaging young experts,the Forum gains foresight into emerging trends and grounded insights that enrich dialogue and sharpen global priorities.At the same time,these platforms enable Global Shapers to engage world leaders,showcase innovative solutions and build credibility for youth leadership across sectors.This year,173 Global Shapers participated in Forum meetings,with 48 having influential speaking roles that amplified next-generation perspectives on critical global agendas.Stakeholders:building bridges across generationsCollaboration is the cornerstone of the Forums model,and Global Shapers strengthen it by working with a diverse range of partners from businesses and governments to international organizations,civil society and social innovators.By building bridges across generations,geographies and sectors,Global Shapers help transform dialogue into trust and trust into action.In 2024-2025,partnerships with local and global stakeholders enabled Global Shapers to reach more than 2.2millionpeople through campaigns and providing direct support to 134,000 individuals through projects.The pages that follow show how this movement turns ambition into action and how youth leadership is shaping outcomes across systems.Institutional youth engagement is not symbolic it is strategic.With 1.2 billion young people representing 16%of the global population,Gen Zs spending power surging to$12 trillion by 2030,and billions of volunteer hours driving community-led innovation,the question isnt whether institutions need to engage youth,but whether young people will wait for institutions that refusetosharepower.Tariq Al-Olaimy,Co-Founder and Managing Director,3BL Associates;Foundation Board Member,Global Shapers Community;Global Shaper Alumni,Manama HubGlobal Shapers Community:Annual Report 2024-20256By the numbers:2024-2025Our reach,diversity and measurable outcomes reflect a global movement ofyoung leaders creating change in every sector and region.This section highlights the reach,engagement and outcomes of the Global Shapers Community.Powered by scale,diversity and measurable action,our numbers reflect both the breadth of the network and the collective results of young people worldwide.But behind every figure is a young member with bold ideas and the determination to shape whats ahead.Global Shapers are between 18 and 30,with an average age of 26.They do not represent a homogenous group:they come from every region,background and walk of life,with lived experiences shaped by geography,identity and opportunity.For some,creating change means running for office or shaping policy;for others,it means launching social enterprises,mobilizing communities or innovating outside formal systems.What unites Global Shapers is a shared commitment to driving meaningful change in their local contexts and beyond.Despite persistent stereotypes that young people are disengaged,Global Shapers prove the opposite.They are innovators,entrepreneurs and changemakers who arent waiting to inherit the future theyre creating it.Global Shapers influence spans every sector.They work in international companies such as Accenture,Airbus,EY,JP Morgan,KPMG and Microsoft;in multilateral and non-profit organizations like the United Nations and the United Nations Educational,Scientific and Cultural Organization(UNESCO);and in public service,from local municipalities to national ministries.Many are also founders,pioneering start-ups in fintech,climate tech,ed tech,artificial intelligence(AI)and more.This cross-sector presence brings diverse perspectives to the table,strengthening both dialogue and action.The following pages illustrate our reach,representation and outcomes at a glance.These numbers matter they capture the scale of a movement that is global in scope and rooted in local action,while reminding us that behind each data point is anindividual story of change.Global Shapers Community:Annual Report 2024-20257Regional representationSub-Saharan AfricaEurope and Eurasia20.6%North America and the Caribbean10.8%Greater China and North Asia6.1%South Asia13.3.7%Latin America18.3%Asia Pacific 6.9%Middle East and North Africa 7.3%Professional and educational background7.8%interns or apprentices10.4%employed part time51.3%employed full time14%entrepreneurs/founders68.7%university graduates21.6%current studentsAge profile26 years average age18-30 years rangeSector representation 59.8%private sector (business,start-ups,industry)12.8%public sector(government,policy,international organizations)15.5%civil society and non-governmental organizations(NGOs)(social impact,advocacy,grassroots)8.3ademia and researchGender balance51.9%women47.8%men0.3%non-binary/prefer not to sayWho we are8Global Shapers Community:Annual Report 2024-2025Our global network11,400 Global Shapers7,760 alumni members512 hubs146 countries and territoriesProjects and impact572 hub projects launched800 hub projects executed20 Forum initiatives advanced134,000 people supported directly2,220,865 people reached annuallyLeadership and learning471 leaders trained at Global Summit(2024)1,232 changemakers empowered at regional events15 hubs received leadership coaching(approximately 75-100 members)95.5%shapers said hubs are safe spaces forlearningand growthAmplifying youth voices571 million people reached across media platforms57 youth-authored opinionpieces by 52unique shapers17,541 monthly readers5,906 viewers of the GlobalShapers monthly live showEngagement in Forum platforms141 Global Shapers at Forum annual meetings48 speaking roles on global stages19 Global Shapers on GlobalFuture CouncilsOur impact9Global Shapers Community:Annual Report 2024-2025Centres Global Shapers amplify the work ofForum centres by translating global agendas into tangible projects that deliver measurable impact in communities worldwide.The World Economic Forums 11 centres advance public-private collaboration to tackle the worlds most complex challenges.The Global Shapers Community strengthens this model by bridging strategy with lived experience:offering foresight rooted in community realities,piloting ideas locally andmobilizing youth-led solutions at scale.In 2024-2025,this partnership delivered results that show what happens when global ambition meets local leadership:Global Shapers equipped young people with better skills through theReskilling Revolution,mobilized global climate action ahead ofCOP30,advanced financial resilience through the Longevity Economy,built trust in AI governance and intergenerational foresight through Future50,and reduced healthcare inequality with Health for All.These examples prove that youth engagement is not symbolic it is strategic.For the Forum,it means sharper priorities,real-world pilots and extended reach.For Global Shapers,itmeans recognition,resources and legitimacy for their ideas.For the world,it means global strategies that are grounded in community realities and tested where they matter most.In a time when trust in institutions is fragile,this model offers a path forward:empower young people to meaningfully contribute and lead,and global priorities become tangible outcomes.Together,these initiatives illustrate the strength of the partnership between the Forums centres and the Global Shapers Community.By aligning global ambition with local leadership,young changemakers ensure that the Forums priorities are translated into tangible,people-centred outcomes.The result is a model of collaboration that not only restores trust in institutions but also accelerates progress towards a more inclusive and sustainable future.Working alongside world-leading experts in the Global Foresight Network and Global Future Councils has expanded my vision for whats possible when we collaborate across generations.Individually,large-scale impact can feel out of reach,but collectively we have the opportunity and responsibility to reshape our global future.Taylor Hawkins,Co-Lead of the Future50 Initiative;Member of the Global Foresight Network Advisory Board;Member of the Global Future Council on Human Science of Environment Action;Global Shaper,Sydney HubGlobal Shapers Community:Annual Report 2024-202510Equipping 1 million youth with better skills by 2030Centre for the New Economy and SocietyThrough the Forums Reskilling Revolution,Global Shapers have committed to equipping 1 million young people with better skills by 2030.In 2024-2025,182 hubs trained 42,000 young people through skills workshops,trainings and entrepreneurship accelerators.In Yola Hub,Nigeria,Global Shapers boosted literacy by 57%in an internally displaced person(IDP)camp in Adamawa State,reaching thousands of displaced and underserved children with educational materials.In London III Hub,United Kingdom,Global Shapers launched an AI and cybersecurity training for marginalized youth,with the goal of training 15,000 learners.These efforts not only build local opportunity but also shaped global debates,with Global Shapers contributing valuable insights to the Forums Global Risks Report 2025 and Future of Jobs Report 2025.Mobilizing global climate action ahead of COP30Centre for Nature andClimateIn collaboration with the Centre for Nature and Climate,Global Shapers mobilized communities worldwide to advance climate-focused solutions.In 2024-2025,143 projects addressed food security,nature restoration,waste reduction and plastic pollution.In Rio de Janeiro Hub,Brazil,Global Shapers created community gardens and greenhouses in favelas,supporting 500 families with climate-resilient food production.In Abuja Hub,Nigeria,Global Shapers recycled 2,000kg of plastic bottles,funding school scholarships for displaced children while reducing waste.To influence global negotiations,Global Shapers also co-developed a Youth Climate Manifesto with the COP30 Presidencys Youth Climate Champion and the Forums Centre for Climate and Nature.Advancing financial resilience for all generationsCentre for Financial and Monetary SystemsPartnering with the Longevity Economy Initiative,Global Shapers modelled solutions for financial resilience and ageing societies.Together,24 hub projects worldwide focused on closing critical gaps in financial literacy while influencing global systems change.In Phnom Penh Hub,Cambodia,Global Shapers trained 4,000 youth aged 10-17 in financial literacy,breaking cultural barriers around money and preparing the next generation for independence.In Ludhiana Hub,India,Global Shapers empowered more than 100 students,150 women and 200 seniors with practical financial knowledge through workshops and community mentorship networks.At the systems level,the Global Shapers Longevity Economy Taskforce co-authored the Future-Proofing the Longevity Economy:Innovations and Key Trends white paper and contributed to expert groups shaping equitable financial futures.Building trust in AI from the ground upCentre for the Fourth Industrial RevolutionAs AI reshapes society,Global Shapers are working with the Forum to ensure technology remains ethical,inclusive and people-centred.In 2024-2025,52 hubs in 35 countries delivered innovative workshops on digital literacy,misinformation and data security.In Jaipur Hub,India,Global Shapers launched rural technology centres,equipping farmers and artisans with AI-powered tools to boost yields and livelihoods.In Johannesburg Hub,South Africa,they helped young female entrepreneurs scale social enterprises with AI solutions.In Geneva Hub,Switzerland,Global Shapers introduced children to robotics through hands-on workshops with mBot2 robots.Insights from these initiatives shaped the Forums AI governance dialogues and extended into Future50,a joint programme with the Forums Strategic Intelligence Initiative,preparing 50 young leaders to apply intergenerational foresight to local issues and technologies.Tackling health inequities through innovationCentre for Health and HealthcareWorking with the Centre for Health and Healthcare,Global Shapers advanced the Health for All Initiative by addressing systemic barriers to health and well-being.In 2024-2025,96 hubs delivered projects to advance health equity,mental health,womens health and more.In the United States,Global Shapers launched Shred the Debt,a cross-hub effort erasing millions in medical debt.Sacramento Hub eliminated$541,641 for 343 people;Chicago Shapers forgave$1.7million for 1,317 people,with plans to expand to 50 cities.In Ilorin Hub,Nigeria,Global Shapers created Safe Space for Her,reaching 300 girls across three schools with menstrual health education.At the global level,Global Shapers participated in an intergenerational mentorship series through the Global Alliance for Womens Health,linking senior and early-career medical professionals to strengthen womens health in global discourse.Table 1:Turning global ambition into local actionGlobal Shapers Community:Annual Report 2024-202511List of initiatives where young people areactively shaping global agendasGlobal Shapers partner with leading Forum and multistakeholder initiatives to amplify intergenerational leadership and translate global priorities into local action.Initiatives engaged include:1t.org(trillion trees community)Alliance of CEO Climate Leaders Alliance for Clean Air Bridging the Cyber Skills Gap initiative Chief Sustainability Officers Earth Decides The Equitable Transition Initiative Global Alliance for Womens Health Global Foresight Network Global Future Councils Global Gender Parity Sprint Global GovTech Network Global Plastic Action Partnership(GPAP)Global Risks Initiative Health for All Initiative Future of Jobs Initiative Longevity Economy Initiative Reskilling Revolution Strategic Intelligence Valuable 500 Global Shapers have committed to equipping 1 million young people with better education and skills as part of the Forums Reskilling Revolution.With 250,000 already reached,we are well on track.This movement proves that reskilling is not only a global priority but a shared cause uniting multinational employers with youth-led innovation at the local level.Ostap Lutsyshyn,Global Shaper,Lviv Hub;Community Champion;Education 4.0 Specialist,WorldEconomic ForumGlobal Shapers Community:Annual Report 2024-202512MeetingsAt global and regional gatherings,Global Shapers elevate young perspectives,enrich dialogue and co-create solutions with world leaders.Global Shapers engage in the Forums flagship meetings to amplify next-generation voices and co-create solutions alongside leaders from business,government and civil society.From the Annual Meeting in Davos to regional summits such as the SDIM in New York,Global Shapers participate not only as contributors but as conveners,bringing grounded insights,challenging assumptions and forging actionable coalitions.In addition to Forum-hosted gatherings,Global Shapers convene regional SHAPE events platforms created by youth for youth that reflect local priorities within a global context.SHAPEs advance the Forums regional agendas while enabling young leaders to connect,exchange best practices and design community-based responses to pressing challenges.These gatherings often involve Forum stakeholders and partners,reinforcing cross-sector collaboration and strengthening the link between local action and global impact.Whether on the worlds largest stages or in regional youth-led events,Global Shapers are ensuring that next-generation perspectives inform todays decisions.Their presence strengthens the Forums multistakeholder model and helps transform global priorities into inclusive,actionable outcomes.After attending events like the Forums Annual Meeting of the New Champions and the India Economic Summit,I was able to bring initiatives like 1t.org and Yes Cities to my region.Living in a fragmented world,Global Shapers bring the optimism and ingenuity to devise local solutions for global problems.TheForum has set the gold standard forconvening multistakeholder dialogue,andI am proud to help advance this mission of empowering youth and improving the state of the world.Being part of the Global Shapers Community has allowed young people like me to move from simply engaging outof interest to actively shaping outcomes.After attending the Annual Meeting of the New Champions,I joined the Global Future Council on GovTech and Digital Public Infrastructure,where I now co-create with global experts and bring youth perspectives into real institutional processes.Alok Medikepura Anil,Founding Curator of Mysuru Hub;Member of the Global Future Council on Generative Biology;Young Global Leader 2025 and Technology Pioneer 2023Valeria Tafoya,Global Shaper from Leon Hub;Member of the Global Future Council on GovTech and Digital Public InfrastructureGlobal Shapers Community:Annual Report 2024-202513Annual Meeting in DavosAt the Annual Meeting(AM),50 Global Shapers from diverse hubs engaged with more than 3,000 world leaders.In total,15 young people took centre stage as speakers on economic growth,sustainability,AI and inclusion demonstrating how youth perspectives sharpen global debates.Through intergenerational dialogues,senior executives and Global Shapers co-created strategies to expand economic opportunity and accelerate progress for the next generation.Members of the Global Alliance for YOUth including leaders from Accenture,EY,HCLTech,Nestl,Publicis Groupe and The Adecco Group met with young changemakers to chart long-term pathways for scaling youth engagement and employment opportunities worldwide.Annual Meeting of the NewChampions in TianjinAt the Annual Meeting of the New Champions(AMNC)in Tianjin,60 Global Shapers drove youth-centred conversations on reskilling in the age of AI,sustainability and the growing influence of Gen Z consumption trends.Notably,Eric Tse SY,chief executive officer(CEO)of Sino Biopharmaceutical and a Global Shaper from the Beijing Hub,contributed at the opening press conference,sharing insights on how AI is transforming the biopharmaceutical sector.With more than half the worlds population under 30,integrating youth perspectives into economic and technological debates is critical to shaping inclusive and forward-looking outcomes.Sustainable Development ImpactMeetings inNew YorkAt the SDIM,held alongside the UN General Assembly and Climate Week,90 Global Shapers ensured that the implementation of the 2030 Agenda reflected youth leadership and perspectives.Sessions co-hosted with the UN Assistant Secretary-General for Youth,the UN Youth Office and the#GenerationRestorationYouthHub brought together business leaders,young changemakers and experts to co-design guidance for the private sector.Together,they explored how intergenerational governance can unlock organizational value,accelerate regenerative business models,restore institutional trust and strengthen corporate social responsibility.Global Shapers Annual Summitin GenevaThe Global Shapers Annual Summit is the communitys flagship gathering,convening hundreds of young leaders alongside Forum stakeholders,partners and experts.In 2025,497 participants from 124 countries joined sessions on climate action,digital inclusion,health equity and the future of work.Through workshops,dialogues and project showcases,Global Shapers exchanged best practices,strengthened leadership skills and contributed fresh perspectives to the Forums broader agenda.More than a gathering,the summit served as a catalyst for collective action renewing shared purpose,deepening regional and global connections,and reinforcing the belief that systemic change requires young people at the table as co-creators.The live programme extended the summits reach to over 12,500 young people,featuring strong participation from leading media voices,top experts andthe Forums managing directors.Advancing the Forums regional priorities through SHAPE eventsGlobal Shapers convened seven regional SHAPE events,bringing together more than 1,200 young leaders to exchange ideas,strengthen networks and link local priorities with regional agendas.Hosted by hubs in Adelaide,Addis Ababa,Brussels,Buenos Aires,Jaipur,Khobar and Phoenix,gatherings showcased the diversity and reach of youth-led collaboration.Highlights included SHAPE Africa at the African Union,co-hosted with the Youth Envoy and supported by the Forums Centre for Regions,Trade and Geopolitics Africa;SHAPE Europe and Eurasia at the European Parliament,which engaged MPs,the former Belgian Prime Minister and the Mayor of Brussels;and SHAPE Latin America,where Global Shapers partnered with the Mayor of Buenos Aires.In the Middle East and South Asia,events deepened ties with the Forums Centre for the Fourth Industrial Revolution network in Saudi Arabia and India,opening new opportunities for innovation and collaboration with strategic partners.In Adelaide,SHAPE Asia-Pacific connected young changemakers with sustainability leaders whose insights later informed the Forums First Movers Coalition workshop.Meanwhile,SHAPE North America in Phoenix advanced the objectives of the Centre for Urban Transformation through practical solutions in climate,equity and economic resilience.Advancing youth priorities on global stagesGlobal Shapers Community:Annual Report 2024-202514StakeholdersBy collaborating with business,government,civil society and academia,Global Shapers build trust,scale innovation and advance systemicchange.The Global Shapers Community reflects the Forums multistakeholder approach by actively engaging business,government,civil society and academia.Each hub fosters partnerships at the local level,while the global network connects members with Forum stakeholders committed to inclusive and sustainable progress.This interconnected model ensures that youth-led initiatives both contribute to,and are shaped by,broader systems change strengthening resilience,equity andlong-term impact.In 2024-2025,Global Shapers delivered over 800 projects,directly supporting more than 134,000 people and reaching more than 2.2 million through campaigns.37%of Global Shapers collaborated with private-sector partners,52%with civil society and 34%with government institutions.Together,these efforts demonstrate how,by bridging generations,scaling grassroots innovation and embedding youth voices within global leadership,the Global Shapers Community is redefining what inclusive multistakeholder action looks like.In partnership with diverse collaborators,the community is proving that when young leaders are empowered to co-create solutions,systemic change becomes both possibleand lasting.Young people today are coming of age amid overlapping crises,with a front-row seat to disruption and a proven record of driving solutions in their communities.That lived experience offers vital insight into whats needed and what will actually work making youth indispensable partners in driving systems change.Dominique Souris,Alumna ofthe London II Hub;Member of the Global Future Council on Equitable TransitionGlobal Shapers Community:Annual Report 2024-202515Partnering withbusinessThe Global Alliance for YOUth a coalition of 25 leading companies is creating opportunities for the next generation.Together,members have generated more than 40 million development opportunities worldwide in the past four years,spanning training,mentoring,employment and entrepreneurship pathways.Global Shapers engaged executives from across the alliance to define priorities for the future of work,piloting a new model of intergenerational leadership.These dialogues highlighted how collaboration between decision-makers and young leaders can expand equitable employment pathways,empower youth in the workplace and help close generational divides.Scaling innovationThe Global Shapers Innovation Prize,enabled by Accenture and the Global Alliance for YOUth,connects young changemakers with partner companies to turn bold ideas into transformative impact.In 2024-2025,12 winning projects tackled urgent challenges ranging from mental health and civic participation to clean water and food security.One standout,the Riohacha Hubs Water Ambassadors initiative,provided water,sanitation and hygiene(WASH)infrastructure for more than 1,000 schoolchildren in rural Colombia.The project was later showcased at the Forums Water Industry Transformation Workshop in Geneva,illustrating how grassroots innovation can shape global discussions.By combining youth creativity with private-sector support,the Innovation Prize demonstrates how collaboration scales solutions from the community level to the international stage.Contributing to the Forum ecosystemGlobal Shapers deepened their engagement with the Forums wider ecosystem by serving in leadership and advisory roles.Overall,14 Shapers contributed to Global Future Councils,contributing insights on climate,cyber,health,inclusion and nature,ensuring foresight was informed by lived realities.A total of 17 Global Shapers joined the 2025 Class of Young Global Leaders,representing 15%of the cohort and reinforcing the networks role as an important pipeline of emerging leadership.Among them were senior government officials,pioneering entrepreneurs,climate defenders,and innovators in technology and the creative economy each advancing transformative change in their communities and beyond.Unlocking systemicchangeThis year,15 Global Shapers were selected to lead the Youth and Social Innovation Initiative,developed with the Schwab Foundation for Social Entrepreneurship,SAP and Hyundai Motor Group.Over the next three years,the initiative will focus on removing systemic barriers to youth innovation,shifting capital and influence toward youth-led solutions,and building authentic intergenerational partnerships.By linking Shapers with Schwab Foundation Awardees and a coalition of ecosystem partners,the initiative is scaling solutions to urgent global challenges while demonstrating the strategicvalue of youth-led innovation in advancing systemic change.Table 3:Building bridges across generations The Forum supports youth-led innovation and structural change by offering a unique platform for leadership development through its community model.By connecting young changemakers across a globally linked,impact-driven network and coupling that with institutional credibility it creates unparalleled space for advancing local action with global relevance.Thales Dantas,Member of the Global Shapers Foundation Board;Global Shaper,Florianopolis Hub;Member of the#GenerationRestoration Youth HubGlobal Shapers Community:Annual Report 2024-202516Impact Behind every project is a story of youth innovation testing,learning and scaling solutions that create lasting community impact.Global Shapers are not only delivering local projects and initiatives they are experimenting,testing and learning.Each solution is a proof point of what happens when young leaders combine creativity with collaboration.This year,their work revealed powerful lessons about driving change:from harnessing technology to scaling community-led solutions,and from meeting basic needs with dignity to showing that inclusivity is the foundation of innovation.Over the past year,Global Shapers solutions have delivered measurable impact reaching thousands of people while breaking barriers for underserved populations.Young changemakers have equipped their communities with practical tools and knowledge to navigate urgent social challenges.From deforestation tracking and water filtration systems to pop-up libraries in relief camps,their work is expanding access to education,equity and opportunity in lasting ways.From Global Shaper to Curator,my journey in the Global Shapers Community became an apprenticeship in leadership listening,co-creating and learning to hold space for others.Those early lessons led me to co-chair the Davos Lab Taskforce,shape the Youth Recovery Plan and later stand beside world leaders to launch the first liquid hydrogen corridor.Today,my path continues in the Global Future Council on the Energy Nexus,bridging systems and shaping integrated solutions for what comes next.Rumaitha Al Busaidi,Global Shaper Alumni,Muscat Hub;Member of the Global Future Council on Energy NexusGlobal Shapers Community:Annual Report 2024-202517Stories and data from projects and initiatives572 hub projects launched800 hub projects delivered134,000 people supported directly2,220,865 people reached globally12 arts,culture and the creative economy56 climate action and energy transition97 democracy and civic engagement55 digital inclusion and technology47 education and skills development66 employment and entrepreneurship91 equitable and inclusive societies24 financial inclusion and resilience11 food security and agripreneurship15 health equity and healthcare access16 humanitarian action and response51 mental health and well-being6 migration and displacement30 nature restoration and protection23 urban transformation and innovation4 water access and sanitationProjects per thematic areaGlobal Shapers Community:Annual Report 2024-202518Local knowledge drives lasting solutionsThe most effective ideas come from lived experience.When Global Shapers co-design with their communities,solutions stick.Safe Space for Her(Ilorin Hub,Nigeria)broke the silence around menstrual health in schools through a peer-led model.By grounding the initiative in local realities,Shapers reached 300 girls across three schools,installing WASH facilities,creating pad banks and training“Safe Space Champions.”Because it emerged from the voices of girls themselves,the project is now shaping regional conversations on how schools can support students with dignity.Project CHAMP(Thimphu Hub,Bhutan),developed with Save the Children,educated 680 students about constitutional rights and children in conflict with the law.Rooted in young peoples lived experience,the initiative not only equipped students with legal knowledge but also sparked national dialogue on youth rights showing how local voices can strengthen democratic institutions.Technology is a tool,not the goalDigital innovation has the greatest impact when rooted in human needs.Shapers are proving that technology is valuable not as an end in itself,but as a pathway to equity and inclusion.Technovation(Nairobi Hub,Kenya)trained over 170 marginalized girls in coding and entrepreneurship,producing 32 mobile apps to tackle local challenges.One standout,Usafiri,alerts fishers to dangerous tides,improving safety and livelihoods an example of technology designed to serve communities,not justmarkets.Bauen(San Luis Potos Hub,Mexico)designed a smart signage system for 60,000 visually impaired residents,integrating Braille,QR codes,near-field communication(NFC)and audio guidance.Piloted in schools and government buildings,the project shows how inclusive design transforms technology from a tool into a catalyst for wider social participation.Partnerships multiply impactYouth-led innovation scales fastest when paired with partners who bring reach,expertise and legitimacy.By combining grassroots creativity with institutional support,Global Shapers are turning pilot projects into systemic solutions.Career Counselling for All(Islamabad Hub,Pakistan)collaborated with the Moawin Foundation and S2S Exchange to pioneer a career guidance model in a city where only 16%of adults achieve higher education.The partnership expanded the projects reach already serving 500 students and training 20 teachers while laying the groundwork for systemic reform in career readiness.Find Us at the Park(Budaiya Hub,Bahrain)developed an AI-powered platform to map park usage and demographics,but its real strength came from partnerships with ministries and citizens.By blending youth innovation with institutional collaboration,the hub created a prototype for inclusive,data-driven urban planning a model with potential far beyond public parks.Innovation must be inclusive to be scalableLasting solutions dont just solve problems they broaden participation in the economy and society.When communities are engaged as co-creators,projects gain legitimacy,ownership and the power to replicate across contexts.Solar Cerrado Agrivoltaics(Braslia Hub,Brazil)installed solar systems powering irrigation,lighting and food processing while training farmers in climate-smart agriculture.By ensuring farmers were active participants,the project created a replicable model of renewable-powered farming that strengthens both livelihoods andresilience.Youths in Aquaponics(Bulawayo Hub,Zimbabwe)introduced solar aquaponics in schools,producing food year-round while using 90%less water.With IoT sensors and Red Cross partnerships,the project empowered students as food producers,linking inclusion to sustainability and inspiring new generations of climate-smart farmers.Water Ambassadors(Riohacha Hub,Colombia)addressed La Guajiras water crisis through a model that combined filtration technology with community education.Because it centred dignity and local participation,the initiative reduced waterborne illnesses by 30%,boosted school attendance by 20%and was scaled to 20 other cities with support from Waves for Water.This demonstrates how inclusive design transforms local interventions into global strategies for resilience.Across continents and contexts,these projects reveal a unifying truth:youth-led innovation works because it is rooted in lived experience,powered by creativity and strengthened by partnership.From water systems in Colombia to AI-driven planning in Bahrain,Global Shapers are showing that solutions designed with communities can scale across borders and sectors.These arent isolated stories of impact they are lessons for the world onhow to build more inclusive,resilient and sustainable futures.Table 5:Key lessonsGlobal Shapers Community:Annual Report 2024-202519Looking forwardVision and priorities for 2025 and beyond As 2025-2026 approaches,the Global Shapers Community enters an exciting new chapter one defined by scaling impact,deepening collaboration and reimagining how intergenerational leadership can shape the future.With the communitys 15th anniversary in 2026,the year ahead will beboth a celebration of our journey and a launchpad for greater ambition.Together,these priorities mark the next chapter of youth leadership more visibility in our communities,more embedded in global systems,more meaningfully engaged across generations and stronger as a connected network.As we celebrate 15 years of the Global Shapers Community,we accelerate forward with the courage,creativity and collaboration needed to shape a more inclusive and sustainable future for all.Amplifying our missionIn the spirit of the Forums multistakeholder model,the Global Shapers Community will mark its 15-year milestone with a global campaign to raise visibility and strengthen local partnerships.From city mayors and business leaders to grassroots organizers and youth networks,hubs will host“meet the leader”dialogues tospotlight the next generations priorities and pioneer new forms of grassroots organizing.Advancing intergenerational leadershipThe Global Shapers Community will test new models of shared leadership across generations.The community will test more inclusive governance structures by creating opportunities where young experts and experienced stakeholders lead together not in parallel.This will start at Forum meetings,creating more opportunities for Global Shapers to co-design sessions,lead dialogues and contribute to thought leadership to bring next-generation perspectives into decision-making processes.This is about moving beyond inclusion to meaningful engagement.Scaling our impactThe next chapter will see Global Shapers further embedded in the work of the Forums centres and initiatives.By prioritizing flagship campaigns from climate resilience to the future of work,from AI governance to health equity Global Shapers will continue to deliver youth-led pilots and scalable solutions for the global agenda.At the same time,expanded collaborations with strategic partners will extend the reach of youth innovation.Strengthening our networkFinally,we will invest in the long-term strength of the community itself.By reinforcing hub governance,leadership pipelines and peer support,Global Shapers will continue to thrive in safe,inclusive and sustainable spaces.In 2025-2026,this includes launching a body of experts a platform to elevate community knowledge and scale best practices and expanding the Community Champions programme,which provides mentorship and continuity across hubs.Global Shapers Community:Annual Report 2024-202520Appendix Area of actionWhat we aim to measurePerformance indicator2023-20242024-2025Building youth leadersOur hub model offers young changemakers hands-on experiences to develop skills in organizing and leading social change.Global Shapers discover how to build teams,mobilize stakeholders and drive collective action through local projects andinitiatives.We build diverse teams to bring young changemakers together1.Number of members11,11111,4002.Number of alumni8,36010,2063.Number of countries1521494.Membership diversitySee last years report.See page 8 of this years report.5.Number of hubs5055126.Number of hubs opened annually23267.Number of hubs closed annually2919We create opportunities for young changemakers to build their skills8.Number of skills building resources available annually77269.Number of learning spaces and sessions available annually11721810.Number of members who are empowered through learning spaces1,2262,067Table 6:Impact indicatorsGlobal Shapers Community:Annual Report 2024-202521Area of actionWhat we aim to measurePerformance indicator2023-20242024-2025Building youth leaders(continued)Young changemakers acquire new skills to lead and influence positive outcomes11.Percentage of members that have improved their skillsSee last years report.Shapers with improvedskills:Confidence:73.63%Teamwork:72.85%Leadership:70.92%Self-awareness:73.55%Project management:65.63%Impact measurement:63.31%Understanding local and global issues:73.50%Conflict resolution:61.26%Critical thinking:71.03.Percentage of members who have strengthened their ability to create changeSee last years report.Shapers that gained confidence and abilities to identify opportunities totakeaction:71.78%Shapers that gained confidence and abilities tomobilize actions to solve local challenges:67.23%Shapers that gained confidence and abilities to build connections with localactors:66.79%Shapers that gained confidence and abilities to take on greater leadership roles:64.99%Shapers that gained confidence and abilities to shape local policy and decision-making:52.23%Shapers that gained confidence and abilities to create their own non-profit orbusiness:44.84vancing youth actionFrom environmental protection to social justice,Global Shapers lead projects to tackle pressing challenges in their communities and the world.These initiatives are designed with the input of diverse stakeholders and have a clearly defined problem statement,collective action solution and measurable outcomes to ensure impactfulresults.Young people self-organize to deliver projects that address local needs13.Average number of members per hub2222.714.Average age of members per hub26.626.115.Percentage of members who agree hubs are safe spaces96.Number of hub new projects annually47857217.Number of cross-hub initiatives annually172018.Number of people supported by projects80,524134,28419.Number of people reached by projects11,621,5222,220,865Table 6:Impact indicators(continued)Global Shapers Community:Annual Report 2024-202522Area of actionWhat we aim to measurePerformance indicator2023-20242024-2025Advancing youth action(continued)20.People supported represent diverse groupsSee last years report.Young people:64.4%Schools and universities:34.3%Women and girls:26.2milies and households:18.7%Entrepreneurs and start-ups:14.5%Jobseekers and unemployed groups:12.4%Rural populations:12%Minorities and racial groups:11.1%Voters and civic organizations:9.8%Small-and medium-sized enterprises(SMEs):8.4%Informal workers:7%People with disabilities:6.8%Elderly populations:6.6%Indigenous communities:6.4%Migrants and refugees:5%Large businesses and enterprises:4.3%LGBTQIA individuals:3.9!.Change has been created on diverse topicsSee last years report.See page 18 of this years report.22.Percentage of hubs who engage local stakeholders in the design,delivery,feedback and continuity of projectsDesign:83livery:86%Evaluate:76sign:91livery:92edback:89%Continuity after implementation:87#.Percentage of hubs who build partnerships across diverse sectorsCivil society organization/non-profit:23%Private sector:15%Public sector:12%Civil society organization/non-profit:53%Private sector:38%Public sector:35ademia:30%We support and scale leading youth projects and initiatives globally24.Number of projects supported via funding423225.Amount of funding distributed annually240,000 CHF(Swiss francs)146,968 CHFTable 6:Impact indicators(continued)Global Shapers Community:Annual Report 2024-202523Area of actionWhat we aim to measurePerformance indicator2023-20242024-2025Amplifying youth voicesExposure to the World Economic Forums platform of leaders and experts enables young changemakers to have their voices heard and acted upon.Global Shapers work with business,government and civil society leaders on joint initiatives to improve the state of the world and cooperate acrossgenerations.We support young people to influence local decision-making26.Number of members serving in high-level leadership positions7921,222We enable young people to influence global decision-making27.Number of members engaged in decision-making events21617328.Number of members engaged in Forum impact initiatives113161We amplify young voices globally29.Number of members provided influential roles324830.Number of youth-authored opinion pieces405731.Number of members given expert coaching11015 teams coached,each with a minimum of five members32.Number of online viewers of sessions10,77919,40233.Number of social media impressions1,712,0672,886,25534.Number of social media followers340,000363,834Table 6:Impact indicators(continued)Global Shapers Community:Annual Report 2024-202524LeadershipFoundation boardThe Global Shapers Community thanks its foundation board members,who include remarkable individuals from government,business and civil society,for their extraordinary leadership.Klaus SchwabChair,Global Shapers Community;Founder,World Economic ForumThales DantasProject Architect,Pre-Scouter;Florianpolis HubDavid M.RubensteinCo-Founder and Co-Chairman,Carlyle GroupOlajumoke Adekeye Founder,Young Business Agency;Alumni,Abuja HubJane IttogiChair,Tasek JurongTariq Al-OlaimyCo-Founder,3BL Associates;Alumni,Manama HubNoura BerroubaChief of Staff,Daniel Sachs Foundation;Stockholm HubGlobal Shapers Community:Annual Report 2024-202525Global Shapers Community teamAppreciation goes to the team members who worked during the year to support the hubs and inspire positive change.Micael BermudezLead,Latin AmericaMichelle GoyhmanSpecialist,Data and AnalyticsKatie HoeflingerLead,North America and the CaribbeanPaniz JamaliSpecialist,Asia PacificRaissa KankuLead,Sub-Saharan AfricaAlbina KrasnodemskaLead,Europe and EurasiaKenza MHaimdatSpecialist,Middle East and North AfricaNatalie PierceHeadMurchana RoychoudhurySpecialist,South AsiaMiao SunLead,Greater China and North AsiaThe community also warmly thanks Francois Bonnici,Sebastian Buckup,Jill Rademacher,Christa Odinga-Svanteson,Sophia Simmons and Abi Liu for their meaningful contributions.Global Shapers Community:Annual Report 2024-202526AcknowledgementsThank you to our members and partnersThe Global Shapers Community owes its impact to its members.To the thousands of Global Shapers and alumni driving change in their cities and countries thank you.Your commitment powers this movement.Every project delivered,every partnership forged,every voice raised brings us closer to the just and equitable world we are working to build together.We are especially grateful to our Community Champions and Advisory Council members,who play a vital role in strengthening hub governance,mentoring peers and ensuring continuity across our network.Their dedication and leadership sustain our communitys resilience and inspire the next generation ofchangemakers.We extend our deepest gratitude to the World Economic Forum for championing youth leadership and creating platforms where young people can shape the global agenda.We also thank Accenture and the Global Alliance for YOUth,whose belief in the power of youth has helped unlock resources,scale innovation and expand opportunity through the Global Shapers Innovation Prize.We are sincerely grateful to our many local and global stakeholders from civil society to private sector allies,academic institutions,public officials and philanthropic partners who walk alongside Global Shapers to co-create inclusive,sustainable solutions.Your partnership strengthens our mission and amplifies our collective reach.As we look ahead,we warmly invite new partners who share our values to join us in accelerating youth-led action.To young leaders everywhere:if you are driven by purpose and believe in abetter future,this is your call to action.For more information,please contact globalshapersweforum.org.Global Shapers Community:Annual Report 2024-202527The Global Shapers Community is a network of young people committed to driving positive change in their local communities and beyond.At the heart of the community is a belief in the power 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Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 2025 GSMAPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 2/62The GSMA is a global organisation unifying the mobile ecosystem to discover,develop and deliver innovation foundational to positive business environments and societal change.Our vision is to unlock the full power of connectivity so that people,industry and society thrive.Representing mobile operators and organisations across the mobile ecosystem and adjacent industries,the GSMA delivers for its members across three broad pillars:Connectivity for Good,Industry Services and Solutions,and Outreach.This activity includes advancing policy,tackling todays biggest societal challenges,underpinning the technology and interoperability that make mobile work,and providing the worlds largest platform to convene the mobile ecosystem at the MWC and M360 series of events.We invite you to find out more at GSMA Digital UtilitiesUtility services such as energy,water,sanitation,waste management and transport are essential to life.The Digital Utilities programme enables access to affordable,reliable,safe and sustainable urban utility services for low-income populations through digital solutions and innovative partnerships.In doing so,we also seek to support cities in low-and middle-income countries in their transition to a low carbon,climate-resilient future.For more information,please visit: Capital(OCA)is a leading management consulting and financial advisory firm driving growth and investment across Africa.Since 2010,OCA has completed 1,700 engagements in 35 countries,raising$1.7B for impactful businesses.With 170 staff across the continent,OCA supports high-potential businesses,capital providers,development partners,and industry actors to unlock opportunities and build African economies.Learn more at:|yThis material has been funded by UK International Development from the UK Government and is supported by the GSMA and its members.The views expressed do not necessarily reflect the UK Governments official policies.This document has been financed by the Swedish International Development Cooperation Agency(Sida).Sida does not necessarily share the views expressed in this material.Responsibility for its contents rests entirely with the author.Authors:Eric Reynolds(OCA),Crystal Mugimba(OCA),George Kibala Bauer(GSMA)and Zach White(GSMA)Contributors:Angela Biyaki(OCA),Davis Luboyera(OCA),Felix Owour(OCA),Leshna Kirabo(OCA),Annet Kithaka(OCA),Magdalene Muthoni(OCA),Alice Higiro(Smart Cities Ministry of ICT and Innovation,Rwanda),Isabel Shirin Enyonam Wetzel(UN-Habitat),and Elena Williams(Connected Places Catapult)Published:October 2025Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 3/62AcknowledgementsThis research benefitted from valuable inputs and discussions with our strategic partners UN-Habitat,the Rwanda Smart City Hub and Connected Places Catapult.More about the work of these three organisations on intermediary cities can be found in the report“Co-Designing Urban Futures:Innovation and partnerships for improved service delivery in intermediary cities”.Additionally,the research for this report was only possible due to the time and thoughtful reflections of a wide range of people.In particular,the research team is thankful to:In Uganda:Saul Wambalye Weikama(The Innovation Village),Maurice Kamugisha(The Innovation Village),Davis Kakuru(Waste Consultant),Douglas Karugaba Baguma(Innovex),Isaac Katewanga(UMEME),Fredrick Twesiime(Ministry of ICT&National Guidance),Christian Wamambe(Safeboda),Dr.Cosmas Mwikirize(Science Technology and Innovation Secretariat),Samuel Mabala(Cities Alliance),Oscar Rwigyema(Balloon Ventures),Maureen Njeri(Balloon Ventures),Arorwa Badi(Iungo Capital),James Obarowski(Zembo),Jackie Bazimudde(Zembo),Amanda Isidi(PowerUP),Chris Nokrach Otim(National Planning Authority),Andrew Ssali(National Planning Authority),Angela Lak(National Planning Authority),David Birungi(Airtel Uganda),Zion Okama(TotalEnergies),Justin Kinyera(Ecopigs Farm),Richard Obuku(StartHub Africa),Peter Okwokwo(Takataka Plastics),Mourice Tumusiime(Klint Data Solutions),Gary Ernat(Nakas Best),Brian Atugonza(One Stop Centre Hoima),Trevor Amanya(Aetos Dairy),Sankara Magezi Byaruhanga(The Innovation Village Mbarara),Mark Mukundane(Kreative Campus),Sumaiya Nalukwago(Take Over Africa Network)and the leadership and administrative staff of Mbarara City,Gulu City and Hoima City.In Kenya:Joshua Kibet(Aqua for All),Rosemary Njaramba(Council of Governors),Kennedy Mutembei(Council of Governors),Hiram Githuku(Goodwell Investments),Kevin Atibu(ICT Authority),Henry Ochieng(Kenya Alliance of Resident Associations),Sarah Kanini(Kenya Alliance of Resident Associations),Joseph Murabula(Kenya Climate Innovation Center),Frederick Kioko(National Bank of Kenya),Joyce Kibe(PowerPay),Geoffrey Kimiti(PowerPay),Jerry Teka(Spearhead),Eric Kingori(SUED),Joseph Kungu(SUED),John Kashangaki(SUED),Dan Kamiri(Wonderkid),Rosemary Khalifa(Wonderkid),Abigal Lyani(Wonderkid),Dickson Marira(Wonderkid),Felix Wanje(MAWASCO),Catherine Gichobi(Sanivation),Kamotho Ndungu(Elimu Development),Dirham Haji(Isiolo Youth Center),Abdullahi Sora Golicha(IWASCO),Mburu Kiemo(THIWASCO),Walter Ngeno(THIWASCO),and the leadership and administrative staff of Isiolo County and Isiolo Municipality,Kiambu County and Thika Municipality and Kilifi County and Malindi Municipality.In Rwanda:Vanessa Munyana(Smart City Hub),Clovis Wanziguya(GIZ),Esther Kunda(Ministry of ICT and Innovation),Marc Manyifika(World Resources Institute),Gaspard Habiyaremye(Enabel),Yvonne Akimana(National Lands Authority),Attanaz Okumu(National Lands Authority),Rachel Akimana(Inkomoko Rwanda),Alexis Mwambutsa(Ministry of Local Government),Jack Ngarambe(Ministry of Infrastructure),Eugene Gakwerere(MTN Rwanda),Jean Claude Gaga(Airtel Rwanda),John Magara(Airtel Rwanda),Craig Clulow(Kigali Innovation City),Rukundo Jean Premier(Ministry of Trade and Industry),Christian Muhire(Rwanda Energy Group),Clement Uwihanganye(Green City Kigali),Koya Rufali(Green City Kigali),Basil Karimba(Green City Kigali),Dominique Murekezi(WASAC),Pacific Tuyishime(Norrsken),Crystal Munezero Uwamahoro(Mastercard Foundation),Joseph Usabimana(AquaVirunga),Thomas Brubaker(Amahoro Energy),Lazaro Maniraguha(UTB Rubavu Campus)and Pushpendra Kumar(Bugesera Special Economic Zone),as well as representatives from the European Union,Ampersand,Rubavu Port Police,Musanze Hanga Hub,Nyamata TVET and the leadership and administrative staff of Rubavu District,Musanze District and Bugesera District.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 4/62ForewordOn behalf of the Government of Rwanda,I would like to extend sincere gratitude to GSMA in collaboration with UN-Habitat and the Connected Places Catapult for the completion of this report.This a true testament of the results that multi-disciplinary collaborations can lead to,especially in the advancement of sustainable urban development in the 21st century.From the year 2000,Rwanda identified technology as a key lever to rebuilding our economy,and later re-calibrated to both technology and innovation,to enable us attain accelerated socio-economic development.This is displayed in our Smart Rwanda Master Plan,among others,that aims to position Rwanda as an Innovation and Proof of Concept Hub on the continent,and consequently transition the country into a high-income economy by 2050.These ambitions require regular pulse checks to assess progress vis-vis our goals,and ensure that we are making evidence-based decisions along our journey.Our intention in conducting this research,particularly across three of our intermediary/secondary cities-namely Rubavu,Musanze,and Bugesera-was to carry out that pulse check,and identify their readiness for digital innovations,or lack thereof,as these cities are critical pillars to Rwandas economy and catalysts for balanced urbanization and regional trade.This report comes at the cusp of our transition from the First National Strategy Transformation(NST1)to the Second(NST2),geared towards our Vision 2050 goals for sustainable economic growth and high quality of life for all citizens.Through NST1 we built the foundations of a competitive,inclusive,and green economy that we aim to scale and enhance in NST2.For Rwanda,platforms such as Irembo have been a significant step towards enhancing public service delivery and improving government efficiencies.And initiatives such as the Hanga Hubs are enabling us to nurture the next generation of entrepreneurs across our secondary cities,a deliberate move to expand urban innovations beyond Kigali and bring innovation opportunities closer to the people.However,as this report reveals,despite our various efforts there still remains much work to do,to level the playing field and maneuver the complexity of intermediary cities,especially not as stand-alone structures but rather as pieces of a larger network of factors that build the economic resilience of nations.The cities assessed also have diverse strengths or economic focuses:trade,tourism,urban mobility,agriculture,industrialization,or education.Which provide a wealth of lessons to be shared amongst cities,and an opportunity for continued inter and intra-city collaborations across the region.This affirms the assumption that multi-stakeholder partnerships are critical in the development of digitally innovative intermediary cities.The report offers practical recommendations to assist in the attainment of sustainable digital transformations in intermediary cities such as the need to enhance:modern infrastructures,innovative financing models,digital skills programs,and strengthening private sector collaboration to unlock the myriad opportunities that they have to offer.But most importantly,to promote human-centric designs,by including city residents in development efforts if we are to achieve socio-economic transformation.It is my hope that these recommendations will inspire stakeholders across East Africa and beyond to join us in shaping the future of intermediary cities,where digital innovation serves as the cornerstone of prosperity for generations to come.Eraste RurangwaPermanent Secretary Ministry of ICT and Innovation,Rwanda.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 5/62Contents Executive summary8Introduction121.1 Focus countries and cities 16Digital innovation in intermediary cities 282.1 Digital innovation ecosystems in Kenya,Rwanda and Uganda 302.2 Key opportunities for digital innovation in intermediary cities 342.3 Building blocks of digital innovation adoption 42Pathways to supporting digital innovation523.1 Governance and policy frameworks 533.2 Digital and core infrastructure 543.3 Digital skills 553.4 Funding and financing innovation 563.5 Innovation ecosystem and partnerships 57Endnotes61Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 7/62AbbreviationsAfCFTA Africa Continental Free Trade Agreement AfDB African Development Bank AI Artificial intelligenceAPIs Application programming interfacesARPU Average revenue per user B2B Business-to-businessDESA UN Department of Economic and Social Affairs DRC Democratic Republic of the Congo EAC East African CommunityEVs Electric vehicles GIS Geographic information systems IoT Internet of Things IRAS Integrated Revenue Administration SystemISPs Internet service providers KES Kenyan Shilling KIC Kigali Innovation CityLMICs Low-and middle-income countries MNOs Mobile network operators MoUs Memoranda of Understanding MSMEs Micro,small and medium enterprises NBI National Backbone Infrastructure OCA Open Capital PAPSS Pan-African Payments and Settlement System PAYG Pay-as-you-go PPA Power purchase agreement PPP Public-private partnership R&D Research and development RWF Rwandan Franc SEZ Special Economic ZoneSUED Sustainable Urban Economic Development TIV The innovation VillageUGX Ugandan ShillingUSD United States DollarUSMID Uganda Support to Municipal Infrastructure Development VC Venture CapitalWASH Water,sanitation and hygiene WEEE Waste electrical and electronic equipment Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 8/62Executive summaryBy 2050,one in four people globally will live in African countries,with 80%of the growth in the African population taking place in cities.The next global wave of urbanisation is an African story.Of the 50 fastest growing cities 2010-2030,36 are African,and 31 of those African cities are intermediary cities of under one million people.With a median age of 19 years,Africas young and aspirational generation are looking to cities as centres of opportunity.While megacities often dominate policy,as of 2020 54%of Africas urban residents live in intermediary cities of under one million people.In African countries,“urban primacy”the proportion of the urban population living in the largest city is generally much higher than in other parts of the world.The result is enormous pressure from a few large cities while many more small cities struggle to attract policy attention and investment.Cities are engines of productivity,but their potential can only be realised when people have the essential services needed to thrive:housing,water,energy,waste management and transport.When less than half of urban residents have access to basic services,higher levels of urban primacy have been shown to reduce GDP growth.With more than half of the urban population in African countries living in informal settlements,the challenge is clear.As in capital and primary cities,digital solutions offer intermediary cities a pathway to extend essential services,build effective governance and support broad-based economic development.Mobile money is driving a wave of financial inclusion on the continent,with 1.1 billion registered accounts and$1.1 trillion circulating in Sub-Saharan Africas mobile money ecosystem.Beyond financial inclusion,digital solutions such as Internet of Things(IoT)applications,artificial intelligence(AI),geographic information systems(GIS)and big data are playing a vital role in extending the essential services on which thriving cities are built.This report takes stock of the trends shaping the adoption of digital innovation in intermediary cities.It synthesises findings from a review of digital adoption in intermediary cities in Kenya,Rwanda and Uganda,evaluating the unique dynamics in each country that both enable and constrain adoption.Three case study cities were selected from each country to ground the findings and provide a range of contexts.The research is based on more than 100 interviews,drawing on insights from national ministries and agencies,municipal authorities,utility service providers,private sector innovators,mobile network operators(MNOs),donors,startup support organisations and academic institutions.Digital innovation in intermediary citiesIntermediary cities face a more challenging policy environment than their larger counterparts.With a more limited tax base and different forms of governance than large cities,their policy autonomy and fiscal freedom is often limited.While in recent years there has been a clearer and explicit policy focus on supporting intermediary cities,the same core constraints continue to inhibit their potential roles in national urbanisation strategies.Innovation ecosystems in Kenya,Rwanda and Uganda are thriving but remain concentrated in capital cities.The flagship investments of Konza Technopolis in Kenya and Kigali Innovation City(KIC)in Rwanda are two prime examples of large government investments in public private partnerships aimed at creating national innovation hubs.While a degree of centralisation is common,and to an extent desirable,for access to people,Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 9/62finance and tools,more attention needs to be given to intermediary cities for startups looking to scale nationally and to ensure there are sufficient linkages between national hubs and talent and innovators from intermediary cities.Scaling up digital innovation requires links to intermediary cities,and there are risks to unbalanced investment in urban development and innovation.While the agglomeration benefits of clustering startups in national hubs are harder to replicate in smaller cities,decentralising investment in innovation is essential,as it provides talented startups that lack the means to relocate with access to support,and creates more fertile ground for municipalities,businesses and residents to adopt innovation.The different economic profiles of intermediary cities offer opportunities for investment beyond building an ecosystem for startup incubation and funding.Key opportunities for digital innovation The main opportunities for digital innovation in intermediary cities can be found in the ventures already operating in Africa and the underlying funding trends.Between 2019 and 2024,fintechs in Africa raised$8.8 billion in funding,making it the single biggest tech sector funded with just under half of all funding to digital ventures.Climate Tech solutions raised a combined total of$4.3 billion,making it the second largest sector and accounting for just under a quarter of all funding to tech startups in Africa.Energy,and decentralised energy in particular,represented the largest share of this funding.Climate Tech solutions and companies are building the foundations for liveable cities.Energy access represents one of the biggest bottlenecks for cities and their digital development.Where thriving,the off-grid and productive use sectors have been critical to driving energy access and enabling small business growth in this studys three focus markets.In Uganda,off-grid sources provide the majority of energy access,while in Rwanda just under a third of access is off-grid and more solar units have been sold in Kenya than anywhere else on the continent.Kenya,Rwanda and Uganda are rapidly positioning themselves as continental leaders in e-mobility by combining ambitious policy targets with active private-sector participation.Rwanda has pioneered a supportive regulatory framework,including tax exemptions on electric vehicles and charging equipment.Intermediary cities like Kisumu in Kenya and Gulu and Mbarara in Uganda are fast becoming proving grounds for e-mobility innovation,offering conditions that are nimble enough for experimentation yet large and connected enough to demonstrate market viability.These cities sit at a sweet spot between the complexity of national capitals and the small-scale limitations of rural areas,making them ideal for testing context-specific technology and business models.A key opportunity for strengthening local fiscal autonomy and governance is the digitalisation of government services.Particularly important are digitalisation initiatives that support local revenue collection.Digitalising tax collection,particularly property,business rates and trade-related taxes provides a route to greater municipal fiscal autonomy.National e-government programmes also offer important opportunities to build digital skills within municipalities.Pathways to supporting digital innovation Political and administrative leaders play a decisive role in either enabling or stalling digital innovation.In intermediary cities,heavy central oversight,Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 10/62fragmented mandates and weak fiscal autonomy mean that even promising solutions can struggle to scale.However,digital innovation can be supported by creating clearer lines of authority,granting budgetary control and aligning city priorities with national strategies.Where city leadership has been engaged early and equipped with resources,innovation pilots have generated political goodwill and outside investment.Greater decentralisation,paired with performance-linked transfers,can transform cities from passive implementers into proactive adopters of digital innovation.Low levels of digital literacy and last-mile inclusion hinder both service uptake and innovation development in intermediary cities.While curriculum reforms and expanded university offerings have increased technical skills,gaps persist.Strengthening local capacity requires investment in both specialist training for government and business staff,as well as basic skills for urban residents,often delivered through peer learning,mobile services and innovation hubs.Embedding digital competency more widely enables cities to adopt new tools effectively and fosters inclusive participation in innovation.Digital adoption depends on reliable and affordable infrastructure and digital systems.In many intermediary cities,limited broadband,intermittent electricity and inadequate transport networks restrict the reach of innovations.National investments have extended fibre and grid connections,but gaps remain.Mobile networks are the primary way urban residents access digital tools as coverage is generally high in intermediary cities,but addressing handset affordability and gender and usage gaps is critical to widespread digital adoption.For many intermediary cities,supporting the adoption of digital innovation requires blending public,private and philanthropic capital effectively.Development and multilateral finance are an important source of funding for large-scale infrastructure,but the extent to which these larger investments are designed to accommodate digital innovation can enable or block adoption.Public funding is central to de-risking companies operating nationally from working in intermediary cities.For startups already based in intermediary cities,there needs to be a focus on mechanisms for deploying smaller ticket sizes and access to finance for working capital.Sector or site-specific national funds are one clear way to channel smaller amounts of capital.To build sustainable innovation ecosystems in intermediary cities,several conditions must be met.Innovations at various stages of development,both experimental and validated,must be present to showcase the dynamism of the environment.Entrepreneurs must have the resources necessary to advance from the ideation to the pilot stage,and the public and private sector need to collaborate effectively to provide pathways to scale.Intermediary cities can create the innovation ecosystems necessary to address their most pressing service gaps by creating unique incentives to draw capital city-oriented startups to smaller locales,by developing a conducive environment for entrepreneurial support organisations and by piloting unique partnership frameworks.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 11/62Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 12/621IntroductionPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 13/62By 2050,nearly seven in 10 people will live in cities.1 Centres of economic activity,cities account for the majority of GDP and tax receipts in most countries.As of 2018,the worlds largest 3,000 cities accounted for 67%of global GDP.2 The World Bank estimates that the total urban share of GDP may be as high as 80%.3 Urban primacy the share of population or GDP of a countrys largest city is a measure of this concentration in an economy and is markedly higher in African countries.While urbanisation has historically been associated with higher wages and living standards,more recent research has shown that the economic benefits of agglomeration are only realised when cities provide a foundation for populations to thrive.When fewer than half of urban residents have access to basic services,higher levels of urban primacy have been shown to reduce GDP growth.4,5 With more than half of Africas urban population living in informal settlements,the challenge of extending these basic services is a major bottleneck to growth.6 By 2050,one in four people will live in African countries,up from just under one in five today.7 The continents population is both the youngest and fastest growing in the world.With a median age of 19 years,young people are looking to cities as centres of opportunity.In African economies,a 10%increase in density is associated with an increase in productivity(as measured by wages)of 1.7%,compared to just 0.4%in the United States and 0.3%in France.8 However,the research identifying this wage growth also highlights that these wage gains are largely offset by the costs of living in African cities.This is due to the decoupling of urbanisation and economic growth that has been observed described as“urbanisation without growth”or“premature urbanisation”.9,10Many African cities are also urbanising at lower levels of density,leading to urban sprawl.The capital expenditure required to provide basic infrastructure,such as water pipes or sewer networks,is sensitive to the density at which urbanisation occurs and the degree to which expansions are planned.11 Meanwhile,many fast-growing African cities face a complex set of fiscal challenges linked to higher levels of informality and intergovernmental fiscal relationships-and lack the tax base to invest in essential infrastructure.12 Realising the promised benefits of urbanisation requires building inclusive cities that sustain its residents.In the pursuit of more balanced urban development,cities are faced with the twin challenge of needing to urbanise with growth while also contending with the impacts of climate change.Cities are both victims of climate change and among its worst perpetrators:not only are they disproportionately exposed to its impacts,but they are also responsible for generating a large share of global emissions.UN-Habitat World Cities Report 2024 1.UN DESA.(2018).World Urbanization Prospects:The Revision.Report.2.McKinsey Global Institute.(2018).Superstars:The dynamics of firms,sectors,and cities leading the global economy.Report.3.World Bank.(n.d.).Urban Development.Webpage.4.International Growth Centre.(2019).The costs of urban giants in sub-Saharan Africa.Blog.5.Castells-Quintana,D.(2017).Malthus living in a slum:Urban concentration,infra-structure and economic growth.Journal of Urban Economics.6.UN.(2022).The Sustainable Development Goals Report.Report.7.UN DESA.(2024).World Population Prospects 2024.Report.8.Brookings.(2021).The economic benefits of cities in the developing world.Blog.9.Glaeser,E.(2014).A World of Cities:The Causes and Consequences of Urbaniza-tion in Poorer Countries.Journal of the European Economic Association.10.World Resources Institute.(2020).World Resources Report.Report.11.Angel,S.et al.(2016).Atlas of Urban Expansion2016 Edition.Report.12.UN-Habitat.(2018).The State of African Cities 2018:The geography of African investment.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 14/62Intermediary cities often also referred to as secondary cities are set to play a vital role in African urbanisation.Generally defined as cities with populations between 100,000 and 1 million,intermediary cities host one-third of the worlds population.13 According to United Nations data,44 of the worlds 50 fastest-growing cities between 2010 and 2030 are intermediary cities,and 36 of those cities are African(see Figure 1).14 There are an estimated 710 intermediary cities on the continent where more than 180 million people live.By 2050,these numbers are expected to rise to more than 1,150 intermediary cities and 310 million people.15 Many of these intermediary cities are set to grow beyond a million people,with Africa expected to have 159 urban agglomerations of more than 1 million inhabitants by 2050,roughly double the current number.16While megacities and large informal settlements often dominate the spotlight,as of 2020,54%of Africas urban residents live in cities of less than 1 million people.17 Between 2000 and 2020,just one capital city Abuja was among the 20 fastest-growing cities in Africa.18 In low-and middle-income countries(LMICs),intermediary cities play an outsized role as connection points between rural areas and metropolitan centres,providing access to services and facilities.Intermediary cities are often regional centres of government and education,hubs for logistics supply chains,bases for agricultural aggregation and processing,destinations for recreation and tourism and cores of manufacturing and industry.Some are regional centres of economic activity and governance,like Bunia,Kananga and Mbuyi-Mayi in the Democratic Republic of the Congo(DRC)and Port Harcourt in Nigeria.19 Others are satellite towns located on the edges of larger cities.For example,Ruiru,situated on the outskirts of Nairobi,ranks among Africas fastest-growing cities.Gwagwalada,a satellite town for Nigerias capital,Abuja,is also expanding rapidly.20As in capital and primary cities,digital solutions provide important pathways for intermediary cities to strengthen basic services,build effective governance and support broad-based economic development.Mobile money is driving a wave of financial inclusion on the continent,with 1.1 billion registered accounts and$1.1 trillion circulating in Sub-Saharan Africas mobile money ecosystem.21 Beyond financial inclusion,digital solutions such as Internet of Things(IoT)applications,artificial intelligence(AI),geographic information systems(GIS)and big data are playing a vital role in extending the essential services water,energy,sanitation,waste management and transport on which thriving cities are built.This report takes stock of the trends shaping the adoption of digital innovation in intermediary cities.It synthesises findings from a review of digital adoption in intermediary cities in Kenya,Rwanda and Uganda,evaluating the unique dynamics in each country that both enable and constrain adoption.Three case study cities were selected from each country to ground the findings and provide a range of contexts.The research is based on more than 100 interviews conducted in nine case study cities with national ministries and agencies,municipal authorities,utility service providers,private sector innovators,mobile network operators(MNOs),donors,startup support organisations and academic institutions.The report is structured as follows:The remainder of Chapter 1 outlines the role of intermediary cities in the three focus countries,details the policy landscape governing the adoption of digital innovation in cities and provides details of the case study cities.Chapter 2 discusses key areas in which digital innovation can support urban development and the building blocks for adoption in intermediary cities.Chapter 3 outlines pathways for supporting the adoption of digital innovation.13.GSMA.(2023).The challenge of service provision in intermediary cities:In search of solutions.Blog.14.Authors analysis of File 22 of UN DESA World Urbanization Prospects data15.OECD.(2025).Africas Urbanisation Dynamics 2025 Planning for Urban Expansion.Report.16.Ibid.17.Ibid.18.The Economist.(2023).The growth of Africas towns and small cities is transforming the continent.Media.19.GSMA.(2019).Digital Solutions for the Urban Poor.Report.20.Asterisk Magazine.(2025).Yes In My Bamako Yard.Blog.21.GSMA.(2025).State of the Industry Report on Mobile Money.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 15/62Figure 1The worlds 50 fastest-growing cities,20102030%change groups(50%steps)350-39900-349%0-299 0-249%Source:Authors analysis of UN Department of Economic and Social Affairs(DESA)dataFigure 2Share of urban population in the largest city Share in Largest City 70P-700-50%No data20-30 Source:UN DESA World Urbanisation Prospects,accessed via World Bank databankPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 16/621.1 Focus countries and cities Despite their vital role in national economies,intermediary cities have historically received less funding and policy attention than capital cities,and face a set of unique challenges.The roots of this imbalance can be found in colonial-era investments in coastal cities that facilitated extraction and exports many African countries with access to the sea have coastal capitals.22 This is reflected in changing urbanisation trends,with 81%of urban growth set to take place in interior rather than coastal cities.23 All three focus countries have a high degree of urban primacy.According to World Bank data 33%of Kenyas urban population are in Nairobi,50%of Rwandas in Kigali,and 30%of Ugandas in Kampala.Figure 3 shows how the population of the 10 largest cities in these countries is divided and the gap between capitals and the nine next largest cities.While large drops in population can be expected,24 the difference in African countries is generally greater than other parts of the world,and is a trend in many countries on the continent.25Figure 3Share of population in the 10 largest cities of Kenya,Rwanda and UgandaKenyaUgandaRwanda24681012080pP0 %0%Kigali,RwandaNairobi,KenyaKampala,UgandaGisenyi/Rubavu*,RwandaRuhengeri/Musanze,RwandaThika,Kenya Gulu,UgandaSource:Census of Kenya(2019),Rwanda(2022),and Uganda(2024)*Note:City and district22.Ricart-Huguet,J.(2021).The Origins of Colonial Investments in Former British and French Africa.Blog.23.OECD.(2025).Africas Urbanisation Dynamics 2025 Planning for Urban Expansion.Report.24.Arshad,S.et al.(2018).Zipfs law and city size distribution:A survey of the literature and future research agenda.Physica A:Statistical Mechanics and its Applications.25.AfDB.(2022).The Dynamics of Systems of Secondary Cities in Africa:Urbanization,Migration,and Development.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 17/62Today,many intermediary cities face challenges that include financial reliance on inconsistent central government transfers,a limited tax base,difficultly attracting and retaining talent and weak local governance.Also,because many of Africas intermediary cities are located inland and because they often have weak institutional capacity,limited data and visible opportunities,limited infrastructure and high levels of informal and under-employment,they often fail to attract the same kinds of investments as larger capital cities.Despite hosting a significant percentage of the continents urban population,intermediary cities receive only a fraction of national infrastructure budgets.26 This,in turn,makes it more difficult for them to serve residents and adopt innovative solutions to meet basic needs.Intergovernmental fiscal relationships are critical to investment in intermediary cities,with municipalities often constrained.On one hand,the dominance of informal economies makes it difficult to track and ensure equitable tax compliance locally,as many economic activities operate outside formal regulatory frameworks.On the other hand,a significant number of residents do pay taxes often through indirect channels or national-level systems.A core issue for intermediary cities lies in the disconnect between tax collection and local service delivery.National governments,which typically collect these revenues,often fail to reinvest them adequately into urban infrastructure and public services.Meanwhile low levels of municipal collections undermine city-level debt servicing capacity.27 Strengthening municipal finance is critical to building inclusive,resilient cities.Particularly through localised,digitalised tax systems that empower city governments to directly collect and manage revenues.To address these challenges,national and city governments have been prioritising programmes and investments that foster innovative public service delivery.As intermediary cities grow,they will continue to be important tourism,cultural and economic hubs.Strategic urban planning,intentional resource allocation,good governance and accessible innovation will be crucial to ensuring that intermediary cities,particularly in East Africa,can provide robust livelihoods,thriving communities and a healthy quality of life for their residents.To differentiate the continents intermediary cities,the African Development Bank(AfDB)uses spatial categorisations.28 While these categorisations are not mutually exclusive,they provide a broad framework for characterising key differences(see Figure 4).Among the challenges lie opportunities.Substantial service and infrastructure gaps in East Africas intermediary cities make them fertile ground for market-creating innovations.Mid-sized cities are often manageable enough to pilot solutions without the constraints and scale of larger metropolitan areas,while also having unique comparative advantages due to their strategic location and historical development.Intermediary cities also tend to be more representative of the national population than capital cities and have stronger connections to nearby rural settlements,which offer lessons that can be applied to markets outside urban centres.For example,as part of a$800 million project to develop Ugandas e-mobility sector,Kiira Motors Corporation chose to pilot public e-buses in the intermediary city of Jinja,rather than the capital Kampala.Jinja was selected as it was more representative of cities across the country and because of the availability of land in the Jinja Industrial Park,which allowed for end-to-end vehicle production.29,30 Similarly,in Kenya,the Sustainable Urban Economic Development(SUED)programme worked in 12 municipalities to develop urban economic plans for cities based on their key challenges and comparative strengths.The programme claims this has catalysed about$85 million(KES 11.1 billion)in investment,including to support urban drainage in Isiolo and agricultural processing in Malindi.3126.Ibid.27.OECD/UN-Habitat.(2022).Intermediary Cities and Climate Change:An Opportunity for Sustainable Development.Report.28.AfDB.(2022).The Dynamics of Systems of Secondary Cities in Africa:Urbanization,Migration,and Development.Report.29.Uganda Radio Network.(2024).Ugandas Public Transport to be Fully Electrified by 2030.Media.30.Bloomberg.(2018),Uganda backs Electric Vehicle Project it says can lead continent.Media.31.SUED.(2021).Case Study:Effective Management of Storm Water in Urban Spaces.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 18/62Figure 4Spatial typologies of secondary cities in AfricaSource:AfDB.(2022).The dynamics of systems of secondary cities in Africa:urbanisation,migration and development.Provincial centres that play role in supporting key national economic sectors through manufacturing,industrial,extraction,or port activities.They primarily serve as military,transportation,tourism,religion,or education-based centres.Ugandas Hoima,for example,is bolstered by the discovery of oil and its position along the East African Crude Oil Pipeline,while Rwandas Rubavu,situated along Lake Kivu,provides both port-based and tourism economic contributions.Intermediary cities that are on the periphery of larger urban areasThese cities are often interdependent industrial or satellite cities within a 100-kilometre radius of a larger metropolitan area.For example,Bugesera,a satellite city that will host Rwandas new international airport,is located approximately 40 kilometres outside of Kigali.Thika,a fast-growing industrial city in Kenya,is the same distance from Nairobi.Both serve as valuable economic hubs and release valves for the sprawl of their larger metropolitan neighbours.Linear urban grouping of communities along a key highway or coastal routeHaving grown along primary trade routes,cities such as Isiolo in Kenya,situated as a key trade hub along the Lamu Port-South Sudan-Ethiopia Transport Corridor,and Mbarara in Uganda,which serves as a primary transport hub for goods moving between Uganda and Rwanda,play a key role in the transport and logistics of many goods moving in and out of their respective countries.METROPOLITAN CLUSTERSCORRIDOR CITIESREGIONAL CITIESProvincial Tourism or resource-based secondary city hubProvincial administrative or manufacturing secondary city hubExpanded Urban AreaSpill over New and Expanded Cluster of Secondary CitiesRural Urban Supply Chain linkagesCity to city linkagesCity to city linkages and CollaborationSecondary City Hub and logistics centreSub Secondary Urban logistics centreMetropolitan RegionClustered Secondary CitiesBusiness and Commercial CentresEconomic Enterprise ZonesKey Strategic InfrastructureCore of small expanding town or cityNew Commercial CentresUrban development Corridor urban development Authority AreaLocal Government BoundaryXLateral urban Growth CorridorInternal relief and infrastructure corridor roadsBypass and linkage roads to CentresMetro RegionOld Primate City-High level Services-Commercial and PortPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 19/62Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 20/6232.UNDP.(n.d.)Hoima District Investment Profile.Report.33.Ministry of Finance.(2021)Gulu City,DINE profile 2020/21.Report.34.Ministry of Finance,Planning,and Economic Development.(2023).LG Draft Budget Estimates 2024/25:Gulu.Report.MBARARAMBARARAHOIMA HOIMA GULUGULU MasakaMasakaFort PortalFort PortalA109A109A104MityanaMityanaEntebbeEntebbeMasindiMasindiLiraLiraSorotiSorotiKotidoKotidoMbaleMbaleKitgumKitgumAdjumaniAdjumaniAruaAruaMurshison Murshison Falls National Falls National ParkParkLake VictoriaLake VictoriaLake Lake AlbertAlbertKampalaKampalaFigure 5Case study city profilesUganda22%Unique mobile internet subscribers18%Annual growth rate of LTE(family)connections45.8%Smartphone connectionsHOIMA REGIONAL HUBWith the discovery of 6.5 billion barrels of oil in 2006,Hoima rapidly transformed from a town to a city.While agriculture employs 63%of workers,non-farm activities-including merchandising,market vending and healthcare-are becoming more important.32 Under construction,the Kabalega International Airport is a new transit hub expected to facilitate business and workforce mobility in the oil and tourism sectors.While oil discoveries have driven rapid transformation,there are growing concerns about over-dependence on the sector and exposure to Dutch disease risks that may crowd out other forms of growth.GULUREGIONAL HUBWith 43%of licensed businesses involved in trade,Gulu is leveraging its strategic position as a trade and transit hub,following mass conflicts in and around city in the 1990s to mid-2000s.33 In recent years,the city has seen major investments in the road network and water and sanitation systems.In the 20242025 financial year,18%of the citys UGX 41 billion($11 million)wage and non-wage budget was allocated to roads and engineering alone.34 MBARARACORRIDOR CITY Mbarara is a strategic city located within Ugandas“cattle corridor”and serves as a major hub for dairy production and the livestock trade.Mbarara accounts for more than 30%of Ugandas total milk and the area produces more than 100,000 litres per day.The city is also anchored by large businesses,including Coca-Cola Beverages Uganda Ltd and Pearl Dairy,which are drawn by the citys position as a trade hub serving neighbouring Rwanda,DRC and Tanzania.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 21/62Tsavo East Tsavo East National National ParkParkNamunyak Namunyak Wildlife Wildlife Conservation Conservation TrustTrustKisiiKisiiKisumuKisumuAthi RiverAthi RiverEldoretEldoretNakuruNakuruNanyukiNanyukiNaivashaNaivashaKitaleKitaleLodwarLodwarKakumaKakumaMarsabitMarsabitEl WakEl WakRhamuRhamuHabasweinHabasweinGarissaGarissaMsambweniMsambweniLamuLamuWatamuWatamuUkundaUkundaDadaabDadaabSololoSololoLokichogioLokichogioTHIKATHIKAISIOLO ISIOLO MALINDIMALINDI NairobiNairobiMombasaMombasaA109A104A1A1A2A3Kenya36%Unique mobile internet subscribers26%Annual growth rate of LTE(family)connections60.5%Smartphone connectionsMALINDI REGIONAL HUBMalindi is a coastal city that is a tourist centre and focal point for government support programmes in the region.Currently,88%of residents have access to improved water sources and 76%have access to improved sanitation,despite the citys lack of a sewerage system.35 In 2022,the 53 MW Malindi Solar Power Station was opened,significantly improving energy access.Still,the city faces significant staff shortages with only 14 technical staff managing key departments,compared to the 80 recommended by the central government for a municipality of its size.Chronic gaps in infrastructure and a shortage of municipal staff limit service delivery capacity,making the city highly dependent on external support and well-suited for digital solutions that can ease administrative burdens.ISIOLO CORRIDOR CITY TO REGIONAL HUBLocated along the Lamu Port-South Sudan-Ethiopia Transport corridor,but in a historically marginalised region,Isiolo has lagged in infrastructure investments.36 With 65%of Isiolos land classified as very arid,the city and region face critical water scarcity challenges.37 Nomadic pastoralism shapes the countys way of life,with 80%of residents relying on livestock for their livelihoods.38 With its location and regional focus,Isiolo is positioning itself as a key regional agricultural trade hub.THIKA METROPOLITAN CLUSTER AND REGIONAL HUB Located within 50 kilometres of Nairobi and with approximately 100 small-scale industries and 50 major factories,Thika is emerging as an important industrial base.The electrification rate of 85%is one of the highest in the country,offering a strong environment for manufacturing.39 Located on major arterial roads,the city is also well positioned as a trade hub,both to the north of Kenya and the coast.35.KNBS.(2019).2019 Kenya population and housing census:Vol IV.Report.36.Amutabi.M.(2017).Captured and steeped in colonial dynamics and legacy:The case of Isiolo town in Kenya.Cambridge University Press.37.ADA Consortium.(2024).Strategic planning for water,energy and climate change-Isiolo County.Blog.38.KCOMNET.(n.d.)Community media mobilizing for accountability in Kenya.Report.39.KNBS.(2019).2019 Kenya population and housing census:Vol IV.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 22/6240.The Republic of Rwanda.(2022).2022/2025-Annex II-1:District Budget.Policy document.41.Paris Peace Forum.(2018).Volcanoes National Park Expansion Program in Rwanda,Africa improved conservation and tourism as a catalyst for community and economic transformation.Media.42.Rwanda Dispatch.(2024).DRC Closes Major Border Post with Rwanda;Petite Barrire Remains Open.Media.43.Ministry of Infrastructure.(2024).Rubavu Port:A Catalyst for Trade,Regional Integration,and Maritime Transport Transformation in Rwanda.Press release.44.National Institute of Statistics.Rwanda Subnational Population Projections by Provinces(20232032)Rwanda20%Unique mobile internet subscribers38%Annual growth rate of LTE(family)connections40.6%Smartphone connectionsMUSANZE REGIONAL HUBMusanze is the provincial administrative hub of Musanze District in Rwandas Northern Province.It is similarly designated as a secondary city and positioned as a provincial centre for administration and tourism,with a growing role in agriculture and higher education.The gateway to Volcanoes National Park Rwandas primary sightseeing attraction more than 40%of Rwandas tourists pass through the city.The areas rich volcanic soil supports high yields of many crops,making agriculture the second biggest driver of economic growth,with 70%of Musanzes population engaged in agrarian activities.Recognising Musanzes importance to the countrys tourism economy,the Rwaza and Kigasa hydropower plants boosted electricity production,and the development of the Mutobo Water Treatment Plant improved access to clean water.40,41 RUBAVUREGIONAL HUBRubavu is a tourism and trade hub on the shores of Lake Kivu.As the starting point of the Congo Nile Trail,the city attracts an average of 50,000 visitors every day through the Petite Barrire border with the DRC.42 As a tourism and trade centre,the district has recently constructed a port to facilitate the flow of 2.7 million people and 700,000 metric tonnes of goods annually.43 Additionally,recent energy upgrades have increased the distribution capacity of Rubavus network fourfold.Rubavu is one of Rwandas six officially designated secondary cities,prioritised in national urbanisation strategies as a hub for trade,tourism and cross-border activity.BUGESERAMETROPOLITAN CLUSTERBugesera has been marked as a priority development zone to decongest Kigali and drive regional growth.Bugesera is planned as a satellite city to Kigali,with its development trajectory shaped by national flagship projects such the Bugesera Special Economic Zone and the Bugesera International Airport.With the population projected to exceed 800,000 by 2032,the city leadership is expanding utility infrastructure and constructing a water treatment plant and electricity lines.44 In Rwanda districts are the main units of local administration with legal and fiscal authority.In national planning,city-related policy often corresponds to a district boundary and naming,and as such these are the descriptions used in this report.BUGESERABUGESERARukiraRukiraKabarondoKabarondoRwamaganaRwamaganaNyamataNyamataNyanzaNyanzaGikongoroGikongoroKaganoKaganoKibuyeKibuyeRutsiroRutsiroMurambiMurambiByumbaByumbaNgaramaNgaramaRukomoRukomoNyagatareNyagatareKabaroreKabaroreRuhengeriRuhengeriButareButareByimanaByimanaMuhangaMuhangaKigaliKigaliNR10NR16NR19NR15NR24NR20NR11NR11NR1NR2NR4Lake Lake KivuKivuNyungwe Nyungwe Forest Forest National National ParkParkMUSANZE MUSANZE RUBAVURUBAVUPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 23/62Figure 6Socio-economic data for the case study citiesHOIMAGULUMBARARAUGANDAMALINDITHIKAISIOLOKENYAMUSANZERUBAVUBUGESERARWANDAPopulation143k233k264k327k285k121k477k547k551k 47k 91k 60k96k50k46k3.8%(20)2.4%(31)3.0%(40)5%(14.4)3.1%(23)6.3%(11)6.3%(11)3.7%(19.5)2.6%(27)3.1%(23)4.3%(17)3.2%(22.5)8.3%5.9.7.26#% 7%N/A502aeXhT44GuXvRb.8wgvgq.3Td118225150 323-7.8.5 .9%N/A103%4%N/A14%-Additional daytime populationAnnual population growth(doubling time,years)Population completed secondary school(across the region)Residents employed in nonagricultural sectorsPopulation with access to grid/electricity*Incubators,accelerators and startup hubsCity contributions to annual revenueSources:5th Population and Housing Census:Rwanda,2022;National Population Census 2024,UBOS;2019 Kenya Population and Housing Census,KNBS;World Bank/IEA SE4ALL/ESMAP Global Electrification Database;GSMAi data;OCA consultations.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 24/62Intermediary cities face a more challenging policy environment than larger cities,operating at lower tiers of government and with a smaller tax base,their level of autonomy and fiscal freedom is often limited.Governance and policy frameworks determine the degree of autonomy,flexibility and coordination that cities can exercise to adopt innovative public service delivery models.These frameworks dictate their autonomy to form partnerships with innovators and the private sector more broadly.Key details of the legislation governing intermediary cities is presented in Figure 7.While there are differences in the level of decentralised powers,the cities in this study share a heavy reliance on central government transfers.The proportion of locally generated revenues varied between the nine cities(4%in Isiolo to 33%in Thika)but generally did not exceed 20%of municipal budgets.In recent years,there has been a much more explicit policy focus on supporting intermediary cities.In Uganda,the Local Government Act grants cities similar autonomy as districts.In Kenya,the Urban Areas and Cities Act(2011)specifically establishes city boards and assigns more autonomous roles to city officials for decision-making.In Rwanda,Organic Law No.29/2005(on Decentralised Administrative Entities)goes only as far as defining administrative entities and structures.45,46,47 These pieces of legislation give cities the ability to design,implement and enforce programmes,regulations and policies in a transparent manner.Stable,effective governance and productive policy frameworks allow for coordination among key stakeholders across both the public and private sectors.Their presence also ensures closer alignment with national goals and consistent policy across different cities.Figure 7National drivers of governance and institutional structures in Kenya,Rwanda and Uganda Uganda Constitution(1995)Local Governments Act(1997)Physical Planning Act(2010)National Development Plan III(2020-25)Uganda Cities and Municipalities Infrastructure Development Progamme(2025)Key legislation and policy Kenya Constitution(2010)County Governments Act(2012)National Urban Development Policy(2016)Urban Areas and Cities Act (2011,revised 2019)2003 Constitution (Revised 2015)Law on Decentralised Entities National Urbanisation Policy Smart City Rwanda Master Plan(2015)National strategies Vision 2040 Vision 2030 Vision 2050 Political wing led by a directly elected mayor Administrative wing led by a town clerk appointed by the central governmentGovernance structure City Board led by chairperson nominated by board members City Board reports to county administration Districts led by a council composed of councillors who elect a mayor Reports to a centrally appointed Provincial GovernorLow with political oversight from national levelLevel of autonomyMedium with political oversight at county levelMedium with political oversight at provincial levelUgandaRwandaKenya45.ACODE.(2020).Creation of New Cities-Congratulations Amidst Concerns.Report.46.ACODE.(2019).Decentralization in Uganda.Report.47.Republic of Kenya.(2011).Urban Areas and Cities Act.Policy document.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 25/62UgandaIn April 2020,Ugandas Parliament approved the creation of 15 new cities.By 1 July 2020,10 were formally gazetted(Arua,Fort Portal,Gulu,Hoima,Lira,Jinja,Masaka,Mbale,Mbarara and Soroti)and a subsequent five formally declared as cities in July 2022.In line with Ugandas National Development Plan III,this effort showcases Ugandas commitment to achieving more balanced and productive urbanisation.The government has a series of objectives associated with the creation of these new cities:Balancing urban development:Kampalas overwhelming dominance in population,GDP output and formal employment is constraining broader economic growth,especially given Ugandas low-income status.With rural-urban migration focused on Kampala,the growth potential of intermediary cities is limited.Unique opportunities for new cities:These include proximity to rural areas for agricultural trade,lower land and labour costs compared to Kampala and potential for regional trade due to strategic location near Ugandas borders particularly interesting for Uganda given that it is a key trading hub in the East African Community(EAC)and Great Lakes Region.Proactive land use planning:Engaging in land use planning before population growth increases further can help policymakers manage density,curb costs and guide liveable growth.Of course,declaring new city status is insufficient on its own.A priority for policymakers in Uganda will be to complement this effort by setting clear governance frameworks that establish authority,accountability and capacity for urban decision-making and implementation.For the local administration of newly created cities,there is an opportunity to increase access to financing by mobilising domestic resources and attracting foreign investment.The recently announced Uganda Cities and Municipalities Infrastructure Development Progamme,which is also supported by the World Bank,builds on the previous Uganda Support to Municipal Infrastructure Development(USMID)programme and will support cities including Hoima,Gulu and Mbarara to implement climate-resilient infrastructure with a focus on waste management,mobility and green jobs.48 48.Monitor.(2025).Cities,municipalities to benefit from new World Bank project.Media.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 26/62KenyaKenyas 2010 Constitution ushered in sweeping devolution,creating 47 county governments to decentralise political power,public finance and service delivery,and ultimately promoting greater equity,accountability and local responsiveness.This devolution was intended to address historical grievances related to centralisation,inequality and uneven service delivery across the country.While the constitutional framework for devolution is largely in place,several challenges have hampered effective implementation:Resource allocation:Ensuring equitable and sufficient funding for all counties remains a challenge.Capacity building:Strengthening the capacity of county governments to manage their responsibilities effectively is crucial.Intergovernmental relations:Navigating the complex relationships between national and county government is especially relevant when county governments are led by political parties that are in opposition to national government.Citizen participation:Fostering meaningful participation of citizens in local decision-making is vital.Kenyas devolution process has made notable gains in establishing subnational institutions,executing recurrent budgets and building platforms for financial innovation.Yet,critical gaps remain in development spending,intergovernmental clarity and citizen engagement.Addressing these through streamlined financing systems,better-defined roles,digitalised systems,participatory governance structures and human resource capacity investments is essential for devolution to deliver better service outcomes.49 49.World Bank.(2022).Making Devolution Work for Service Delivery in Kenya.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 27/62RwandaWithin this broader context,the governments of Rwanda and Uganda have recently taken steps to explicitly designate secondary cities,while Kenyas 2010 Constitution provides a strong foundation for county governments that host intermediary cities.Rwanda launched a long-term urbanisation strategy under the Economic Development and Poverty Reduction Strategy(EDPRS 2)to become a high-income country by 2050.Part of this vision includes expanding its urban network by developing six secondary cities Rubavu,Huye,Rusizi,Muhanga,Musanze and Nyagatare aimed at decongesting Kigali and fostering balanced,green urban growth.The cities were prioritised for their strategic locations and business activity potential and are guided by master plans that provide detailed land use plans for settlement,infrastructure development and green industrialisation.District Development Strategies(DDS)provide roadmaps for district priorities,implementation costs and monitoring systems.They align with national targets for urbanisation(targeting 35%by 2024)and broader development frameworks like Vision 2020/2050,EDPRS II and NST1,as well as Rwandas Green Growth and Climate Resilience Strategy(GGCRS).A recent report from the Global Green Growth Institute provided a synthesis of district development strategies and identified challenges as well as opportunities for the government to build on:50 Opportunities:Integration of green growth strategies in district planning Inclusion of local voices in participatory planning Capacity building and increased ownership at the district level Challenges:Frequent changes in DDS guidelines and formats from ministries and a lack of local ownership Unrealistic cost estimates or overly ambitious targets50.The Global Green Growth Institute.(2022).Mainstreaming Green Growth Into Rwanda Secondary Cities.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 28/622Digital innovation in intermediary cities Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 29/62Innovation ecosystems in the three focus countries are thriving but remain concentrated in capital cities.Nairobi,for example,hosts 38%of Kenyas innovation hubs and in the countrys 2024 Innovation Outlook,88%of interviewees were based there.51 Kigali,Rwandas capital,hosts the countrys largest innovation hubs,including Norrsken Kigali House,Impact Hub Kigali,KLab and 250STARTUPS.While a degree of centralisation is common,and to an extent desirable,for access to people,finance and tools,more attention needs to be given to intermediary cities for startups looking to scale nationally and to ensure sufficient linkages between national hubs and talent and innovators from intermediary and secondary cities.The flagship investments of Konza Technopolis in Kenya and Kigali Innovation City(KIC)are two prime examples of large government investments creating national innovation hubs that blend higher education,industry and the innovation ecosystem.Also notable is that both Konza and KIC are being developed with clear public-private partnership(PPP)frameworks.Such concentrated investments create opportunities for investment in key infrastructure(e.g.data centres and specialist manufacturing),dense networks of companies and funders and knowledge spillover effects all difficult to replicate at a smaller scale.The benefits of clustering startups in national hubs are harder to replicate in smaller cities.However,scaling the adoption of digital innovation requires links to intermediary cities,and there are risks to unbalanced investments in urban development and innovation.Decentralising investment in innovation is essential to providing access to support for talented startups without the means to relocate,as well as to creating more fertile ground for municipalities,businesses and urban residents to adopt digital innovation.Cities with different economic profiles offer opportunities for investment beyond building ecosystems for startup incubation and funding.For example,satellite and corridor cities are potential sites for manufacturing and trade investments.In this study,the Bugesera Special Economic Zone(SEZ)is an example of an intermediary city that encourages manufacturing capacity by offering duty-free imports of machinery and preferential corporate tax rates.Across Africa,the number of SEZs has increased from 20 in 1990 to more than 230 in 2020,with Kenya a leader with 61 legally designated SEZs.52 While African SEZs have not historically delivered as many benefits as other regions,53,54 recent progress on the Africa Continental Free Trade Agreement(AfCFTA)and the supporting Pan-African Payments and Settlement System(PAPSS)widen the scope for the impact of such investments.55Regional hub cities present opportunities for place-based research and development(R&D)investment and investment in anchor institutions to stimulate regional development.In the longer term,these offer paths to clustering effects outside of single national hubs.This is particularly relevant in the East African Community(EAC)and Great Lakes Region,which have significant formal and informal trade flows,and several intermediary cities strategically located near country borders.In 2023,trade within the EAC accounted for approximately 15%of the regions total trade,which is slightly higher than in previous years,according to the East African Business Council.While there are clear benefits to creating national and continental innovation hubs,urban populations will only reap the full benefits through more balanced trade and investment strategies built on the comparative advantages and place-based nuances of a city.51.KENIA.(2024).Kenya Innovation Outlook 2024.Report.52.UNCTAD.(2021).Handbook on Special Economic Zones in Africa.Report.53.World Bank.(2011).Special Economic Zones in Africa:Comparing Performance and Learning from Global Experience.Report.54.Rodriguez-Pose,et al.(2022).The challenge of developing special economic zones in Africa:Evidence and lessons learnt.Regional Science Policy&Practice55.UNIDO-AEZO.(2024).Characteristics,trends,and way forward for Special Economic Zones in Africa.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 30/62This section presents an overview of the digital innovation ecosystems in the three focus countries and the key opportunities for innovators,before turning to the factors that hinder and enable adoption in intermediary cities.To ensure that intermediary cities do not continue to fall behind larger,centralised cities,the factors and constraints influencing the success and scalability of innovative ecosystems in each country must be addressed.2.1 Digital innovation ecosystems in Kenya,Rwanda and Uganda Between 2019 and 2024,African tech startups raised more than$19 billion in funding.While an impressive figure for an emerging ecosystem,in absolute terms and per capita this figure is considerably lower than other parts of the world.Venture capital(VC)funding to African startups is concentrated in the“Big 4”Nigeria,Kenya,South Africa and Egypt which between 2019 and 2024 accounted for close to 80%of all funding to tech startups,many of which operate on a regional or continental level.Alongside this geographical concentration,approximately half of all VC funding to African startups in this period went to one sector fintech reflecting the need and opportunity to scale digital financial services.Funding for startups in the focus countries reflect continent-wide trends.Kenya,by far the largest of the three in terms of deal count and funding,is notable for hosting some of Africas leading off-grid energy providers.Recently these pay-as-you-go(PAYG)energy providers have secured large,securitised debt deals to scale off-grid energy both regionally and within Kenya.Rwandas tech startup ecosystem is notable for its growing focus on e-mobility,in line with a concerted push in government policy to make Rwanda a regional centre for e-mobility.Ugandas funding trends more closely mirror the continental profile with fintech dominating,followed by funding for essential services(energy,water and transport)and agriculture.Figure 8Venture capital funding to African tech startups Venture Capital Funding to African Tech Startups20142016202020172018201520192021202420222023DealsCompaniesMedian deal value800$2m00781$1.8$1.1532390Count of deals/companiesPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 31/62Kenyas tech startup ecosystemFigure 9Funding to Kenyan tech startups,20192024 Source:Africa:The Big DealBy sector,$millionsTop companies,$millionsClimate Tech focusedGeneralClimate TechGeneralLogistics&TransportEnergy&WaterFintechOther Agriculture&FoodRetail0500100020001500Basigo(Transport)Twiga Foods(Agri)Wasoko(Retail)Gro Intelligence(Agri)Copia Global(Retail)SunCulture(Energy/agri)DPO Group(Fintech)Sun King(Energy)M-Kopa(Fintech)d.light(Energy)8006004000200Kenyas startup ecosystem is growing,driven by a strong network of innovation hubs and diverse funding sources.Kenya ranks 58th globally and second in Africa for the strength and development of its startup ecosystem.56 This is largely due to its vibrant entrepreneurial environment,which hosts more than 50 innovation hubs,incubators and accelerators.57 Nairobi,Mombasa,Uasin Gishu,Kisumu and Nyeri are home to more than half of the countrys innovation hubs.To encourage a similar ecosystem across the country,the government is establishing more than 1,500 Constituency Innovation Hubs through the Constituency Innovation Hubs(CIH)Project.There are 420 so far,facilitating business growth,peer learning and networking.Between 2019 and 2024,342 Kenyan tech startups collectively raised$3.7 billion.58 Notable investors include Kepple Africa Ventures,DOB Equity,Factor(e),Novastar,Acumen,and Founders Factory Africa.59 In 2024 alone,Kenya attracted more than$650 million in startup funding driven by large debt deals in Climate Tech,notably investments in d.light,BasiGo and SunKing.60 Commercial banks,such as the National Bank of Kenya,are also increasing access to capital,particularly in high-impact sectors like water,sanitation and hygiene(WASH).So far,the National Bank has deployed KES 2 billion($15.5 million)in the water sector.The highest uptake is in extraction,primarily for drilling,followed by working capital.Public universities are playing a key role in the innovation ecosystem by translating research into market-ready solutions.Science parks like the one at Dedan Kimathi University of Science and Technology,innovation hubs like Fablabs at the University of Nairobi and the Chandaria Innovation Center at Kenyatta University,are strengthening the innovation ecosystem in Nairobi.In intermediary cities,examples include Mount Kenya Universitys Innovation and Incubation Centre in Thika and the University of Eldorets Directorate of Research and Innovation.Mobile operators are driving digital innovation by expanding access to mobile payments,IoT solutions and next-generation network technology.Safaricom,through its Daraja portal,provides open application programming interfaces(APIs)that allow startups,developers and businesses to seamlessly integrate M-PESA for payment processing.This has fuelled the growth of e-commerce,fintech and digital services.Additionally,Safaricom,in partnership with Sumitomo Corporation,has launched Spark Accelerator Program.Implemented by iHub,the programme supports and scales commercially viable startups that generate positive social impacts.56.StartupBlink.(2025).The Global Startup Ecosystem Index Report 2025.Report.57.UNDP.(2022).Mapping the innovation ecosystem in Kenya.Report.58.Authors analysis of Africa:The Big Deal data59.Disrupt Africa.(2022).The Kenyan Startup Ecosystem Report.Report.60.Africa:the Big Deal.(2025).Kenya&East Africa in the lead again in 2024.Blog.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 32/62Rwandas tech startup ecosystem Figure 10Funding to Rwandan tech startups,20192024 Source:Africa:The Big DealBy sector,$millionsTop companies,$millionsClimate Tech focusedGeneralLogistics&TransportEnergy&WaterOther Retail010204030Eden Care(Healthcare)Viebeg(Healthcare)Hence Technologies(Services)OX Delivers(Tranport)Get It(Logistics&Transport)Souk Farms(Agri)PayDay(Fintech)Ampersand(Transport)Kasha(Retail/health)Bboxx(Energy/fintech)40200Climate TechGeneralThe growth of Rwandas startup ecosystem can be attributed to favourable policies such as the Startup Act,the presence of accelerator programmes and incubation hubs and increased funding opportunities.This growth is more recent than other countries 60%of all funding since 2019 was in 2022 alone,thanks to investments in Ampersand,Bboxx and Kasha.61 Since 2019,just over$100 million has been invested in Rwandan tech startups,from firms including Angaza Investment Management,H2O Venture Partners,Seedstars and Renew Capital.The government has also worked closely with development partners to establish innovation hubs,known as Hanga Hubs,in Rubavu,Musanze and five other intermediary cities.The country seeks to have 20 such hubs by 2029 and one in each 30 districts by 2050.These hubs support innovative ideas by providing co-working space,entrepreneurship lessons and modern technology such as 3D printers and laser-cutting machinery to innovators in the ideation stage.Since 2021,more than 200 tech startups have participated in the annual pitch competition,Hanga Pitchfest,and more than RWF 600 million(approximately$428,000)in funding has been disbursed to innovative ventures.Other innovation hubs and collectives are supporting early-stage ventures by providing mentorship,networking opportunities and funding.Norrsken hosts Rwandas largest co-working hub and accelerator programme,connecting entrepreneurs to investors.With more than 1,000 entrepreneurs,Norrsken House Kigali provides access to shared resources.At the same time,Norrsken 22,an investment fund,improves access to funding for local entrepreneurs and has so far raised$205 million to invest in tech companies in Africa.Other notable centres include Kigali Innovation Citys(KIC)Smart Mobility Lab,a collaboration between Volkswagen,GIZ and Carnegie Mellon University Africa,which seeks to promote digital solutions that help decision-makers and mobility providers improve their services.62Targeted policy updates have accelerated 4G adoption and attracted investment in connectivity infrastructure.As part of the countrys updated National Broadband Policy and Strategy,in 2022 Rwanda moved away from a single wholesale network model and allowed mobile operators to reframe spectrum bands so they could be used in parallel with other technologies.As more mobile operators then entered the market,the adoption of 4G services increased significantly,jumping from just 2%in 2022 to 30%in 2024.6361.Authors analysis of Africa:the Big Deal data62.Carnegie Mellon University Africa.(2024).Smart Mobility Lab launched.Press release.63.GSMA.(2024).Abandoning its single wholesale network unlocks significant con-nectivity growth for Rwanda.Blog.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 33/62Ugandas tech startup ecosystem Figure 11Funding to Ugandan tech startups,20192024 603020104050Source:Africa:The Big DealBy sector,$millionsTop companies,$millionsClimate TechGeneralClimate Tech focusedGeneralLogistics&TransportEnergy&WaterFintechOther Agriculture&Food050100150Safeboda(Transport)Grainpulse(Agri)SolarNow(Energy)Zembo(Transport)Rocket Health(Healthcare)Solar Sister(Energy)Numida(Fintech)Tugende(Fintech/transport)Asaak(Fintech/transport)Watu(Fintech/transport)0Ugandas innovation ecosystem is increasingly well supported,with private sector resources equipping entrepreneurs with tools and networks.Ugandas ICT sector employs 2.3 million people and represented 2.5%of GDP in 2023.64 However,accounting for unrecorded activity,the sectors actual contribution may be as high as 9%with year-on-year growth of 14%,outpacing overall GDP growth by three times.65 Uganda hosts more than two dozen unique entrepreneurial support organisations that provide resources,mentorship and collaborative spaces for co-working in Kampala and across intermediary cities.Examples include The Innovation Village(TIV),which is helping to decentralise access to entrepreneurial support with four hubs across the country,including in Gulu and Mbarara.TIV has a community of 140 startups that have collectively raised more than$3 million.It has fostered successful startups such as SafePay,a fintech offering payment solutions for public transit,and Xente,an e-commerce platform providing tools for businesses.66Between 2019 and 2024,Ugandan tech startups collectively raised$183 million in funding from investors,including Goodwell,Iungo Capital,Verdant Capital and Y Combinator.More than in Kenya and Rwanda,investments in Uganda have favoured fintech,with a few leading companies accounting for the majority of investment in the ecosystem.It is notable that three of these companies Tugende,Asaak and Watu all focus on lending for motorcycles as their primary business.Businesses are spearheading initiatives such as accelerators,incubators and hackathons to build capacity and foster innovation.For example,Stanbic Bank Uganda runs the Stanbic Business Incubator offering training,funding opportunities and a sandbox environment for innovators in the financial services sector.These programmes have been extended to reach entrepreneurs beyond Kampala as well,with regional incubators set up in cities like Hoima and Mbarara.67 In recent years,MTN Uganda and Airtel Uganda have been driving innovation through open APIs,such as MTN Mobile Money(MoMo)APIs and the Airtel Developer Platform.These platforms have enabled businesses to integrate financial services in their models,enabling them to capture revenue,grow and scale.64.MoICT&NG.(2023).Digital Transformation Roadmap 2023/2024 2027/2028.Policy document.65.NITA-Uganda.(2023).National Information Technology Authority-Uganda:Statistical Abstract.Report.66.GIST IHub:Uganda The Innovation Village,”GIST,2018,Link67.Chimpreports.(2019).468 Entrepreneurs Graduate from Stanbic Business Incubator.Media.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 34/622.2 Key opportunities for digital innovation in intermediary cities The best opportunities for digital innovation in intermediary cities can be found in the ventures already operating in Africa and continental funding trends.Between 2019 and 2024,African fintechs raised$8.8 billion in funding,making it the single biggest tech sector funded with just under half of all funding to tech startups in Africa.68 However,Climate Tech solutions(taken together as a sector)raised a total of$4.3 billion,making it the second largest sector and representing just under a quarter of all funding.Energy,and decentralised energy in particular,accounted for the largest share,with other notable sectors including transport and e-mobility,agritech,water and waste management.Core Climate Tech solutions and companies are building the foundations for liveable cities.Alongside the need,intermediary cities provide opportunities to scale a business.For off-grid energy providers and those providing productive use equipment,urban economic hubs with chronic power shortages are an attractive entry point.Solar companies can make their PAYG business model economically sustainable much faster than they could in larger centres.Urban households and small businesses have relatively higher levels of demand and ability to pay.A recent PAYG pilot by Bboxx,DFID,Shell Foundation,USAID and Power Africa in Goma,DRC,revealed that average revenue per user(ARPU)from Bboxx customers in Goma were“4x greater than the average off-grid solar customer in East Africa”.69 While purchasing power in intermediary cities is generally lower than in capital cities,it is higher than in surrounding rural areas,making intermediary cities important hubs for off-grid and decentralised services with rural and urban applications,as well as those in agricultural value chains.The concentration of economic activity in intermediary cities also makes them favourable sites for business-to-business(B2B)models to scale,particularly fintechs seeking to fill asset financing gaps or providing much-needed working capital to micro,small and medium enterprises(MSMEs).The remainder of this section considers the opportunities for intermediary cities in these sectors.Decentralised energy and the productive use of energy Access to energy is a major bottleneck for intermediary cities and the development of their digital economies,and the off-grid sector has been driving access in all three focus countries.Today,more than 85%of those without energy access live in African countries,making it critical to rapidly scale up access to achieve Sustainable Development Goal(SDG)7 and enable households and businesses to be productive.70 Energy access in intermediary cities is consistently lower than in capital cities,where businesses operate with either no electricity from the grid or an intermittent supply.Kenya,Rwanda and Uganda and East Africa more broadly have been centres for the PAYG solar sector,and off-grid access now accounts for a significant proportion of energy access in these countries.In intermediary cities,decentralised solutions are often needed as much to stabilise and make power affordable.Access to energy in Rwanda stands at 82%with 57%on-grid connections and 25%off-grid connections.71,72 In Uganda,off-grid sources now account for most energy access with 29%of the population having access to mini-grids of stand-alone solar,compared to 28%of the population connected to the grid.73 While there is much to celebrate,key challenges remain.Mini-grid tariffs are often higher than subsidised grid provision,grid outages pose a key challenge for hybrid and battery-reliant solutions,and caps in contract duration(e.g.5 years for centralised systems in Rwanda)can deter long-term investment.68.Based on Africa:The Big Deal data 69.GSMA.(2024).Why off-grid energy providers are increasingly paying attention to urban areas insights from the DRC and beyond.Blog.70.IEA.(n.d.)Access to electricity.Webpage.71.Rwanda Energy Group.(n.d).Electricity Access.Webpage72.World Bank.(2024).Ingredients for Accelerating Universal Electricity Access:Lessons from Rwandas Inspirational Approach.Media73.Ministry of Energy and Development/GOGLA.(2024).National Road Map on Scaling Up Productive Use of Solar Energy.ReportPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 35/62Figure 12African Climate Tech ventures by sectorForestry&land use venturesEnergy access&power generation venturesBuilding cities,industries and appliances venturesLow-emission transport venturesAgri-Food TechWaste ManagementEnvironmental ProtectionBlue TechCarbonDecentralised Energy AccessEnergy ManagementRenewablesEnergy StorageCold Chain&Supply ChainAlternative MaterialsWater and SanitationConstruction TechApplianceTechSharing Economy vs.Mobility InfrastructureSmart Mobility&Logistics Optimization0301506090120N Climate Tech Ventures14255161551152019918104134424Source:Briter.(2025).Climate Tech Venture Landscape In Sub-Saharan Africa:Data-driven assessment of the climate tech ecosystem in SSAIn Uganda,off-grid sources provide the majority of energy access,and more solar units have been sold in Kenya than anywhere else on the continent.There are more than 400 companies in Uganda providing solar home systems(SHS),mini-grids and solar thermal solutions.Notably Village Energy,Sun King,Solarika Energy and Equatorial Power.In the second half of 2023 alone,more than 250,000 solar home kits were sold in Uganda,along with nearly 8,000 solar-powered appliances such as TVs,fans and refrigerators.74 In 2023,more than 1.2 million off-grid solar home kits were sold in Kenya,approximately a third of all sales in Sub-Saharan Africa.75 The success of the industry has prompted companies to diversify their offering to appliance and smartphone financing,and using their reach to expand into fintech.These companies have found success in both rural and urban markets,which is significant as many urban residents lack access to the grid.The success of the off-grid industry has been driven by enabling policies and direct support from government programmes.Rwandas 2013 EDPRS II included power source diversification as a key objective,and the government has since signed Memoranda of Understanding(MoUs)with 27 private companies,including Bboxx,BUIM,Ignite Power and Hello Renewables,to increase the supply of off-grid SHS.In 2023,the Ugandan government revised its energy policy to integrate off-grid solar solutions in the national electrification plan,cementing regulatory and tax incentives such as VAT exemptions on solar panels to drive private-sector involvement.76 Similar VAT exemptions are in place in Kenya and Rwanda and have been key to making solar products more affordable.77 For example,taking advantage of the zero-rated VAT and import duty exemptions on renewable energy equipment,the$6 billion Rwaza Hydropower Plant developed through a partnership between 74.GOGLA.(2022).National Road Map on Scaling Up Productive Use of Solar Energy.Report.75.Based on GOGLA sales data 76.International Energy Agency.(2023).Uganda 2023:Energy Policy Review.Report.77.GOGLA.(2024).Kenya-country brief.Report.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 36/62DC Hydropower Limited,Frontier Energy,Carbon Energy Fund and responsAbility Renewable Energy Holding now operates on a 25-year power purchase agreement(PPA)with REG,feeding Musanze and the grid 2.6 MW of run-of-the-river hydropower and providing a stable power supply to local industries.78A mix of off-grid and on-grid energy solutions are increasingly being formalised through partnerships,such as the Utilities 2.0 Twaake pilot in Uganda that saw Umeme(former Ugandan distribution company)deploy its distribution network to support mini-grid systems.This pilot,which combined productive use deployment with a mix of off-grid and on-grid energy,saw the levelized cost of electricity fall by more than 60%,demand increase by 3,000%and local business revenues increase by 68%.79 Electric mobility Rwanda,Uganda and Kenya are rapidly positioning themselves as continental leaders in e-mobility by combining ambitious policy targets with active private-sector participation.Rwanda has pioneered a supportive regulatory framework,including tax exemptions on EVs and charging equipment,and has attracted innovators like Ampersand and Safi to scale electric motorcycle and battery-swapping models.In November 2024,the Government of Rwanda announced that beginning in 2025,only e-motorbikes would be eligible to register as motorcycle public transit operators in the City of Kigali;and the recently published National Transport Policy and Strategy frames EV adoption within Rwandas broader decarbonisation goals.80 Ugandas 2024 National E-Mobility Strategy sets one of Africas most ambitious transition goals full electrification by 2030 backed by VAT exemptions,public procurement pilots and the expanding presence of firms like Zembo,Gogo Electric and Spiro.Kenya has leveraged its abundant renewable energy mix and early-stage incentives to attract companies such as Basi-Go,Roam and Ampersand,which are piloting battery-swapping and lease-to-own schemes in cities like Nairobi and Kisumu.Collectively,e-mobility startups in the three countries have raised more than$153 million in funding,with Kenya leading the way with more than 10 e-mobility companies funded between 2019 and 2024.Together,these countries are not only shaping East Africas e-mobility market,but also setting precedents for how policy,infrastructure investment and business innovation can accelerate the shift to clean transport across the continent.Figure 13Incentives for electric mobility RwandaImport tax exemption and zero-rated VAT for electric vehicles,spare parts,batteries,and charging station equipmentPreferential 15%corporate income tax for manufacturing and assembling EVsTax holidays for investors in e-mobility to encourage further investmentPreferential parking and restricted zones for EVs and green vehiclesRent-free land for companies setting up charging station infrastructureGovernment regulation imposing age limits on the importation of non-EV vehicles and use of EVs by governmentEV incentivesSource:“Strategic Paper on Electric Mobility Adaptation in Rwanda”Ministry of Infrastructure,Link78.World Bank.(2024).Energizing Rwandas Development.Report.79.Microgrid Knowledge.(2025).Final Results:Ugandas Twaake Minigrid Pilot.Media.80.Republic of Rwanda.(2021).National Transport Policy and Strategy for Rwanda.Policy document Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 37/62Intermediary cities in East Africa,such as Kisumu in Kenya and Gulu and Mbarara in Uganda,are fast becoming proving grounds for e-mobility innovation,offering conditions that are nimble enough for experimentation yet large and connected enough to demonstrate market viability.These cities sit at a sweet spot between the complexity of national capitals and the small-scale limitations of rural areas,making them ideal for testing context-specific technology and business models.81,82 However,e-mobility startups in these markets face a distinct combination of constraints.Infrastructure remains the most immediate challenge.Kisumu,despite being home to pilots by companies like Roam and Ampersand,still relies on a small number of solar-powered charging hubs located far apart,limiting the companies operational reach.In Mbarara,Uganda,where companies such as Zembo,Gogo Electric and Spiro have been setting up swap networks,there were just four battery-swapping stations at the end of 2024,while Gulu,a major northern hub,had none.This scarcity makes it difficult for riders to confidently switch from petrol motorcycles,especially in the informal boda-boda sector where downtime directly translates to lost income.Unreliable electricity grids compound the challenge.Peri-urban Kisumu experiences periodic outages,while in Gulu and Mbarara power cuts can last hours,disrupting battery-charging schedules and diminishing user trust.Companies like Zembo have experimented with integrating solar panels at swap stations to reduce reliance on the grid,but scaling such solutions requires significant capital investment.While a defining feature of the early African EV market is the prevalence of vertically integrated businesses supplying vehicles and charging service recent years have seen the emergence of a small number of companies focused on providing charging networks alone;a key example from within the focus countries being EVChaja in Kenya.High upfront costs for electric two and three-wheelers have also slowed adoption,even where operational savings are compelling.In Kisumu,the price tag for an electric motorcycle from suppliers such as Roam or Ampersand remains prohibitive for most riders,who often operate with razor-thin margins.While some firms experiment with lease-to-own models where riders pay a daily or weekly fee that includes battery swaps affordable credit remains scarce.In Uganda,financing constraints are similarly acute,with high loan default rates in Gulu deterring microfinance institutions from entering the sector.In contrast,Mbararas denser motorcycle market(726 bikes/km)and lower default rates create better conditions for commercial viability,explaining why Gogo Electric and Spiro have prioritised swap station expansion there.Social acceptance and awareness,although improving,remain mixed.In Kisumu,many boda-boda riders are still unconvinced about the reliability,range and maintenance needs of EVs.In Uganda,awareness is notably higher 98%in Mbarara and 88%in Gulu have heard of e-boda services but riders remain wary of technology unfamiliar to their mechanics and peers.Here,companies like Zembo have invested in rider education and free trial schemes,allowing operators to experience fuel cost savings first-hand before committing.Maintenance and parts supply are also weak links.In both contexts,trained EV mechanics are few,spare parts are often imported and downtime from mechanical issues can last days or weeks.Some companies are starting to address this Ampersand trains local technicians in Kisumu while Gogo Electric partners with vocational institutes in Mbarara but these are still early-stage efforts.Policy frameworks are emerging but uneven.In Kenya,tax and duty reductions and the creation of an E-Mobility Taskforce are important steps,yet there is still no comprehensive regulatory framework covering vehicle certification,safety standards or the licensing of swap infrastructure.In Uganda,the 2024 National E-Mobility Strategy sets ambitious targets complete transition by 2030,and more than 3,500 public chargers and 10,000 fast chargers by 2040 and provides VAT exemptions for EVs and related equipment.However,inconsistent enforcement,outdated traffic regulations and unclear harmonised system codes for EV imports create uncertainty for investors and operators alike.Despite these barriers,intermediary cities are fertile ground for innovative business models.In Kisumu,battery-swapping pilots by Roam and Ampersand are testing the economics of clustered swap hubs in high-demand corridors,often paired with lease-to-own motorcycle schemes.Public-private partnerships such as collaborations between city authorities and local solar firms 81.Martins,J.(2025)Electric mobility initiatives in Kisumu.Sustainable Earth Reviews.82.Courtright,T.(2025).A Study on the Business Cases for E-Mobility(2-and 3-Wheelers)in Two Major Cities(Mbarara and Gulu)in Uganda with a Focus on Gender.ReportPriming Urban Development:Digital Innovation in East Africas Intermediary Cities 38/62are emerging to fund off-grid charging solutions,potentially leapfrogging unreliable grid connections.In Uganda,three distinct business cases are gaining traction.First,battery swapping for e-bodas in Mbarara leverages the citys dense rider base and growing swap network,with potential for womens employment as station operators,mechanics and sales agents.Second,local government procurement of e-motorcycles for fleets used by police,public health officers and district staff offers a high-visibility,lower-risk pathway to demonstrate performance,with women in administrative and mechanical roles supported by training from companies like Gogo Electric.Third,in Gulu,flat terrain and a strong agricultural economy make electric cargo tricycles a promising fit for farm-to-market transport.Here,women-led savings and credit cooperative organisations and cooperatives could play a leading role in fleet ownership and management.The gender dimension is particularly pronounced in Uganda,where Gulu has shown relatively higher cultural acceptance of women riders,and targeted initiatives such as vocational EV maintenance training for women are building pathways into what has been a male-dominated sector.By contrast,in Kisumu,gender inclusion is not yet a prominent part of e-mobility strategies.Ultimately,these intermediary cities illustrate how innovation can emerge in constrained environments:by clustering infrastructure in demand hotspots,integrating renewables in charging systems,tailoring financing to informal sector realities and embedding local capacity building from the outset.If Kisumu,Gulu and Mbarara can leverage their adaptable scale,strategic locations and growing local expertise,they could become key hubs for scaling e-mobility solutions across East Africa,demonstrating that some of the most valuable transport innovations may be born in cities that are neither the largest nor the wealthiest,but the most agile.Waste management and sanitation A severe lack of infrastructure and increasing waste flows have made effective waste management an urban challenge across East Africa.Intermediary cities are experiencing rapid population increases,resulting in higher volumes of solid waste.However,management infrastructure and systems have not kept pace.In Kenya,only 10%of generated waste reaches designated disposal sites.This is a result of insufficient infrastructure,limited financial and technical capacity at both national and local government levels and weak enforcement.83 A similar trend exists in Uganda,where only 8.4%of the 10.2 million tonnes of waste generated annually is properly disposed of.84 Meanwhile,in Rwanda only 10%of the countrys 1.5 million tonnes of waste is properly managed.Private companies are beginning to recognise the opportunity.For example,Enviroserve Green Park Rwanda is a pioneer in e-waste recycling and management in East Africa,setting an example for other operators,including Enviroserves Kenyan entity.The Enviroserve Rwanda waste electrical and electronic equipment(WEEE)recycling plant can handle more than 10,000 tonnes annually,equivalent to 70%of all e-waste generated nationally.85 In Gulu,public entities like the National Water and Sewerage Corporation(NWSC)and private companies such as TakaTaka Plastics and Yo-Waste,launched the Integrated Catchment Management Partnership to improve waste management through a mobile app that enables residents to schedule collections.86 Sanivation,a company focusing on faecal waste,are pioneering efforts to develop replicable PPP models for intermediary cities.In the sanitation sector,revenues in line with ability to pay are very often insufficient to cover full operating costs.To address this issue,Sanivations PPP models create a clear space in agreements for public CapEx investments that effectively subsidise the service,enabling affordable cost-recovery tariffs.87Progress in e-waste management remains slow in other East African countries due to high collection and processing costs,limited financing for innovators and the early-stage nature of the recycling industry.Recognising these opportunities,some countries have begun to respond with targeted initiatives,including allocating dedicated funding and reclaiming land previously lost to unmanaged waste.For instance,the Government of Rwanda launched a plastic waste 83.Fie Consult.(2023).State of solid waste management in Kenya.Report.84.UBOS.(2024).National Population Census 2024.Report.85.Republic of Rwanda.(n.d.).Country Status on E-waste management.Report.86.NatuRes.(2022).The Gulu Integrated Catchment Management Partnership.87.GSMA.(2023).Success in partnership and planning:Sanivations evolving circular sanitation model in Kenya.Blog.Priming Urban Development:Digital Innovation in East Africas Intermediary Cities 39/62management fund in partnership with the Private Sector Foundation in 2021.Since its establishment,the fund has enabled the collection and processing of more than 1,500 metric tonnes of plastic waste and created more than 1,300 jobs,including at Nduba landfill,which now hosts a waste sorting and separation centre and a biowaste treatment facility.In contrast,the perception of waste as“tomorrows problem”persists in Uganda,since it is often out of sight with minimal detrimental impacts on daily life.While the country generates close to 600 metric tonnes of plastic waste daily,only 6%is collected,mostly by private sector actors.This highlights a significant gap and presents an opportunity for scalable innovations in waste management should resources and attention be properly allocated.Digitalisation of government servicesThere is a key opportunity to strengthen local fiscal autonomy and governance by digitalising government services.The e-government offering in all three focus countries is expanding.Notably,Rwandas e-government platform,Irembo,allows citizens to access government services online,while digital tax collection tools have enhanced public sector efficiency and transparency.In Uganda,Gulu has implemented the Integrated Revenue Administration System(IRAS),an online platform and mobile app that enables transparent and efficient government revenue collection.These platforms create a clear way to support the adoption of digital solutions.Particularly important are digitalisation initiatives that support local revenue collection.Digitalising local tax collection,particularly property and business rates and trade-related taxes,provides municipalities with a route to greater fiscal autonomy.UN-Habitats rapid own-source revenue analysis(ROSRA)tool is a key example of a foundational tool for understanding gaps in local revenue collection,and was developed through work with Kenyan municipalities.Initiatives in East Africa also include the Africa Urban Lab,which has developed tailored research products and training for municipal staff.An example from outside the focus countries is Freetowns digitally supported property tax reforms.Satellite images and aerial drone photographs were used alongside geospatial data and ownership information to update the citys property register.This led Freetown to double its number of registered properties to 120,000 in just one year.Similarly,in Kampala,digital tools were central to adding 300,000 geotagged properties to the tax register since 2014.88 With more than$133 million worth of goods moved via Lake Kivu unofficially in 2022,Rubavu invested in a port in 2022 that included a“one-stop shop”to simplify customs clearan
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