Saturday, January 26, 2013

International Development: World Bank Helps Tackle Rapid Urbanization

By J C Suresh | IDN-InDepth NewsReport

TORONTO (IDN) - Developing countries are urbanizing so fast that their populations will tilt from less than 20 percent urban today to more than 60 percent in just 30 years. This is in stark contrast to the mostly gradual transformation today’s developed countries experienced as their cities expanded over a period of 100 years or more with jobs shifting from farms to factories.

Developing countries cannot afford today’s developed countries’ luxury of trial and error in growth patterns and policies. To meet the challenges that rapid migration is creating, city leaders must move quickly to plan, connect, and finance resilient and sustainable growth. A new World Bank report, Planning, Connecting and Financing-Now: What City Leaders Need to Know, provides a framework to assist in this huge task.

It provides the framework for city leaders to figure out now how to provide the affordable homes, transportation, jobs, and basic infrastructure and services necessary to support already ballooning urban populations, and how to do so with the least impact on the environment and prepare for increasing vulnerabilities stemming from climate change.

“City leaders at all levels must start now with careful land use planning that looks well into the future for the sake of their city’s economy, equity, and sustainability. How they prepare for rapid urbanization matters not only to the future of their cities but to global economic progress,” said report author Somik Lall, lead urban economist at the World Bank.

The report’s urban development framework is based on three dimensions: charting a course for cities by setting the terms of urbanization, particularly policies for using urban land and expanding basic infrastructure and public services; making a city’s labour, goods, and services available across the city and to other cities and export markets; and finding the up-front capital to provide infrastructure and services as urbanization picks up speed.

The report’s authors find that of the three elements, planning and connecting are most critical. Planning for land use and basic services is the crucial to cities growing efficiently, cleanly, and inclusively and to avoiding locking in detrimental development patterns.

The report discusses policies for providing public goods and basic infrastructure services and for clearly defining property rights and determining land values to mediate between demand and supply. It also explains the need for policies to govern the intensity of land use and to manage its integration with infrastructure development – especially transportation.

Once built, urban infrastructure will determine how a city’s land can be used in the future, says the report. Aligning land use and infrastructure can also help promote inclusion and manage the formation and growth of slums. In Tunisia, a national upgrading program reduced slum housing from 23 percent in 1975 to 2 percent in 1995 of the overall housing stock. National utilities helped make the program a success through large investments in water and sewer infrastructure that upgraded informal settlements.


The report stresses that upfront costs of infrastructure will always be an issue for cities. This is because building mass transportation, water treatment, and waste management systems far exceed most cities’ budgets.

To help finance investments in infrastructure, the report spells out three main tasks for city leaders:

- Value and develop the city’s creditworthiness. “Creditworthiness can be demonstrated by securing cash flows through user fees and taxes – and, where necessary, by raising revenue through leveraged assets. It is also possible to tap capital markets, either by issuing bonds or by borrowing from specialized financial institutions and intermediaries,” says the report.

- Coordinate public and private finance using clear and consistent rules. “With enough assurance that commitments are firm, public-private partnerships can reduce the fiscal burden of infrastructure improvement projects,” advises the report.

- Leverage existing assets to develop new ones, linking both to land use planning. “Leveraging can include land and property taxes, land sales and leases, charges for impact and development, betterment levies, and tax-increment financing,” says the report.

The report cites the experience of Lima in Peru. When the city sought a loan to develop infrastructure, it first received donor-supported technical assistance to apply for a credit rating from an international rating agency. It secured a $70 million commercial bank loan, which took it a step toward securing long-term financing with affordable debt service that would allow it to still cover critical operating expenses. The loan was partially backed by a $32 million guarantee from the International Finance Corporation.

The report points out that many city governments in developing countries cannot access long-term credit because they lack domestic credit markets and transparency in municipal bond markets. It adds: Private investors can help fill the gap, such as through service contracts, management contracts, leases, and privatization. “In the long run, though, governments must tap revenues, such as property taxes, or similar levies, and access long-term credit, to fund the maintenance and expansion of public facilities,” the authors write.

The recommendations and case studies in the report are drawn, in part, from a series of urbanization reviews conducted by the World Bank. Included are lessons from reviews in seven countries – Brazil, China, Colombia, India, Indonesia, Korea, and Vietnam – touching on issues including land ownership, housing supplies, transportation costs, and providing basic services.

“By fostering a concentration of people and economic activities in small areas with policies that promote inclusion, sustainability, and connections, cities can transform economies, enabling social and economic interactions and creating a vibrant market for ideas that translates into innovations by entrepreneurs and investors,” advises the report. [IDN-InDepthNews – January 24, 2013]

2013 IDN-InDepthNews | Analysis That Matters

Photo: Bus and traffic lanes. Marianna/Creative Commons