The Twenty First Century Asia Becomes Urban

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The Twenty First Century Asia Becomes Urban

• RAKESH MOHAN
• DEPUTY GOVERNOR
• RESERVE BANK OF INDIA

Presentation at the Urban Symposium The World
Bank, Washington, December 2003
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Contents

• Urbanization A Recent Phenomenon
• Asia Becomes Urban
• We Have Coped Well
• Asian Urbanization The New Challenges
• Elements of a New Approach

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Contents

• Urbanization A Recent Phenomenon
• Asia Becomes Urban
• We Have Coped Well
• Asian Urbanization The New Challenges
• Elements of a New Approach

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Urbanization A Recent Phenomenon (1)
Source UN, 2002
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Urbanization A Recent Phenomenon (2)

• Urbanization has a positive link with
• Economic Development

Source Mario Polese, Pamela Echeverria and Mila
Freire, 2002
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Indias economic growth has been led by urban
areas
Urbanization A Recent Phenomenon (3)

• India has become increasingly urban
• 1981 23 per cent
• 2001 29 per cent
• Economic growth led by urban areas industrial
  and service sectors accounted for
• 1981 62 of GDP
• 2001 gt 75 of GDP
• More urbanized states recorded high growth rates
• Tamil Nadu
• Maharashtra
• Karnataka
• At the local level, larger cities in faster
  growing states have grown rapidly
• Chennai (services)
• Ludhiana (industries)
• Mumbai, Bangalore (industries cum services)

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Urbanization A Recent Phenomenon (4)
Global Urban population will be mainly from
Developing countries
Source UN, 2002
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Urbanization A Recent Phenomenon (5)

• Center of Urban population moving South

Source UN, 2002
No of Cities 198 Mean Latitude - 34
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Urbanization A Recent Phenomenon (6)
Emergence of Mega Cities
In 1950, only one city with a population of over
10 million In 2015, 21 cities expected to reach
10 million population
Source UN, 2002
Note Urban agglomerations with gt than 1 mn
population
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Urbanization A Recent Phenomenon (7)
Emergence of Mega Cities
Source UN, 2002
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Contents

• Urbanization A Recent Phenomenon
• Asia Becomes Urban
• We Have Coped Well
• Asian Urbanization The New Challenges
• Elements of a New Approach

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Asia Becomes Urban (1)
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Development in Asian Cities
Asia Becomes Urban (2)
Source World Bank, Databases 2003
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Development in Asian Cities
Asia Becomes Urban (3)
Source UN, 2002
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Contents

• Urbanization A Recent Phenomenon
• Asia Becomes Urban
• We Have Coped Well
• Asian Urbanization The New Challenges
• Elements of a New Approach

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We Have Coped Well (1)
Emerging Urban Asia Opportunity or Chaos?

• Urban Chaos?
• Deteriorating standards of Basic Services
• Expanding Slums
• Increasing Poverty
• Rising Traffic Congestion
• Increasing Pollution
• Lack of green spaces
• Lack of educational and health facilities, etc
• Or Improving Quality of Life?

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We Have Coped Well (2)
Water Supply and Sanitation Improvement in
urban services
Source World Bank, Databases 2003
Source UN, 2002
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We Have Coped Well (3)
Power and Telecom Significant improvement in
urban services
Source World Bank, Databases 2003
Source UN, 2002
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We Have Coped Well (4)
Health Services Significant improvement in
urban services
Source World Bank, Databases 2003
Source UN, 2002
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We Have Coped Well (5)
Urban Poverty Rapid progress in reduction in
India
Source Deaton and Drèze, 2002
Source UN, 2002
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We Have Coped Well (5)
Urban Poverty Rapid progress in reduction
Human Development Report 1996, World Development
Report 2001 and Independent Study
Source UN, 2002
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Contents

• Urbanization A Recent Phenomenon
• Asia Becomes Urban
• We Have Coped Well
• Asian Urbanization The New Challenges
• Elements of a New Approach

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Asian Urbanization The New Challenges (1)
Infrastructure can't match boom in BangaloreBy
S. SrinivasanTHE ASSOCIATED PRESS
Blackout in boom town BangaloreSEPTEMBER 09,
2003
Premji raps Karnataka Govt for bad roads, power
situation in Sarjapur Our Bureau Bangalore ,
July 18
Premji threatens protest for better
infrastructureJuly 18, 2003 1852 IST
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Asian Urbanization The New Challenges (2)
Efficient Infrastructure is Essential for a
Competitive City
A survey of 165 firms in 5 cities showed
Source Mario Polese, Pamela Echeverria and Mila
Freire, 2002
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What is distinctive about the future?
Asian Urbanization The New Challenges (3)

• India, China, Indonesia (with over 2 billion
  people) urbanizing and industrializing
  simultaneously
• Between 1990 and 2030, these countries, will go
  from 25-30 levels of urbanization level to
  about 50-60
• Meanwhile other cities and countries will also be
  going ahead
• Unprecedented demand for financial resources for
  power, telecommunication systems, water supply,
  sanitation, drainage, solid waste disposal,
  roads, housing and urban amenities
• Lumpy investments upfront, while returns flow
  over long time period
• Mega City Management

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Asian Urbanization The New Challenges (4)
Source UN, 2002
Urban Population growth for the period 2000-2030
will be greater than that witnessed in the last
50 years
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Urban Infrastructure
Asian Urbanization The New Challenges (5)

• Upgrading Infrastructure is the key challenge to
  unlocking the economic potential of urban areas
• The dimensions of this problem are huge
• 3 million residents in Dhaka lack clean water
• 75 of the urban population in Delhi live in
  unauthorized, unplanned settlements
• Manila produces more than 6500 tons of solid
  waste when its landfills can barely manage half
  of that
• Given the budget constraints, these are immense
  challenges but surmountable.
• A NEW WAY of thinking is required

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Contents

• Urbanization A Recent Phenomenon
• Asia Becomes Urban
• We Have Coped Well
• Asian Urbanization The New Challenges
• Elements of a New Approach

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Asian Urbanization The New Challenges (6)

• Three main levels
• Conducive Macro Economic Policies
• Focus on City Management
• Financial Development for Urban Infrastructure

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Elements of a New Approach (1)
Conducive Macro Economic Policies

• Fiscal policy
• Public investment in key infrastructure
• Malaysia, Coastal China
• India

Source World Bank WP 5, 2003
Investment in Infrastructure Projects with
Private Participation by Region, 1991-2001,
Billion.
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Elements of a New Approach (2)
Conducive Macro Economic Policies

• Fiscal policy
• Tax policy
• Widening of tax bases
• User charges
• Policy of fiscal transfers decentralization of
  powers and finances

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Elements of a New Approach (3)
Conducive Macro Economic Policies

• External policy
• Trade policy
• Openness - lower transaction costs
• Price equalization
• Investment policy
• Relative roles of public and private (domestic
  and foreign) sectors

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Elements of a New Approach (4)
Changing paradigm of planning

• Cities no more connected only to their
  hinterland connected to cities and regions
  globally
• Bangalore linked more to the US than
  Hubli-Dharwad
• Pearl River Delta produces more than 40 of
  world light fixtures
• Clusters initially organically formed however
  need to be strongly supported
• Mumbai Nasik Pune Corridor
• Government investment into Chinas SEZs
• Local and national governments need to
  proactively help create linkages

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Elements of a New Approach (5)
Conducive Social Sector Policy

• Developing human capital, RD is key to ensure
  supply of able skilled workers key to sustain
  competitive edge

Carl Dahlman, Jean Eric Aubert, 2001
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Elements of a New Approach (6)
City level initiative vital in Social Sector

• Cities need to acknowledge relevance of High
  Quality Human Capital and invest in
• Schooling
• Higher Education
• Skills Training
• Research and Development
• Into emerging industries/services which are in
  demand and add value to the city economy

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Elements of a New Approach (6)
Focus on City Management

• New York Budget gt US 40 Billion
• Only 2 state budgets are larger
• Less than 15 countries have larger budgets
• Microsoft and Dell revenues at 20 billion
• Brihan Mumbai Municipal Corporation Budget gt US
  1.2 Billion
• Larger than 9 Indian States
• 2 times the revenue of Indias most respected
  Companies
• WIPRO
• INFOSYS Technologies

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Elements of a New Approach (7)
Focus on City Management

• Local governments are typically weak and lacking
  in prestige

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Elements of a New Approach (8)
Focus on City Management
Source UNCHS, 2001

• Increase prestige of mayors and legislators
• Professionalise staff, improve salary
  structures
• National governments are too distracted but
  need to
• realise that cities and esp. the Megacities
  are the major
• Engines of Economic Growth

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Elements of a New Approach (9)
Focus on City Management

• First Task is Two Fold
• Reduce Burden on Local Government
• Strengthen Local Government
• Limit Financial Role of Local Government to
  provision of public goods
• Strategic planning not master planning
• Decentralise all services which can be paid for
  
• Public or private sector providers
• Competition where possible
• Forge Links between financing and returns
  Accountability
• Increase public participation in design and
  management of local delivery

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Elements of a New Approach (10)
Focus on City Management

• The decades of the 1950s, 1960s and 1970s was
  focused on centralized Urban Planning, economic
  planning
• Since the late 1970s, saw the growth of open
  trade / globalization/open markets
• Formation of major urban groups (together
  capturing more than 85 of Chinas FDI)
• The Yangzi River Delta with Shangai as the centre
• The Pearl River Delta with Guangzhou, Shenzhen
  and Hong Kong as key players
• The Shandong Peninsular with Quigdao, Yantai and
  Jinan

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Elements of a New Approach (11)
Financial Development for Urbanization

• Making Local Governments Credit Worthy
• Make property taxes more buoyant
• Make subventions from higher levels less
  discretionary
• Decentralize more services
• Freeing Property markets (ULCRA, DDA and even in
  Chinas SEZs)
• Making Urban Infrastructure Projects Commercially
  viable
• There is a need for many borrowers, investors and
  intermediaries
• Urban infrastructure projects will require credit
  enhancement

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Elements of a New Approach (12)
Activating capital markets for Urban
Infrastructure

• Who are the lenders?
• Individuals
• Mutual Funds
• Insurance Funds
• Provident Funds
• What does Government do?
• Equity for Project Agencies
• Guarantee Mechanisms
• Funds/Programmes for staff professionalisation
• Sets Benchmarks
• Fuel Bond Markets Govt. borrowings
• Fiscal incentives
• Regulatory Agencies

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Elements of a New Approach (13)
Activating capital markets for Urban
Infrastructure

• Globalisation of Capital Markets
• Domestic savings will not be enough
• Vital to channel international savings
• Developed countries have aging populations
• They need to get high returns on their savings
• Developing countries can provide these higher
  returns
• How to link rich country savers to Urban
  Financing ?
• They must have safe vehicles for investment
• Income financing of mature projects can be
  securitised
• Government and other Equity Funds can provide
  initial funding
• After risks are reduced packaged securities can
  be sold internationally
• This would increase financing turnover

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What do we do?

• Cost minimization
• Search for low cost technologies
• Make urban investment more demand oriented.
  Fashion institutional structures which respond
  flexibly to demand
• Reduce upfront investment.
• Unbundle where possible
• User charges as price signals to regulate demand
• Decentralise service provision
• Public goods provisions by city governments
• More citizen participation in urban governance
• Mechanisms for resource generation.
• Expanding capital markets

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Conclusions

• We have coped well in the past
• No reason why we cannot do so in the future
• New challenges posed by volume of new
  requirements China, India, Indonesia
• Local capacities must be strengthened
• Decentralization, commercialization essential
• Capital market development will need new
  institutions
• Need for new vehicles to channel international
  savings to urban investment in growing cities

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• Thank You