Catalog

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p. 6 of 26 BACK | NEXT Executive Summary I. Introduction II. The Urban Sector A. The Challenge of Rapid Urban Centers B. The Challenge of Sustainable Urban Development C. Dimensions of the Urban Sector III. The Bank's Involvement in the Urban Sector IV. Objectives and Policy Priorities V. The Bank's Urban Sector Strategy VI. Implications for Bank Operations VII. Conclusion

Urban Sector Strategy : II. The Urban Sector

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C. Dimensions of the Urban Sector

1. Urban Governance

33. Most Asian cities have grown and diversified economically well ahead of their capacity to manage development. Better governance is required if cities are to function as engines of growth, avoid further environmental deterioration, and provide residents with at least a reasonable quality of life. Because the management of cities is complex, involving many stakeholders in the public and private sector whose cooperation must be obtained, the requisite institutional structures are of necessity diverse, complicated, and imperfect.

34. Urban governance encompasses institutional strengthening and capability building, decentralization, community participation, and involvement of the private sector. Infused within these components are four principles that form the foundation of good governance as part of improved urban management: (i) accountability of public sector staff and organizations; (ii) greater participation of community and interest groups in decision making on the delivery of services and demand management; (iii) predictability of markets, regulations, and legal frameworks; and (iv) transparency in dealings between the private sector and government.

35. Implicit within urban governance is the necessity of a holistic, comprehensive view of urban economic development, and a clear understanding of its linkages to investment promotion, competitive advantage, urban management capacity, and responsiveness to the requirements of the private sector. Urban economic development is an interrelated, complex process that requires the creation of an enabling environment that supports productive firms and individuals; promotes conditions for efficient urban markets for land, labor, and credit; and capitalizes on an urban center’s competitive and comparative advantages. Cities and other urban centers must be able to develop such a vision and an associated enabling environment through intensive consultation, participatory community processes, and innovative partnerships. Importantly, urban centers must be able to articulate this vision to the world at large, while at the same time strengthen urban governance through a continuing process of self-monitoring and evaluation.

a. Decentralization

36. Decentralization represents a profound shift in the manner and system of urban governance and empowerment of elected local officials. Political, fiscal, and administrative decentralization has been occurring to varying degrees in most DMCs over the past decade. By decreasing the role of central government and augmenting the authority of responsive local institutions, accountability between the providers and users of local services can be greatly increased. Examples can be found in the enactment of the Local Government Code (1991) in the Philippines, where new devolution of authority, responsibilities, and resources for urban service delivery to local government units has met with some success. However, implementation has been uneven within and among DMCs and failure to build local capacities in line with devolved responsibilities has frequently resulted in insufficient local revenue generation and inadequate local management capability that have compromised the developmental benefits of decentralization.

b. Community Participation

37. Community participation has increased in urban development in many DMCs through the involvement of nongovernment organizations (NGOs), business associations, religious associations, environmental pressure groups, associations of slum dwellers, and other community-based organizations (CBOs) in many aspects of urban development. Such groups may become involved in local planning initiatives, taking responsibility for infrastructure improvement and maintenance, obtaining innovative means of credit such as the Community Mortgage Program in the Philippines, or participating in the provision of basic services, as in India and elsewhere. Clearly the local community is a major resource that can be used in partnership with the public sector in development planning and management. Community commitment to development initiatives is vital for their success, and many local governments are moving away from a dependence culture to a demand culture, taking on greater responsibilities for promoting investment in urban development and prioritizing the provision of urban services.

c. The Private Sector

38. Many local governments are increasingly adopting an indirect enabling role, i.e., focusing on policy making, planning, regulation, and protection, while private sector companies take full or part responsibility for the delivery of one or more city services. New relationships have been created, while public sector facilities and services (such as water supply and sanitation) have been corporatized (restructured as corporations) or privatized. For example, Metro Manila’s water supply is now managed by two private sector concessionaires. Special purpose authorities, such as the Metropolitan Waterworks Authority in Bangkok, are learning to adapt to this new environment. Given the massive investment required in urban infrastructure, greater focus is needed on the creation of cost-effective and efficient public-private partnerships that include mechanisms for attracting private capital urban infrastructure provision. Involvement of the private sector must not be viewed solely as an activity, but rather as a process that changes mind-sets and institutionalizes the enabling role of government.

2. Urban Finance

39. Asia’s cities continue to impose staggering demands on fiscal resources. The Bank has estimated that annual municipal infrastructure requirements alone in DMCs will rise from about $38 billion in 1998 to $292 billion in 2020, to provide sufficient services to sustain urban productivity and achieve some improvement in the quality of life. (These amounts compare with a total flow of official development assistance and private resource flows to all developing countries of some $239 billion in 1995.) The investment estimates include the cost of renewing existing infrastructure and providing new infrastructure as urban population increases. Transport and communications, energy, water supply, and sanitation will consume the largest shares. In addition, there will be corresponding costs for operation and maintenance (O&M) and for delivery of related services. Without these sustained high levels of expenditure, cities will become increasingly inefficient and unpleasant places to live and work in as pollution, overcrowding, social friction, and deteriorating environmental conditions reduce the quality of life.

40. Enhanced sources of funding for urban development are urgently required in most DMC cities as part of the need to overhaul their financial management systems. Local governments are being given greater responsibility for the provision and operation of urban services without the authority to raise extra revenues or enjoy fiscal independence. The typical current mix of local land- and property-based and other taxes is inadequate. User charges may sustain or partly sustain the operations of city services in sectors such as water supply, sanitation, and power but other services such as roads, drainage, and health depend heavily on frequently.13 erratic transfers from central, state, or provincial governments. Such problems have hastened various initiatives under way in the Region to attract private capital. For example, many cities have contracted out part of their solid waste management services (as in Bangkok) privatized water supply and sewerage (as in Manila) and are in the process of deregulating transport services.

41. The potential for using municipal bonds as a cost-effective means to finance urban infrastructure is increasingly evident for DMCs, i.e., using domestic private capital rather than sovereign borrowing by national governments. In India, the Ahmedabad Municipal Corporation recently raised $30 million to finance medium-term investment plans. In the Philippines, the Local Government Code authorizes local governments to sell bonds to finance “self-liquidating, income-producing development or livelihood projects,” while the Water Crisis Act of 1994 authorizes water districts to sell revenue bonds. However, to date, few initiatives have succeeded. The bond markets in many DMCs are largely unexplored and require significant assistance if they are to be developed. For many poorer cities, the options in the short term at least are limited to (still very worthwhile) improvements in financial management.

3. Urban Infrastructure and Services

a. Institutional Strengthening and Capability Building

42. Many local governments desperately lack the required skills to manage growth, provide urban services, and maintain infrastructure. Often training and capability building initiatives are undertaken in an uncoordinated, unfocused fashion, replicating previous programs and failing to enhance skills of urban managers and their staff. In addition, there is an urgent need to promote and strengthen existing and new institutional structures that are responsible for, or can facilitate, urban development, such as the League of City Mayors in the Philippines. Technology and automation, (e.g., computerization, geographical information systems, and other tools) can greatly enhance urban management systems if properly designed, implemented, and staffed. Local governments are also increasingly adopting tools from the private sector such as demand management in the areas of service tariff reform, improved use of limited road space, and regulation of groundwater use.

43. In addition to the urgent need for enhanced human resource skills at all levels of the urban development process, the institutional structures and the relationships between these structures need to be improved. Better horizontal coordination is critically needed in cities, particularly as urban areas spread across several local administrations. Policy dialogue with and assistance to metropolitan authorities are required to redesign institutional frameworks, revise regulations, and restructure decision-making mechanisms. Better vertical coordination between central (state and provincial) and local governments is increasingly essential as decentralization policies become more common and are progressively implemented.

b. Water Supply, Sanitation, and Solid Waste

44. In most of the poorer DMCs, the quality and quantity of water supply in urban areas fall far short of demand. Faced with an unreliable or intermittent supply and variable quality, a high proportion of residents buy potable water from vendors and/or are obliged to boil, disinfect, or filter it to protect their health. The Bank estimates that some 93 million people in DMC urban areas have no access to safe drinking water (ADB 1997d and 1998). Such shortages contribute to high levels of waterborne disease in many cities, with particular impacts on the vulnerable under-five age group. There are many reasons for such inadequate supplies. At the water resource level, management problems are caused by overextraction of groundwater, salination, unrecorded extraction by industry using deep wells, and pollution of raw water supplies. At the water delivery level, many water utilities provide deficient service through inadequate metering,high rates of unaccounted-for water⁶ (55-60 percent in Jakarta and Manila), damage and contamination of the pipe network, arbitrary decisions on water tariffs, low collection efficiencies, and exclusion of supplies to informal settlement areas. In the last few years, one response to these failures has been experiments in contracting out or privatizing all or part of city water services, as in Malaysia, Philippines, and Thailand.

45. The five main challenges in the urban water supply subsector are (i) meeting rapidly increasing demand for household and industrial water within agreed limits, (ii) increasing investments in new water delivery systems that will meet 24-hour demand, (iii) upgrading and managing existing systems to run more efficiently, (iv) safeguarding social equity by provision of potable water to poor households, and (v) achieving full cost recovery.⁷

46. While investments in water supply have enjoyed a fairly high priority in most cities, the provision of adequate sanitation is a more widespread problem, with some 300 million urban residents in DMCs estimated to be without adequate facilities. In many cities, most wastewater is discharged without treatment. Where sewerage is provided, the network frequently functions as a combined wastewater and stormwater system. While septic tanks can provide an intermediate level of treatment, the resulting discharge in built-up areas often enters the street drainage system where it poses a potential health hazard, made worse in many DMC cities that are subject to flooding. Even where substantial investments in sewerage have been made, as in South Asia, institutional weaknesses and poor cost recovery have held back further investment.

47. The Bank has financed 14 stand-alone sewage treatment projects through 1998, in the PRC; Hong Kong, China; Republic of Korea; Pakistan; and Philippines. In addition, small sewage treatment components have been included in integrated urban development projects (IUDPs) in India, Indonesia, Mongolia, Pakistan, and Sri Lanka. Until recently the emphasis of sanitation programs was on the collection, treatment, and disposal of human wastes. Now industrial wastes are also being targeted, as in the Bank’s ongoing support for industrial wastewater treatment in Karachi. Levels of dissolved solids, suspended solids, and organic loadings in wastewater discharges may increase by factors of 16-18 in high growth areas over the 1995-2025 period (ADB 1998b). The negative impacts of untreated liquid wastes are widespread and pernicious and include risks to public health and adverse environmental impacts on surface, ground, and coastal waters. To compound the problem, the high capital, operational, and maintenance costs of conventional sewerage and sewage treatment systems generally restricts affordability to low-income households.

48. The immediate challenge for sanitation services is how to (i) address the perceived high need but low demand for urgent remedial actions, (ii) develop alternatives to capital-intensive systems, and (iii) overcome the low levels of willingness to pay where households have alternative means of disposal. In the longer term, the challenge will be to move beyond the provision of sanitation systems and address wider issues of development-environmental interactions at the city and regional levels.

49. The sheer volume of solid waste generated in urban areas around the Region is staggering, and poses a continuing challenge to the health and quality of life in urban areas. In India for example, 60,000 tons of municipal solid waste is generated daily and this is expected to rise to 100,000 tons by the year 2000. Shanghai’s solid waste has grown in volume by 6 percent a year, reaching 7,500 tons daily in 1997. Metro Manila’s solid waste was estimated at 6,100 tons daily in 1995, and is expected to double in the next two decades. In Metro Manila and many other DMC cities, only 40 percent or less of this waste reaches a sanitary landfill, with the greater proportion dumped in open sites, or left to rot in backyards, streets, drains, and waterways. Solid waste is intrinsically linked to water quality and water pollution, as it typically ends up in water systems in one way or another. Open dumpsites encourage disease vectors, generate foul odors, contaminate groundwater supplies, and generally contribute to health risks and a decline in the quality of life in urban areas. However, few cities in the Region have the technical know-how to develop integrated solid waste management systems and sanitary landfills. Moreover, many cities are experiencing an increasing shortage of sites available and suitable for landfill development within a reasonable distance of the city. A number of efforts, however, are under way to minimize waste through refuse recovery, as in the reuse of inorganic industrial solid wastes around Beijing; community solid waste management techniques in Jakarta; and vermiculture, composting, and biogas production in Mumbai.

c. Urban Transport

50. Urban transportation is critical to sustainable development in DMCs in terms of quality of life and economic success. As traffic congestion in the larger cities of the Region becomes chronic, the urban poor suffer because of inadequate public transport, and the general quality of life decreases through long commuting times, accidents, and pollution (much of which is vehicle-generated), and the urban economy must absorb significant economic costs related to lost productivity and inefficiency. The sheer scale of megacities in the Region puts great demands on transport systems capable of moving large quantities of passengers and freight at affordable prices. While motorization levels are low in many DMCs relative to levels in developed countries, major increases are forecast and virtually all governments support the trend, implicitly or explicitly. In India, for example, car ownership is expected to grow from 14 to 27 per 1,000 population over 1994-2001 and two-wheeler use from 112 to 250 per 1,000 population over the same period (ADB 1998c).

51. Few DMC cities have well-integrated systems of primary, secondary, and tertiary roads and many lack road space in their central areas with consequent impacts on traffic management and public transport efficiency. While some larger cities have developed mass transit systems, such investments have been costly, and characterized by long time-frames for planning, design, and construction. Such schemes often highlight the lack of coordination between land use and transport planning, and the roles of the public and private sectors in urban transport strategies. The challenge is to make investments in urban transportation sustainable through coordination, both in terms of physical provision and economic and financial policies, and by comprehensively addressing related issues such as a city’s balance in the locations of employment and housing. Investments should incorporate concepts of demand management, and consider appropriate roles for the public and private sectors.

d. Urban Housing

52. Access to affordable urban housing is an increasing problem in the Region as population pressure increases and land prices rise. The negative impacts are demonstrated through (i) increased sharing of dwellings by two or more families, (ii) increased squatting on public and private land, (iii) occupation of infrastructure easements and hazardous or ecologically sensitive areas, and (iv) outright homelessness. There are about 2.17 people per room in urban Asia and this figure is 5.3 in greater Mumbai. The urban housing shortfall in India has been calculated at some 7.6 million units, of which approximately three quarters represent replacement and upgrading needs, with sharing of a dwelling accounting for the balance. The low-income housing backlog in the Philippines is an estimated 4.2 million units.

53. The bulk of housing in DMCs has been and is being provided by individual households, CBOs, and private developers. Over the past 30 years, the Region’s public sector has generally failed to provide affordable shelter for low-income households. Prime factors have included failure to meet target group affordability without significant subsidies and inadequate financial resources. Recent DMC policies based on urban upgrading have been more successful, but have often suffered from a lack of “ownership” in terms of the residents’ involvement in planning and design, responsibilities for O&M, and contributions to desired services. A major challenge for DMC governments is to recognize in policy making that a greater or lesser share of housing in their urban areas is being provided by informal housing supply markets, and to develop policies that will help improve such housing markets.

54. The limited availability of formal credit is a major constraint on the supply of affordable housing in most DMCs, but there are a variety of informal or semiformal credit mechanisms. For example, some low-income families who can only afford minimum standard housing, usually in unsanitary environments and without secure tenure, will frequently fund improvements through help from family and friends in an incremental development process. Other families may join informal, community-based savings groups and obtain loans from those groups. Such self-help processes mean that over time a substandard shanty can be transformed into an adequate low-cost house. The conventional housing finance approach taken by most housing finance institutions in the Region is not usually available to such families. The challenge is to build on the experience of community-based housing finance mechanisms being used in some DMCs (such as the SEWA Bank in India, the Community Mortgage Program in the Philippines, and the Urban Community Development Office in Thailand) to create large-scale and effective provision of housing finance to low-income households. This entails, in part, strengthening links between the formal and informal finance sectors.

e. Urban Land Management

55. The critical role of land supply in supporting quality of life in urban areas demands a holistic approach. However, such an approach is far from being met in many DMCs where large numbers of poor and now middle class families, as well as small businesses, are prevented from gaining access to land for development. Many obtain land illegally and then face problems due to the lack of secure tenure, inability to use land as collateral, lack of services, or other setbacks. More efficiency, fairness, and transparency is needed in urban land markets.

56. Many bottlenecks in the land market slow land supply and increase prices. For example, land accounts for some 40 percent of site development costs in Metro Manila. Typical problems include (i) inappropriate or unaffordable land use, building standards and regulations, such as unrealistic ratios of required public land to total site areas; (ii) no allowance for mixed land uses; (iii) cumbersome and expensive procedures for land transfer (including cadastral mapping, titling, and registration); (iv) land held vacant for speculative purposes; (v) lack of information to the public on land market indicators; and (vi) failures in coordination among agencies concerned with servicing new urban land. All too often, these failures in the land market are compounded by irrelevant spatial planning processes that are unable to keep up with, let alone guide, new urban development.

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