Financing Livable and Sustainable Cities for Asia and the Pacific under ADB's Strategy 2020

Keynote Speech by Lakshmi Venkatachalam, ADB Vice President, at the Conference on Linking Cities to Finance, Shanghai, People's Republic of China

Mr. Jiang, Deputy Secretary General, Shanghai Municipal Corporation
Mr. Funcke-Bartz – Head of Division, InWent
Mr. Tian Deputy Director General, Shanghai Financial Bureau,
Mr. Lindfiled, CDIA,

Distinguished guests, ladies and gentlemen, good morning.

I am delighted to be here at this conference organized by Cities Development Initiative for Asia (CDIA) in cooperation with the Shanghai Municipal Government and the German Capacity Development International Institution (InWEnt). These three organizations have joined hands to develop this capacity development exercise to facilitate dialogue between the public and private sector to foster the development of urban infrastructure, to prepare for the challenges that cities around the World, and in particular in Asia, are facing.

Urbanization in Asia is a multifaceted and complex process, the scale of which is striking: 44 million people are added to city populations in Asia every year, equivalent to 120,000 people each day who are estimated to require the construction of more than 20,000 new dwellings, 250 km of new roads and additional infrastructure to supply more than 6 megalitres of potable water. The explosive growth of cities is largely driven by people moving from countryside to work in rapidly industrializing cities. This growth has left cities with intense strains on infrastructure. Roads that were not designed for cars are choked with traffic, and the consequences include increased local pollution, reduced economic efficiency and a contribution to the global challenge of climate change. Drainage and sewage systems are also overloaded, leading to considerable fatality rates from floods and diseases.

As rightly pointed out in a recent study "The growth of the world's cities — often unplanned, sometimes chaotic — challenges policy makers and planners in every continent. What will our urban future be? How can infrastructure — from mass transit to drainage systems — cope with unprecedented growth rates? How can we realize the goals of sustainability — allowing for growth without mortgaging the prospects of future generations? Can social justice and cohesion be achieved or is polarization intrinsic to the modern urban condition?"

Faced with the pace of change within modern cities, with the forces of a globalizing economy, and with the stress imposed upon urban infrastructure by migration and informal development, traditional approaches to urban planning and development (as accomplished through a periodic "masterplan") are seen as inadequate or even futile. Integrated planning must therefore begin with a holistic long–term assessment of a city's assets and weaknesses, underpinning a vision for a city's future. Spatial plans must emerge from such a vision and plans for infrastructure including housing and transport should respond to the priorities identified.

Ladies and gentlemen, let me also touch upon certain other issues impinging on urbanization and the challenge of achieving sustainable growth. As we know, Asian cities along its trade corridors are now merging to create massive urban areas termed city–regions — their size and importance goes far beyond the mega–cities of the twentieth century. These regions are fast becoming the engines of growth, not just of their country or the Asian region, but of the world. The Yangtze River delta region, with Shanghai at its core, is home to about 160 million people and has an economic output greater than some medium–sized European countries. Managing these cities and balancing economic development with imperatives to improve quality of life and sustainability is, therefore, a major challenge.

The Asian Development Bank (ADB)'s Long–Term Strategic Framework (Strategy 2020), which identifies "environmentally sustainable growth" as a part of its main strategic agenda, also recognizes the development of livable cities and issues related to climate change as some of its core operational areas. In the Asian context, climate change is largely attributable to its dynamic urban regions. Our Green Cities agenda is targeted at this issue and focuses on concrete measures to bolster cities' central role in improving quality of life and in mitigating and adapting to climate change. Financing the environmental infrastructure and energy efficiency investments to ameliorate this situation will be an important agenda for the future for all major cities in the region.

Ladies and Gentlemen, in terms of poverty reduction and improving human quality of life, cities face significant challenges. Residential densities vary in city areas and tend to be highest in the poorest areas: many of you will doubtless be aware that, in Greater Mumbai, more than 50% of the population lives in slums occupying 8% of land. The latest UN Habitat Report 2010/2011 has highlighted that despite efforts of slum up gradation in the last decade, the absolute number of slum dwellers have increased from 777 million to 827 million of which 505 million are in Asia. The poor are also the most vulnerable to the impacts of climate change especially in terms of flooding and increased incidence of violent weather. To achieve the objectives aimed at "inclusive growth" under Strategy 2020, ADB needs to catalyze urban development which is pro–poor and effectively links cities to their rural hinterlands so that all may benefit from the growing urban economies.

Let me now turn to the discussions on the "urban infrastructure deficit" which in Asia and the Pacific is estimated at $60 billion per year. Financing this deficit is beyond the resources of development agencies and indeed of many governments in the region. As an international financial institution with a mandate to pursue development in the Asia and Pacific region, we at the ADB intend to support our developing member countries in leveraging private resources to help bridge this gap. In recent years, ADB has been helping catalyze financing for much needed municipal infrastructure through a wide range of innovative ways. The importance of the private sector in helping to meet these investment needs cannot be over–emphasized. Currently, the private sector accounts for only about 20% of infrastructure spending in Asia, while 70% comes from public funding, and the remaining 10% from Official Development Assistance. This is not a sustainable model; and the private sector's share needs to increase dramatically. ADB recognizes this, and itself plans to significantly scale up its efforts towards private sector development and private sector operations. In our Strategy 2020 it is envisaged that ADB's support for the development of the region's private sector will increase significantly, both in the number of ADB-financed projects and in its share of ADB's annual operations with a target of 50% by 2020.

Catalyzing private sector investment for urban development is a major challenge, but also a major opportunity for investors and financiers alike. ADB will take up this challenge, guided by a new Urban Operations Plan, adopting what we describe as the 3E approach — promoting sustainable urban development in Environmental, Economic and Equity dimensions. These three aspects are central to fostering livable cities in Asia and the Pacific.

ADB's urban lending, totaling over $11 billion to date, has focused on physical infrastructure. But new multifaceted approaches are needed to deal with the challenges of Environmental/Climate Change Issues and Inclusive Growth. The agenda goes beyond physical investments. Education and skills development, particularly for women, must form an integral part of the approach. To support inclusive economic development, ADB must target its assistance towards the development of successful industry clusters through interventions in infrastructure, differentiated skills development, research and development, specialized finance and regional cooperation. We call this agenda City Cluster Economic Development. Such support will also include assessment of these cities' vulnerability to climate related — and other — disasters.

This conference is designed to explore ways in which the above challenge can be met, drawing on the experience of both the public and private sector. This includes new ways of project preparation (including those pioneered by CDIA) supported by ADB and several bilateral partners and various ways of alternative financing, including PPP, sub–sovereign lending and other modalities. This conference represents a vision of how we can share ideas and join hands in developing livable and sustainable city projects in order to meet the massive urban infrastructure deficit facing Asia today. I am very pleased to be part of this endeavor.

Ladies and gentlemen, in closing, I would like to emphasize that ADB is increasingly focusing on structuring bankable projects with sound development impacts — this is where we see our value added. We seek to help decision makers in both the government and private sector around the region to find and apply the right solutions to participate in meeting the challenges posed by the urban infrastructure deficit in Asia. Through our initiatives, we hope to empower decision makers with the right knowledge and direction to further their urban development agenda. As a key development partner for Asia and the Pacific, ADB will increasingly be engaged in helping to promote private investment and financing in the region in the years ahead. I do look forward to the discussions over the ensuing sessions of the conference as a means of identifying opportunities for engagement with you which will result, I am sure, in identifying innovative solutions to address the infrastructure needs of the region. In short, ADB looks forward to the exciting prospects of working with you.

Thank you