Welcome speech by Ashok Lavasa, ADB Vice President for Private Sector Operations and Public-Private Partnerships, at the High-Level Workshop on "Financing Cities of Tomorrow", 16 January 2023, Maharashtra, India
Good evening and a warm welcome to all the delegates.
First of all let me wish everyone here a very happy new year and extend my greetings on the auspicious occasion of Uttrayan. It is the season when the sun moves from south to north, the days become longer, the rays become healthier and marks the beginning of the season of hope.
I would like to congratulate the Government of India for holding the current G20 Presidency and for arranging this most important event.
The theme of this high-level workshop, chosen by the India G20 Presidency, “Financing Cities of Tomorrow” has great relevance in current times. The priorities of this India G20 agenda can be linked with the development agenda that cities across the globe will be driving over the next few decades and undertaking structurally transformative actions to meet sustainable development goals.
Cities and city managers today are facing some serious challenges and exciting opportunities as we look to the Cities of Tomorrow.
By the year 2050 nearly twice as many people will live in cities as they do now. And by the year 2070, the fastest urbanizing regions of the world – Sub-Saharan Africa and Central and Southern Asia will add twenty-five hundred more cities to their list of existing cities.
But as we are all aware, unplanned and unmanaged urbanization is resulting in a vicious circle of stress on city infrastructure, squalor, inefficient utilization of resources, crime, corruption and environmental degradation. With 70% of the green house gas emissions, cities are significant contributors to climate change. This, in turn, is putting almost a quarter of the world’s population who live in high flood-risk areas, primarily the poor, at risk of adverse climate change impacts. Six of the top-ten countries and five of the top-ten cities at risk from climate change are in Asia-Pacific.
With this scale and speed of urbanization, the business-as-usual way of development is no-longer an option for city leaders. Going forward, improved spatial planning, smart growth management policies and increased use of technology can not only reduce the overall investment need but also improve the efficiency of the financing that is needed. Climate-smart and adaptive infrastructure is a must as we build new cities or rebuild existing ones to become the Cities of Tomorrow.
Given the need for huge investment in cities, another imperative is private sector financing, if these Cities of Tomorrow have to become a reality.
Globally, we need to invest in roughly $5.5 trillion of infrastructure annually over the next 15 years. Yet current infrastructure spending stands at $2.5 trillion to $3 trillion per year: only half the sum needed. A significant portion of this investment need is expected to be in developing countries and 70 percent of this investment is likely to be in urban areas to sustain the pace of social and economic infrastructure development commensurate with the pace of urbanization.
To be truly resilient and inclusive, cities need to invest in areas like affordable housing, urban mobility, healthcare, and education. These are sectors that the recent COVID-19 pandemic has once again drawn our attention to, and these are also sectors where private financing can play a significant role in filling the investment gap. Despite this increasing infrastructure investment gap running in trillions of dollars, private sector investment in infrastructure has been been stagnant over the last 10 years, averaging around $180 billion per year. And, only 25% of this investment is happening in developing economies. A favorable policy regime will be a prerequisite to attract private financing in these areas.
But as there is a huge responsibility on governments, there is some hope as we look forward. There is a visible increase in number of institutional investors raising private finance for infrastructure development. And there is growing interest from the private sector to invest in climate-smart cities, with nearly 2000 companies having committed to the UN to support addressing climate change.
As we look forward to the Cities of Tomorrow many of the basics will remain the same. The Cities of Tomorrow will look to the private sector for investment when the private sector offers more value-for-money. And the private sector will invest only if the projects are bankable and the counterparts, the cities, are creditworthy.
For all of us here, the key in bridging this vast gap is to build the capacity of governments to optimize, to leverage their limited public finances in ways that generate more participation from the private sector. Countries need to do more by improving the enabling environment for cities to access private sector innovation, capital and finance. Nearly 56% of countries do not allow any kind of local government borrowing. On their end, cities also have to do more by improving their governance and creditworthiness to attract more private capital and PPPs. Only 6% of the 500 largest cities in developing economies have issued municipal bonds.
The G20 India Presidency has defined the cities of tomorrow as being resilient, inclusive and sustainable; and the Infrastructure Working Group (IWG) 2023 has identified need to improve cities’ access to financing for urban infrastructure. ADB with its knowledge products and resources and innovative initiatives remains committed to support governments in their resolve to develop clean and green infrastructure for urban growth. Cities have to be symbols of hope, opportunities, and rapid transformation and cannot be allowed to become an oppressive and unmanageable burden leading to exclusive growth and unsustainable exploitation of resources.
This workshop aims to provide a platform to ideate, explore, and cross-learn approaches to enhance private financing for building the Cities of Tomorrow.
I look forward to the sessions and encourage all the delegates to actively participate in the workshop.
Once again, I welcome all the delegates to this workshop and thank you.