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By

ASCI-WBI Programme on Strengthening Urban Management in India

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OUTLINE OF PRESENTATION

I. URBANISATION AND DEVELOPMENT

II. PLANNING AND MANAGEMENT OF CITIES: ROLE OF GOVERNMENT

III. ROLE OF MARKETS IN FINANCING CITIES

IV. CITIES AND THE NEW ECONOMY

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URBANISATION AND DEVELOPMENT

I. Urbanisation and Development

Economic Growth Accelerates Urbanisation

Urbanisation promoted by

economies of scale in production

information externalities

- technology- suppliers- purchasers- market conditions

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URBANISATION AND DEVELOPMENT (Contd..)

agglomeration economies

- special machinery- fashion apparel- entertainment services- interactive services- financial services- high tech farms- software- Internet

Macro Policies Matter- openness- Price Equalization

I. Urbanisation and Development

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HOW HAVE WE DONE IN THE PAST?

1950 - 2000

I. Urbanisation and Development

Developing world has coped well in the last 50 years.Urban population has grown from 300 million in 1950 to 2 billion in 2000

Biggest cities in the world are in the developing world now General improvement in Urban Services during this period:

Health services Nutrition levels Access to safe water Education Housing

But large unmet needs

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URBANISATION TRENDS (PERCENT URBAN)

I. Urbanisation and Development

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LARGEST CITIES IN THE WORLD1950 Population 1970 Population 2000 Population

(Million) (Million) (Million)

New York 12 Tokyo 17 Tokyo 28

London New York Mumbai

Tokyo Shanghai Sao Paulo

Paris Osaka Shanghai

Moscow Mexico City New York

Shanghai London Mexico City

Essen Paris Beijing

Buenos Aires Buenos Aires Jakarta

Chicago Los Angeles Lagos

Calcutta Beijing Los Angeles

Osaka Sao Paulo Calcutta

I. Urbanisation and Development

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LARGEST CITIES IN THE WORLD (Contd..)

1950 Population 1970 Population 2000 Population (Million) (Million) (Million)

Los Angeles Moscow Tianjin

Beijing Rio de Janeiro Seoul

Milan Calcutta Karachi

Berlin 3 Chicago 7 Delhi 12

1950 1970 2000

Developed Countries 11 8 3

Developing Countries 4 7 12

Developing Asia 3 3 9

I. Urbanisation and Development

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OUTLINE OF PRESENTATION

I. URBANISATION AND DEVELOPMENT

II. PLANNING AND MANAGEMENT OF CITIES: ROLE OF GOVERNMENT

III. ROLE OF MARKETS IN FINANCING CITIES

IV. CITIES AND THE NEW ECONOMY

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PLANNING AND MANAGEMENT OF CITIES

Local governments are typically weak and lacking in prestige

National governments are too distracted

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

II. Planning and Management of Cities: Role of Government

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PLANNING AND MANAGEMENT OF CITIES (Contd…)

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

Increase prestige of mayors and legislators

Professionalise staff, improve salary structures

II. Planning and Management of Cities: Role of Government

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PUBLIC GOODS TO BE FINANCED FROM TAXES Making property taxes more buoyant

Modernisation of cadasters Renew property valuation Transparent land price system Modernise collection

Making subventions from higher levels less discretionary

Most services can be decentralised Power Water Telecommunications Sanitation Solid Waste Disposal Land Development Transportation Housing

II. Planning and Management of Cities: Role of Government

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OUTLINE OF PRESENTATION

I. URBANISATION AND DEVELOPMENT

II. PLANNING AND MANAGEMENT OF CITIES: ROLE OF GOVERNMENT

III. ROLE OF MARKETS IN FINANCING CITIES

IV. CITIES AND THE NEW ECONOMY

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ACTIVATING CAPITAL MARKETS FOR

URBAN INFRASTRUCTURE Need many borrowers, investors and may intermediaries Who are the borrowers?

Municipal Governments Urban Development Authorities Water Agencies Power Generators, Transmitters and Distributors Solid Waste Agencies Land Development Agencies Others

III. Role of Markets in Financing Cities

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They will need credit enhancement Who can enhance their credit?

Credit Rating Agencies Municipal Development Funds Urban Infrastructure Banks Bond Banks Bond Insurers Bond Guarantors Project Appraisal Agencies

III. Role of Markets in Financing Cities

ACTIVATING CAPITAL MARKETS FOR URBAN INFRASTRUCTURE (Contd..)

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ACTIVATING CAPITAL MARKETS FOR URBAN INFRASTRUCTURE (Contd..)

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 Set Benchmarks Fuel Bond Markets : Govt. borrowings Fiscal inducements Regulatory Agencies

III. Role of Markets in Financing Cities

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ACTIVATING CAPITAL MARKETS FOR URBAN INFRASTRUCTURE (Contd..)

Globalisation of Capital Markets

Domestic savings will not be enough Vital to channel international savings Development countries have aging populations They need to get high returns on their savings Developing countries can provide these higher returns

III. Role of Markets in Financing Cities

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ACTIVATING CAPITAL MARKETS FOR URBAN INFRASTRUCTURE (Contd..)

How do we 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

III. Role of Markets in Financing Cities

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OUTLINE OF PRESENTATION

I. URBANISATION AND DEVELOPMENT

II. PLANNING AND MANAGEMENT OF CITIES: ROLE OF GOVERNMENT

III. ROLE OF MARKETS IN FINANCING CITIES

IV. CITIES AND THE NEW ECONOMY

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WHAT IS DISTINCTIVE ABOUT THE FUTURE?

India, China, Indonesia, with more than 2 billion people urbanising and industrialising simultaneously

1990-2030

They will go from 25-30 per cent Urbanisation level to 50 to 70 per cent

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. Have to be made upfront. Returns flow over long time period

IV. Cities and the New Economy

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CITIES AND THE NEW ECONOMY Cities are incubators of new ideas

Cities are centres of information exchange

Cities are centres of modern services

Cities are incubators for entrepreneurs

Knowledge industries need interaction research institution medical institutions entertainment financial services

High Skill Workers demand high quality public services

High quality cities will be the leaders of the future

IV. Cities and the New Economy

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WHAT DO WE DO? Cost minimisation 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 for regulating demand Decentralise service provision Public goods provisions by city governments More citizen participation in urban governance Mechanisms for resource generation. Expanding capital markets

IV. Cities and the New Economy

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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

Decentralisation, commercialisation essential

Capital market development will need new institutions

Need for new vehicles to channel international savings to urban investment in growing cities

IV. Cities and the New Economy