By: Greg Scruggs

Date: September 20th 2016

Source: Citiscope

The Habitat III strategy ‘doesn’t go far enough on financing’, one observer noted at an event on the eve of the U.N. General Assembly.

UNITED NATIONS — Next month, 193 countries are set to sign on to a new 20-year urbanization strategy that has been negotiated under the United Nations. When they do, they will confront the next big question: How to pay for it?

The new strategy is called the New Urban Agenda, and after four months of negotiations, it is slated to be adopted at theHabitat III conference in Quito, Ecuador, in mid-October. The document sets out an ambitious vision of compact cities, transit-oriented development and polycentric growth that seeks to rebalance the world’s rapid urban growth, avoiding the pitfalls of overcrowded, under-planned mega-cities.

But the congratulatory mood that greeted the final burst of negotiations that delivered a consensus document this month has already met a soberer reality. Translating that vision into reality may be where the document falls short, according to experts who gathered here on the eve of the new session of the U. N. General Assembly.

“The New Urban Agenda is more a new urban imperative, which is perhaps why it doesn’t quite go far enough,” said David Jackson of the U. N. Capital Development Fund, an investment agency for the world’s 48 least-developed countries. “It cannot happen without new ways of how secondary cities are financed. Unless secondary cities become nice places where people with ambitions want to stay and have nice lives, migration will continue.”

[See: The New Urban Agenda must recognize the importance of intermediary cities]

Michael Cohen, who directs the urban programme at the New School in New York and formerly worked on urban issues at the World Bank, sees municipal financing as the linchpin. “We’re entering a new world on finance. The finance issue has to be much more important,” he said. “I don’t think the New Urban Agenda helps us very much. It’s mostly about the ‘what’, but it doesn’t tell us very much about the ‘how’.”

The right smoothie

Part of the problem is that last year’s U. N. Financing for Development conference in Addis Ababa, which was supposed to establish a new financial architecture to fund the world’s development challenges, was widely seen as a failure. Moreover, the main takeaway from the conference was the newfound importance of “blended finance”, also referred to as public-private partnerships (PPPs).

According to Jackson, that emphasis on blended finance has had unintended consequences. In Mozambique’s second city of Beira, for instance, a mania for PPPs has swallowed up any available public space, he said, even leading to office blocks sprouting up on traffic islands.[See: The urban community can save Financing for Development]

“They have a dynamic mayor who’s very happy with the way the city is becoming crammed full of real estate,” Jackson said. “Is that going to be a livable city? The type of finance will partly determine the type of city.”

This problem is not confined to the local level. Jackson said that an African country’s representative recently told him that the move toward blended finance had led the government to reduce its fiscal transfers from the central to local governments in the belief that the private sector would make up the difference.

“Blended finance is often seen as the solution, but it depends on what the blend is,” Jackson said. “That’s like saying a smoothie is a solution — but what do you put into your smoothie?”

[See: New solutions to close the gap on municipal finance]

Jackson’s recipe for the ideal blended-finance smoothie contains three “fruits”. First, it would incorporate concessional finance, or loans with below-market interest rates, and graduated repayment plans to accommodate developing countries’ economic realities.

Second, the smoothie would draw on the domestic private sector — for example, pension funds, which aggregate an enormous quantity of assets that could be invested in urban infrastructure. Finally, the smoothie wouldn’t skimp on the public aspect of PPPs, and would need to include domestic public-sector financing.

“Without this blend, you will not get the long-term, predictable financing streams that local governments need,” Jackson said.

In the absence of such a financing blend, the impacts are felt across the political and economic spectrum.

“From Detroit to Lahore, most cities around the world are facing financing challenges,” the Organisation for Economic Co-operation and Development (OECD)’s Mario Pezzini said, reading from a recent World Bank report. “Bankruptcy, budget deficits, unmaintained infrastructure, declining quality of services and increasing urban poverty are unfortunately too common headlines.”

[See: A towering challenge: Habitat III must promote municipal fiscal health]

Even New York City and Washington, the axis of political and economic power in the United States, faced such hurdles just a few decades ago, he said.

Embracing urbanization

Answers to some of these vexing issues could come as soon as next month, as national government representatives gather in Quito for Habitat III.

In the draft New Urban Agenda, governments commit to “supporting effective, innovative, and sustainable financing frameworks and instruments, enabling strengthened municipal finance and local fiscal systems in order to create, sustain, and share the value generated by sustainable urban development in an inclusive manner.”

[See: The New Urban Agenda will pay for itself]

The World Bank’s chief official on U. N. partnerships, Mahmoud Mohieldin, indicated that his institution is planning some major announcements at the Quito conference, but he declined to provide details. In general, however, he said that the bank has been preparing “more financing publications based on practical work to encouraging zoning, regulation of land, and proper rural and urban development.” He added, “We’re not just stopping at policy reports — it’s very much reflected in our portfolio with our clients.”

Rwanda is one such client, having adopted a national urban policy last year and a green growth strategy in 2011. As a result of these policies, the country is making an effort to concentrate growth in six secondary cities rather than just the capital, Kigali.

According to Rwandan Minister of Natural Resources Vincent Biruta, the new urban policy “lays the groundwork for how urbanization in Rwanda can achieve densification and economic growth.” The policy states a national goal of reaching 35 percent urban by 2020 — Rwanda is currently 28 percent urban — and suggests an attitude that embraces urbanization, a key psychological hurdle for predominantly rural countries.

Not that urbanization doesn’t come without potential pitfalls, if not managed well. “We need to make sure people moving to cities are equipped for the value-generating chain,” Biruta told Citiscope. “Urbanization is not really about infrastructure; it’s also about skills. Rwanda has invested a lot in vocational and technical training.”

[See: Breaking municipal finance down to its basics]

Rwanda was advised along the way by UN-Habitat, the U. N.’s lead agency on urbanization, which hopes to leverage the New Urban Agenda as a mandate to create more such success stories.

Ahead of Habitat III, the OECD and UN-Habitat, the U. N.’s lead agency on urbanization, will be launching a Policy Network on Municipal Finance in Paris on 28 September. UN-Habitat Executive Director Joan Clos said that the partnership will result in “new ideas, sometimes disruptive ideas, than can help address the question of development and urbanization.”

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