Getting Cities Right

Mahmoud Mohieldin, Zoubida Allaoua

Getting Cities Right

26 February 2013

WASHINGTON, DC – The developing world is experiencing rapid urbanization, with the number of city dwellers set to reach four billion in 2030 – double its 2000 level. But unplanned and uncoordinated urban development is risky, threatening to replace migrants’ hopes for a better life with unsanitary living conditions, joblessness, and high exposure to natural disasters.

In many respects, urbanization is rational. After all, cities are the hubs of prosperity, where more than 80% of global economic activity is concentrated. And their density facilitates the delivery of public services, including education, health care, and basic services. Indeed, it costs $0.70-0.80 per cubic meter to provide piped water in urban areas, compared to $2 in sparsely populated areas.

But the high concentration of assets and people, especially in coastal areas, is an economic liability, with around $3 trillion in assets at risk from natural hazards. Vulnerability will increase further over the next two decades, as cities triple their built-up land, to 600,000 square kilometers, often without basic infrastructure or policies to prevent construction and settlement on disaster-prone and vulnerable sites.

To get urbanization right, policymakers must take urgent action to build sustainable cities. Through effective land-use management, they can provide reliable and affordable access to basic services, education, housing, transport, and health care to growing urban populations, while minimizing the carbon footprint.

This entails, first and foremost, abandoning the perception of a tradeoff between “building more cities” to accommodate rapid urban growth and “building cities right” to enhance social and environmental outcomes. In fact, evidence shows that building cities right generates near-term benefits, while reducing the longer-term costs associated with sprawl, congestion, pollution, and climate change. The alternative – building cities around a low-density, individual-vehicle transportation model – will leave urban planners struggling to increase density and develop public-transport systems later, a challenge that the United States is currently facing.

new World Bank report provides a practical agenda for building sustainable cities. The framework – which emerged from a three-year effort to develop a foundation of credible facts and analysis from countries with diverse urban experiences, such as Uganda, China, India, and South Korea – can help policymakers to understand the obstacles to urbanization and to identify politically, technically, and fiscally feasible policy options.

This framework reflects three main aspects of urban development: planning, connecting, and financing. A major finding is that, regardless of the level or speed of urbanization, planning for land-use management should be the top priority. By clearly defining property rights and implementing effective land-use systems that are coordinated with infrastructure, particularly transport, policymakers can help cities to attract private investment, connect people with jobs, reduce environmental and social risks, and decrease vulnerability to natural hazards.

With urban growth in developing countries likely to occur largely in secondary cities, the opportunity is still open (but closing fast) to shape urban design to ensure that, for example, residents do not spend half of each day commuting to and from work. While no single model for managing rapid urbanization exists, positive examples offer some guidance.

For example, Seoul’s population more than tripled from 1960 to 2000. South Korean policymakers, anticipating the challenges, strengthened institutions for valuing and pricing land, trained a cadre of appraisers to ensure transparency in the valuation process, and publicly disseminated land-value information. At the same time, the government supported construction of high-rise residential buildings capable of housing the growing urban population and developed multiple transport modes, including highways, rail networks, and subway lines, which have helped to connect people with employment opportunities within and among cities.

Likewise, leaders in Singapore and Japan treated public transport as a crucial aspect of land-use plans. As a result, they boast some of the world’s lowest energy consumption as a share of GDP.

In order to encourage citizens to use public transport, policymakers in Tokyo reduced subsidies for private cars, so that driving one became five times costlier than using public transport. Complementary investment in high-speed inter-city transport has reduced travel times between Japan’s two largest agglomerations, Tokyo and Osaka, which are 314 miles apart, to less than two and a half hours, thus integrating labor and housing markets and enhancing productivity.

Of course, financing rapid urban development requires significant capital outlays to build efficient systems for transport, water provision, solid waste management, and sewage removal and treatment. But, as these investments bolster economic growth, increased tax revenues would imply more sustainable financing, as would local governments’ ability to leverage land markets and approach local-currency debt markets.

In Mumbai, the auction of 13 hectares of land in the new financial center, the Bandra-Kurla Complex, generated $1.2 billion. This amounts to more than ten times the Mumbai Metropolitan Region Development Authority’s total expenditure in 2005, and six times the total value of municipal bonds issued by all local governments and utilities in India in more than a decade.

Similarly, in Istanbul, the auction of an old bus station and government building in 2007 generated $1.5 billion – more than the city’s total expenditures and infrastructure investments in 2005. And Colombia’s finance ministry has developed Findeter, a bond bank that finances regional urban infrastructure projects by providing resources to financial intermediaries that allocate them to subnational authorities.

By building sustainable cities, policymakers can support social and economic development, while minimizing environmental damage. Managing urbanization as it occurs, rather than struggling to fix cities later, is an opportunity that developing-country leaders should not miss.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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