Financing for Development Conference in Addis Abeba

During the Financing for Development Conference in Addis Abeba, on 13-16 July 2015, a  side event on “Urbanization and municipal finance: financing planned city extensions” was organized by UN Habitat and the Global Task Force of Cities and Regional Governments.


UCLG Africa Secretary General participated in the side event organized on 14 July 2015 on the theme of financing planned city extensions in the framework of Financing for Development Conference in Addis Ababa, Ethiopia.

In her opening remarks Mrs. Aisa Kirabo, Deputy Executive Director, UN Habitat, set the current political context of cities, with increasing inequalities, growing exposure to the impact of climate change, unsustainable economic growth path. We are facing growing influx of population in cities and the pace of urban migration is greater than the capacity of cities to house them in an appropriate way. This is why, we should plan for city extensions, in order to create the vibrancy and sustainability we need for our cities.

We need a good national urban policies and a good city plan with the right financial business model for the plan to be implemented. We need an enabling environment, especially around land use and land-value-capture models, to guide the urban design and investments. All various stakeholders have a stake in this matter and partnership is key in the implementation of efficient urban policies and strategies.

In his setting the context of the session, Marco Kamiya, UN Habitat, Urban Economy Branch, presented the three-legged approach being developed by UN Habitat, with:

1) Planned city extension;

2) Legal framework and governance, starting with street naming and providing an address to the people for them the acquire an official existence;

3) Urban economy and municipal finance.

He informed that tax revenue represents 34 % of indigenous revenue GDP for developed countries, and only 13% in developing countries. He insisted on the need to push for more dense cities, because the more density, the more productivity, the more land value, the more energy efficiency, and the more structured land markets.

This three-legged approach can be also integrated in big infrastructure projects, so that a share of the cost of the projects preparation can be devoted to place these projects into a comprehensive city plan.

The panel discussion that followed included Mr. Luiz de Mello from OECD; the director of the African Development Bank regional office for East Africa; the Mayor of Johannesburg, Mr. Mpho Parks Tau; and Joris van Etten, Programme Coordinator, Cities Development Initiative for Asia, an Asian Development Bank initiative backed by international partners such as Austria, Sweden, Switzerland, and the Shanghai Municipal Government.

The Mayor of Johannesburg said that cities of South Africa were planned in a non-inclusive basis, following apartheid-led logic. To face and curve the apartheid legacy, the city of Johannesburg has initiated a three-sponged approach, namely:

1) The creation of corridors of freedom which aims at connecting the townships to the inner city through the building of an integrated BRT for improved mobility, and the development of carefully planned and designed areas to contribute to increasing the density in these corridors;

2) The initiation of a human settlements regularization process to harness the possibility of business and job creation within the neighborhood;

3) The promotion of a scheme for co-production of municipal services with the local communities, with as the result to foster ownership of the city by the townships city dwellers, and at the same time, contribute to the maintenance of infrastructure by its principal users.

City of Johannesburg is also looking at innovative financial instruments such as access to green finance; PPPs on water, energy sectors, or other infrastructure; retail bonds issued for city dwellers to contribute to the financing of infrastructure in their neighborhood, which benefit from the same level of guarantees than the bonds issued by the City in the Johannesburg stock exchange, pool funding mechanisms and vehicle.

The implementation of these innovative instruments supposes that the city is granted appropriate institutional enabling frameworks. The prime concern of the city is to care about financing of human development, hence the effort of the city to promote innovative solutions, including on financing that can make the city more inclusive.

In his address, the regional director, AfDB, reminded that 2 out of 3 city dwellers in Africa live in slums. Cities are however becoming the center of gravity for many things and they need to find innovative ways of financing. The challenges facing cities are intertwined and horizontal and integrated by nature. This is why cities are key to the definition and implementation of the territorial approach to the development and for localizing the implementation of the SDGs.

Cities can raise a lot of money. But they face important constraints among which the issue of informality ; the lack of proper land registration and titling system;  the low purchasing power of the majority of urban dwellers; the low tax take and low capacity of local fiscal administration.

What could be the way forward? The regional director, AfDB, mentioned five areas of improvement:

1) Drastically improve domestic resource mobilization, mindful that external finance will always remain secondary to domestic resources to finance the development of the city. External finance include resources coming from the national governments through fiscal decentralization frameworks, and resources coming from abroad, through ODA, PPPs, or other mechanisms;

2) Drastically improve the financing governance of cities through adopting transparency and accountability systems informed by appropriate financing information systems;

3) Simplify the local taxation system and adopt predictable timelines for the payment of local taxes;

4) Pay more attention to the enhancement of the financial and banking system, in particular to the transformation of short-term savings into longer-term investments loans;

5) Have cities credit-rated so that they can access the financial market and embark in meaningful PPPs deals.

Luiz de Melo from OECD Insisted on the management of tax administration. Planning city extensions need appropriate instruments. He emphasized the need to consider the issue of governance as critical to improving the capacity of local governments to mobilize financing. He called the attention to the need to adopt a multi-level approach to governance, highlighting the need for proper vertical and horizontal coordination mechanisms.

He also insisted not to neglect the other dimensions of governance such as procurement regulations, and measures to safeguard and protect transparency and integrity of the financial system
Joris van Etten from CDIA reminded the need to push a positive narrative that everywhere cities are the engine of growth. The moment cities stop working, countries have problems. The CDIA proposes three dishes to local governments:

1) Assistance on projects prioritization;

2) Main course: packaging the projects so that they financially make sense and are bankable;

3) Last dish: help engage with private sector and negotiate and packaging transactions deals, including PPP deals.

Find out more on Local Governments activities in Addis Abeba here.

UCLG produced a take on the Conference Outcomes here.

For a complete overview of the work of the Global Task Force in the framework of the Conference, click here.!3rd-international-conference-on-financin/c23j0