Urban Asia

Urbanisation in Asia:
Lessons Learned and Innovative Responses
Dean Forbes
Flinders University
Michael Lindfield
Australian Housing and
Urban Research Institute
May 1997
Ausaid
ISSN 0818-4815
ISBN 0 642 22063 8
Commonwealth of Australia 1998
The views expressed in this publication are those of the authors and not necessarily those of hte
Australian Agency for international Development (AusAID).
This research forms part of the AusAID Initiated Research Program, assisted and managed by the
International Issues and Donor Coordination Section, AusAID.
Design: AusAID Public Affairs Section
Typeset by: Design One Solutions, Canberra
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Urbanisation in Asia i
PREFACE
This Report presents the findings of a study on urbanisation in the four Asian case study cities
and a review of best practice in support of urban poverty alleviation and sustainable
development conducted by the Australian Housing and Urban Research Institute (AHURI) in
conjunction with Flinders University and the University of Queensland (UQ) for AusAID.
This report was prepared by Professor Dean Forbes of Flinders University and Mr. Michael
Lindfield of AHURI. Professor John Western, Dr. Adil Khan, Ms. Andrea Lanyon and Dr.
Samuel Hussein of UQ prepared the Cambodia, Philippine and India case studies. Professor
Forbes prepared the Vietnam case study.
The case studies were conducted in association with partners, mainly institutions involved in
the sector, in the countries concerned - Urbanet in the Philippines, The Times Research
Foundation in India, The Institute for Urban Development and Technology in Vietnam and Dr
Chow Meng Tarr in Cambodia. Mr Michael Lindfield and Ms Michelle Manicaros (AHURI)
were responsible for the main report. Mr. John Rooth (AHURI) edited the text and Shally Ho
(AHURI) prepared the text for publication. Thanks are also due to Professor Robert Stimson
and Mr. Brian Roberts of AHURI for comments and AHURI advisors Messrs John Courtney
and Neil Collier.
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Urbanisation in Asia iii
TABLE OF CONTENTS
ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1 AN URBANISING WORLD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
1.1 THE PURPOSE AND ORGANISATION OF THE STUDY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
1.2 TRENDS AND PATTERNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
1.2.1 The Scale and Scope of Urbanisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
1.2.2 Problems and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
1.3 MANAGEMENT OF URBAN CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
2 URBAN INSTITUTIONS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
2.1 URBAN INSTITUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
2.1.1 Urban Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
2.1.2 Urban Development and the Poor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
2.1.3 Institutional Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
2.1.4 The Enabling Paradigm and Urban Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
2.2 URBAN MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
2.2.1 Goals of Improved Urban Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
2.2.2 Organisational and Financial Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
2.2.3 Management Strategies for Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . .34
2.3 URBANISATION OVERVIEW AND IMPLICATIONS FOR DEVELOPMENT ASSISTANCE IN THE SECTOR . .37
3 THE URBAN SECTOR CONTEXT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
3.1 GLOBALISATION ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
3.2 GLOBALISATION FORCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
3.3 GLOBALISATION AND THE POOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
3.3.1 The Role of Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
3.3.2 Disparities in Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
3.3.3 Integration and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
3.3.4 Growth, Inequality and Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
3.4 INDUSTRIAL COUNTRIES STAKE IN SUCCESSFUL INTEGRATION OF DEVELOPING COUNTRIES . . . . .45
3.5 GLOBALISATION IMPACT ON CITIES IN SOUTH-EAST ASIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
3.6 CITIZENS, CITIES AND GLOBALISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
3.6.1 Municipal Foreign Policy (MFP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
3.6.2 Twinning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
3.7 GLOBALISATION IMPLICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
4 AID IN THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
4.1 ACTORS IN THE FIELD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
4.2 NEED IN THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
4.3 THE UN SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
4.4 MULTILATERAL AGENCIES AND IFIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
4.4.1 Basic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
4.4.2 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
4.5 BILATERAL ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
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4.6 NON-GOVERNMENTAL ORGANISATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

4.7 THE TYPES AND EXPERIENCE OF AID IN THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
4.7.1 Project Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
4.7.2 Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
4.7.3 Other Forms of Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
4.7.4 Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
4.8 AUSTRALIAN AID IN THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
4.9 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
5 CASE STUDIES - CALCUTTA, CEBU, HANOI, PHNOM PENH . . . . . . . . . . . . . . . . . . . . . .62
5.1 METHODOLOGY AND CONCEPTS: POVERTY ALLEVIATION FOCUS
IN A SUSTAINABLE
DEVELOPMENT CONTEXT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
5.1.1 Micro-Enterprise Development and the Informal Sector . . . . . . . . . . . . . . . . . . . . . . . . .63
5.2 URBAN POVERTY AND SUSTAINABLE DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
5.2.1 Micro-Enterprise Development and the Informal Sector . . . . . . . . . . . . . . . . . . . . . . . . .64
5.2.2 Human Resource Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
5.2.3 Health and the Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
5.2.4 Rural-Urban Linkages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
5.3 FURTHER LESSONS LEARNED FROM THE CASE STUDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
5.3.1 The Linkages of Poverty Alleviation and Sustainable Development . . . . . . . . . . . . . . . .73
5.3.2 Sector-Specific Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
5.4 CROSSCUTTING ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
5.5 CONCLUSIONS IN RESPECT OF THE CASE STUDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
6 BEST PRACTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
6.1 OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
6.1.1 The Importance of NGOs and CBOs at the Community-Level . . . . . . . . . . . . . . . . . . . .79
6.1.2 The Importance of Efficient and Equitable Markets at the City-wide/Regional Level . .80
6.1.3 Urban Investment and the Community, Public and Private Sectors . . . . . . . . . . . . . . . .81
6.2 DESIGN OF DELIVERY SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
6.2.1 Community-Focused Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
6.2.2 Government-Focused Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
6.2.3 Private-Sector Focused Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
6.3 DELIVERY SYSTEMS VERSUS PROJECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
7 AUSTRALIAN EXPERIENCE AND EXPERTISE IN THE URBAN SECTOR . . . . . . . . . . . .87
7.1 THE NEEDS OF THE ASIAN URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
7.1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
7.1.2 The Needs of the Urban Sector in Asia and Australian Expertise . . . . . . . . . . . . . . . . . .87
7.1.3 Partnerships and Investment Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
7.1.4 The Major Risks Involved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
7.2 AUSTRALIAN STRENGTHS AND OPPORTUNITIES IN THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . .94
7.2.1 Sector and Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
7.2.2 Competitive Goods and Services in the Urban Sector . . . . . . . . . . . . . . . . . . . . . . . . . . .95
7.2.3 Experience in Support to Private Sector Participation in Development Assistance . . . .97
7.2.4 Lessons Learned in Applying Australian Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
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8 MAJOR OUTCOMES OF THE RESEARCH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100

8.1 CENTRAL ISSUES OF THE ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
8.2 COMMUNITY PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
8.3 GOVERNMENT PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
8.4 PUBLIC-PRIVATE PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
8.5 URBAN SECTOR INITIATIVE REVIEWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
8.6 RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
LIST OF TABLES
TABLE 1.1: ASIAS URBAN POPULATION, 1970 - 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
TABLE 1.2: AVERAGE ANNUAL GROWTH RATES OF ASIAS URBAN POPULATION, 1970 -2005 . . . . . .13
TABLE 1.3: ASIAS MILLION CITIES, 1950 - 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
TABLE 1.4: URBAN POVERTY IN SELECTED ASIAN COUNTRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
TABLE 4.1: INFRASTRUCTURE SPENDING FORECAST FOR EAST ASIA, 1995-2004 . . . . . . . . . . . . . . . .50
TABLE 4.2: THE PROPORTION OF AID AND NON-CONCESSIONAL LOAN COMMITMENTS
TO SHELTER-RELATED INFRASTRUCTURE AND BASIC SERVICES, 1980-93 . . . . . . . . . . . . . . . . . . . . . .53
TABLE 4.3: THE PROPORTION OF AID AND NON-CONCESSIONAL LOAN COMMITMENTS TO

URBAN INFRASTRUCTURE, URBAN SERVICES AND URBAN MANAGEMENT, 1980-93 . . . . . . . . . . . . . .55
TABLE 4.4: THE PRIORITY GIVEN BY BILATERAL AID PROGRAMMES TO DIFFERENT PROJECT
CATEGORIES WITHIN SOCIAL AND ADMINISTRATIVE INFRASTRUCTURE, 1991 . . . . . . . . . . . . . . . . . .56
TABLE 4.5: BILATERAL AGENCIES OFFICIAL DEVELOPMENT FINANCE COMMITMENTS FOR
URBAN-DEVELOPMENT BY PURPOSE, 1986-1990 (US$ MILLION CONSTANT - 1990 VALUE) . . . . . . .57
LIST OF FIGURES
FIGURE 1.1: URBAN POPULATIONS AS PERCENT OF TOTAL, 1970-2000 . . . . . . . . . . . . . . . . . . . . . . .13
FIGURE 1.2: AVERAGE ANNUAL GROWTH RATES OF URBAN POPULATION, 1970-2005 . . . . . . . . . . . .15
FIGURE 5.1: CONCEPTUAL FRAMEWORK FOR UNDERSTANDING SUSTAINABLE DEVELOPMENT IN THE
CONTEXT OF THE FOUR ISSUE CATEGORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
FIGURE 6.1: PARTNERSHIPS IN THE URBAN ECONOMY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
FIGURE 7.1: FRAMEWORK FOR EXPERTISE IN THE URBAN SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . .87
FIGURE 7.2: SERVICE SECTOR OUTPUT AS A PERCENTAGE OF GDP . . . . . . . . . . . . . . . . . . . . . . . . . .93
FIGURE 8.1: CURRENT COMMUNITY - FOCUSED DELIVERY SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . .101
FIGURE 8.2: PROPOSED COMMUNITY PARTNERSHIP DELIVERY SYSTEM . . . . . . . . . . . . . . . . . . . . . .102
FIGURE 8.3: CURRENT PROJECT GOVERNMENT DELIVERY SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . .105
FIGURE 8.4: PROPOSED GOVERNMENT PARTNERSHIP DELIVERY SYSTEM . . . . . . . . . . . . . . . . . . . . .105
FIGURE 8.5: PROJECT FUNDING OPPORTUNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
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ABBREVIATIONS
ADB Asian Development Bank
ADF Asian Development Fund
AFDB African Development Bank
AHURI Australian Housing and Urban Research Institute
AIDAB Australian International Development Assistance Bureau (now AusAID)
APEC Asia-Pacific Economic Cooperation
ASBA Alexandria Small Business Association
ASEAN Association of South-East Asian Nations
ASKI Alalay Sa Kaunlaran Sa Gitnang Luzon Inc.
AusAID Australian Agency for International Development
BOO Build-Operate-Own
BOT Build-Operate-Transfer
CBO Community Based Organisation
CDB Caribbean Development Bank
CEMS Community Environmental Management Strategy
CMDA Calcutta Metropolitan Development Authority
CMP Community Mortgage Programme
CSIRO Commonwealth Scientific and Industrial Research Organisation
CSO Community Service Obligation
DAC Development Assistance Committee
DHARD Department of Housing and Regional Development (also Commonwealth
Department of Health, Housing, Local Government and Community Services)
DIFF Development Import Finance Facility
DSM Demand-Side Management
DTP Decentralised Training Programme
EBRD European Bank for Reconstruction and Development
EC European Community
ECOSOC Economic and Social Council
EFIC Export Finance and Insurance Corporation
EMR Extended Metropolitan Region
EPZ Export Processing Zone
ERB Energy Regulatory Board
ESCAP Economic and Social Commission for Asia and the Pacific
ETM Elaborately Transformed Manufactures
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Urbanisation in Asia vii
FDI Foreign Direct Investment

GDP Gross Domestic Product
GNP Gross National Product
HDFC Housing Development Finance Corporation
HUDCO Housing and Urban Development Corporation
IADB Inter-American Development Bank
IBRD International Bank for Reconstruction and Development
IDA International Development Association
IFC International Finance Corporation
IFI International Financial Institution
IIED International Institute for the Environment and Development
ILFS Infrastructure Leasing and Financing Services
IMF International Monetary Fund
KIP Kampung Improvement Programme
KMBI Kabalikat Para sa Maunlad Na Buhay Inc.
LGED Local Government Engineering Department
LRT Light Rail Transit
MEIP Metropolitan Environmental Improvement Programme
MFP Municipal Foreign Policy
MIGA Multilateral Investment Guarantee Agency
MRT Mass Rapid Transit
NGO Non-Governmental Organisation
NHA National Housing Authority (Thailand and Philippines)
NIEIR National Institute of Economic and Industry Research
ODA Official Development Assistance
OECD Organisation for Economic Cooperation and Development
OECF Overseas Economic Cooperation Fund
OUD Office for Urban Development
PACAP Philippine Australia Community Assistance Programme
PRCUD Pacific Rim Council for Urban Development
PSD Private Sector Development
PSI Private Sector Investment
Quango Quasi Non-Governmental Organisation
RoW Rights of Way
SCD Sustainable Cities Programme
SCI Sister Cities International
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SDP Sustainable Development Project

SEZ Special Economic Zone
SHG Self-Help Group
SME Small and Medium Scale Enterprises
SPV Special Purpose Vehicle
SUME Schemes for Urban Micro-Enterprises
SUWE Schemes for Urban Wage Employment
TA Technical Assistance
TSP Total Suspended Particulates
TSPI Tulay sa Pag-Unlad Inc
UBS Urban Basic Services
UBSP Urban Basic Services Programmes
UDA Urban Development Authority
UDC Urban Development Corporation
UMP Urban Management Programme
UMTP Urban Management Training Programme
UN United Nations
UNCED United Nations Conference on Environment and Development
UNCHS United Nations Centre for Human Settlements
UNDP United Nations Development Programme
UNFPA United Nations Population Fund
UNICEF United Nations International Childrens Fund
UNIDO United Nations Industrial Development Organisation
US United States
USAID United States Agency for International Development
USIR Urban Sector Initiatives Review
WTO World Trade Organisation
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Urbanisation in Asia 1
EXECUTIVE SUMMARY
In view of the increasing importance of urban areas as the engines of economic growth in the
rapidly developing economies of Asia - 80 percent of the Gross Domestic Product growth in
developing countries is expected to come from urban economies in the 1990s - and the home of
the majority of humanity, it is necessary to review the major issues and problems of
urbanisation and to assess their implications for the Australian development assistance
programme.
Some 20 to 25 percent of the worlds population lives in absolute poverty, many of these in
cities. The United Nations Development Programme (1991) predicts that there will be an
urbanisation of poverty - over the 10 years from 1990 to 2000, the number of poor urban
households in absolute poverty will have increased by 76 percent to 72 million, and that of rural
households will have fallen by 29 percent to 56 million. The concept of poverty encompasses
not only low or inadequate income, but the lack of access to basic physical necessities and
assets (both tangible and intangible). If poverty is to be alleviated, the poor need to be
empowered in terms of achieving a greater share of, and increased access to, the economy and
society. Globalisation, intimately associated with urbanisation, also has significant implications
for the formulation of development assistance activity. In the context of assisting a country to
take advantage of the growth of the international economy there is a need:
to strengthen public and private sector effectiveness in the promotion of productive and
sustainable investment, effective financial systems and building the knowledge base;
through
ensuring that competitive forces are at work to achieve efficient outcomes and that
regulatory processes are not coopted by vested interests; and
ensuring that all groups, including the poor, have equitable access to the benefits of such
development.
The principal focus of AusAIDs concern, the issue of poverty alleviation, has been central to
the analysis of four case studies - Cebu (Philippines), Calcutta (India), Phnom Penh (Cambodia)
and Hanoi (Vietnam). The study has made recommendations, in the light of a review of
Australian capacity to support poverty alleviation and sustainable development, on more
appropriate aid delivery systems to strengthen the capacity of recipient countries in these areas.
Key to the operation of these systems is the concept of partnerships - with community,
government and private sector organisations.
LESSONS LEARNED FROM THE CASE STUDIES AND

REVIEW OF BEST PRACTICE
The case studies provided important lessons for the structuring of support to urban poverty
alleviation and sustainable development. The analysis of the case studies was initially organised
by four categories:
Human Resource Development

Best practice derived from the case studies suggests that:
More successful programmes of human resource development for poverty groups channel
delivery through local NGOs and CBOs and do so in an incremental way - both in
geographic coverage and scope of activity - over a considerable timeframe.
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2 Urbanisation in Asia
To maximise impact, such delivery is linked into formal sector educational systems which
provide support and channels for students progressing to higher educational levels. These
institutions require considerable institutional strengthening to undertake this role.
Health and the Environment

Lessons learned from the case studies reinforce the importance for poverty groups of the
linkage between health and the environment. Poor quality and crowded housing, lack of potable
water and substandard sanitation contribute to a poor environment for poverty groups, who, in
turn, perceive no benefits from protecting the environment. Best practice delivery systems in
this area embody the same principles as discussed in relation to human resource development
above.
The Informal Sector and Micro-Enterprise Development

The key to poverty alleviation is the generation of income for poor households, amongst whom
the majority own or work in small enterprises which are generally perceived as informal or
outside mainstream economic activity. This sector supplies up to 60 percent of employment and
30 percent of economic output. Poverty alleviation assistance must focus on micro-enterprise
development and the linkage of such enterprises to the formal sector which constitutes a market
for higher margin goods and provides finance. Best practice in micro-enterprise development
fosters sustained growth of such enterprises by channelling support, often through apex NGOs,
to skills development, technology acquisition and access to credit at market rates.
Rural-Urban Linkages
Lessons learned from the case studies show the diversity of links, all of them with a positive
impact on the rural economy, which can exist between a city and its hinterland. Specifically:
remittances from urban workers;
employment for those within daily or short-term commute distance;
employment in satellites; and
markets for rural produce.
However, badly managed urban development can have negative consequences including:
pollution; and
social costs of badly managed/inequitable land development.
In addition to the above lessons, there are lessons to be learned in areas important for the design
of more effective aid delivery systems:
In Respect of Processes for Poverty Alleviation and Sustainable Development

An essential lesson learned from the case studies is that even good initiatives in poverty
alleviation will fail to achieve their potential and will not be replicable unless they are
undertaken in the context of sustainable systemic reforms.
Institutional Capacity
Despite recent reforms in India, fifty years of institutional strengthening and the presence of
high levels of local professional capacity have not fundamentally changed the performance of
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the institutional structures which frustrate effective service delivery to poverty groups. Effective
and sustainable service delivery on a large scale has been achieved by Indian NGOs - such as
Sulabah International in the field of basic sanitation - which have been successful at cost
recovery and eliciting the cooperation of formal sector institutions - such as local governments.
Support to this type of institutional change process must be a long term, incremental process
with concrete milestones against which performance can be judged.
The Formal Private Sector and the Informal Private/Community Sector

In all countries studied, the private sector - informal and formal - constitutes the driving force of
the economy, generating wealth with which poverty can be alleviated. The study has identified
two broad categories of potential support to poverty alleviation which utilise private initiatives.
These are:
support to micro-enterprise development; and
support to the sustainable private provision of urban infrastructure (to which the poor have
access).
In the first category, an example of USAID activity in Alexandria which launched a project to
provide credit and business management assistance to SMEs shows the value of apex NGOs in
catalysing local initiative. The Alexandria Small Business Association (ASBA), a private non-
profit NGO run by a Board of Directors from the local business community, is the institutional
anchor for the programme and has achieved a range of outreach comparable to those of the most
successful micro-finance ventures in the world. In the last five years, the ASBA programme has
served over 20,000 clients and extended over 47,000. ASBA covers the costs of its micro-
finance and technical assistance services entirely through the revenue generated from loan
recovery.
In the second category, the Buenos Aires Water and Sewerage Concession provides an example
of private infrastructure provision which has achieved significant efficiency and equity gains (in
terms of increased coverage at lower real prices). The urgent necessity for extensive
rehabilitation works and new investment amounting to some US$3.95 billion, to provide
adequate water and sewerage coverage for Argentinas capital, coupled with the absolute lack of
government funds, suggested the need for external assistance. The World Bank, intended as the
primary funding agency, was not convinced the existing operator, Obras Sanitarias de la
Nacion, possessed the organisational capacity to implement the required works and to achieve
the levels of cost recovery required to make the project feasible. The Bank therefore promoted a
process of competitive bidding for a concession agreement which would involve
implementation of the required investment programme. The successful bidder tapped the
international capital markets with the assistance of the IFC and undertook substantial
rehabilitation works which dramatically improved the level of service.
Finance
Financial constraints to poverty alleviation and sustainable development are similar across
countries, although the detail context is different. Similarities occur in the following areas:
local government finance is weak although many initiatives are underway to strengthen
capacity in this area - best practice is seen in Indonesia where the Integrated Urban
Infrastructure Development Project has evolved effective techniques in this area over its
twenty year history;
small scale finance for micro-enterprises and upgrading is limited and needs to be
integrated into the wider finance system - in the Philippines, best practice is seen in the
linking of financially viable micro-credit NGOs to the formal capital markets; and
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large scale finance for infrastructure development needs to be augmented by expanding the
range of institutions and instruments available and by channelling external funds where
local capital markets cannot provide the funding levels required - in India, Infrastructure
Leasing and Finance Services was catalysed by the IFC and local financial institutions is a
model of financial sector institutional development which fulfils this role.
AUSTRALIAN EXPERTISE IN SUPPORT OF POVERTY ALLEVIATION

AND SUSTAINABLE DEVELOPMENT
The current relationship among Australian public and private agencies and their Asian
counterparts varies along a spectrum between direct, fully aid-funded projects (public to public)
and fully commercial activities (private to private). The research has highlighted the increasing
importance of public-private partnerships on both sides of the relationship. The difficulty for the
development assistance programme is to evolve delivery systems which recognise and facilitate
such relationships in order to maximise the efficiency of delivery.
Australian urban sector institutions, both public and private, have a range of world class
services and products which can be utilised in poverty alleviation activity and in support of
sustainable development. In particular:
planning, regulatory and monitoring systems (especially in the context of competition

reforms);
finance and management of housing and infrastructure provision;
education and training; and
certain products, especially extensively transformed manufacturers and specialist

information technology products, address areas of need identified in the lessons learned
analysis and are areas where Australia can contribute effectively.
Most importantly, one of the key characteristics of such services and products is that they are
developed within a framework of public-private relationships - typically government regulatory
agencies; corporatised or private operating companies; and consultants - which enables
complimentary services, products and systems to be developed. These are precisely the
approaches, services and products needed in the new partnerships for poverty alleviation and
sustainable development evolving in Asia.
PROPOSED INNOVATIVE RESPONSES
Urban Sector Initiatives Review (USIR)

In the light of the above lessons learned, aid projects need to focus on long-term engagement of,
and partnership with, the organisations in each of the three categories of actors - government,
community and private sector.
The mix of Australian support among these categories in any given country should be designed
in a report (the USIR) setting out an assessment of needs in respect of urban poverty alleviation
and sustainable development given ongoing and planned activity of other donors. Such a report
should be concise (the German aid agency KfW requires such a report to be no more than
twenty five pages) and focus on scoping potential projects. The forms of proposed partnerships
are set out in more detail below.
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Government Partnerships
Broadly, the objectives of such partnership projects in the public sector will be to:
impart best practice in sustainable development of the investments for which the partner
institution has responsibility;
facilitate the role of the private sector in providing services and/or investment by, for
example, defining the regulatory framework including issues important to poverty groups
such as community service obligations of service providers; and
support the relationship between the organisation and NGOs/Community Based
Organisations (CBOs) representing community groups.
Twinning in the Philippines Structured by the World Bank

At a macro-scale, a twinning programme, supported by the World Bank, between
energy regulators in the Philippines and the United States is assisting the Philippines in
improving energy efficiency, whilst at the same time protecting the environment. With
help from the Oregons Public Utility Commission, the Philippines Energy Regulatory
Board (ERB) is developing a regulatory framework for the provision of energy efficient
and environmentally sound energy policies with a focus on Demand-Side Management
(DSM). The introduction of DSM practices will likely realise a 1 to 3 percent saving in
annual power demand. As power demand is estimated to grow around 10 percent per
annum over the next decade, DSM can potentially reduce yearly power generation
needs between 10-30 percent.
In addition to these energy savings and realisation of environmental goals, staff

competence is increased as is long-term institutional efficiency and capacity. The
twinning programme is a cost-effective means of Technical Assistance with all vested
interests (e.g. consumers, CBOs, NGOs, energy producers) cooperating in the
formulation of ground rules for the design of DSM programmes. The strengths of
twinning are found in the development of partnerships, training programmes, skills
transfer, and entrepreneurial development, as well as an enhanced quality of life for
residents through improved energy services and environmental improvement.
The proposed delivery mechanism will involve the long-term association of an organisation
(usually a government agency or a corporatised/privatised service provider, but possibly a
company) with an organisation undertaking similar activities in the recipient country. The
organisation and sub-consultants will be chosen using normal AusAID selection processes
based on Terms of Reference developed from the USIR scoping exercise.
The contract should be based on existing project implementation contracts, establishing clear
outputs and periodic reviews. It should continue over the duration of the design, funding,
construction and initial period of operation of a major (sub-) project. The performance of the
organisation managing the project will be assessed on the successful completion to budget and
time of the project, but also on other performance indicators in respect of the organisational
performance of the implementing agency in the recipient country.
Community Partnerships
Two important principles are incorporated in the proposed delivery mechanism for Australian
aid focused on the community-level and on poverty alleviation activities such as micro-
enterprise development, education and health/ environmental protection. These are:
NGO-based community partnership projects should be formulated as part of an overall

urban sector strategy identified in the USIR.
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Given that the central strength of NGO involvement is its close relationship to the
community, in order to ensure that such relationships are sustainable and not paternalistic,
programmes should be designed so that Australian NGOs are associated with apex southern
NGOs where possible. If no relevant apex NGO exists, the role of the Australian NGO
should be to foster one where possible.
As with government partnerships as above, standardised procedures should be used to select

and monitor NGO partners contracted and the contract with the Australian NGO should
continue over the duration of the design, funding, construction and initial period of operation of
a major project. Again, the performance of the organisation managing the project will be
assessed on the successful completion to budget and time of the nominated project outputs, but
also on other performance indicators in respect of the organisational performance of the local
NGO.
In particular, the objectives of such projects will be to:
facilitating the NGO/CBO linkages to the private sector and to government; and
supporting the relationship between the organisation and NGOs/CBOs representing

community groups.
NGO Partnerships in Buenos Aires: the FICONG Programme

International Institute for the Environment and Development (IIED) is a northern NGO
based in London. It has supported IIED-America Latina in Buenos Aires over many
years as a counterpart apex organisation in South America. In Latin America, there is a
long tradition of specialist NGOs working with the inhabitants of low-income
settlements (often illegal or informal settlements) in programmes to improve housing
conditions or provide basic services. The role of NGOs has also been much increased in
many countries, as economic reform during the 1980s has often been accompanied by a
withdrawal of the State from direct provision of services. The resulting greater
participation for NGOs in projects has to be matched by a greater effectiveness among
NGOs and a growth in the scale of their programmes. With these goals in mind, in
September 1991, IIED-America Latina launched a new programme for the institutional
strengthening and training of NGOs such as FICONG. The FICONG programme is
implemented through a large network of NGOs and other settlement institutions. It aims
to enhance the capacity of NGOs and public agencies in responding to the needs of
poorer groups and to increase their effectiveness and the scale of activities. FICONG
also encourages NGOs and State organisations to develop more effective partnerships
with residents associations in low-income communities.
Training courses, seminars and workshops are undertaken throughout Latin America in
conjunction with a large network of affiliated institutions and organisations. Among the
main supporters of the FICONG Programme are the Economic Development Institute of
the World Bank and the bilateral aid programmes of Sweden, the Netherlands, and Japan.
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Public-Private Partnerships
From analysis of the lessons learnt, there are two key streams of potential activities in support of
the private sector :

access).
The mechanisms for support to micro-enterprise development are relatively well understood
and such projects can be adapted to modified conventional delivery mechanisms as proposed in
this study. In respect of private provision of infrastructure, this situation does not apply.
In view of the increasing involvement of the private sector in urban service delivery and the
potential impact of this involvement on poverty groups and on the environment, significant
benefits will result from ensuring that private sector investment is poverty alleviating and
environmentally sensitive. However, the task of supporting a particular project or programme in
order to promote such activity is radically different from what might be called the traditional
model of aid delivery.
The objective of private sector partnership-based delivery systems is to provide the required
finance for the least cost while fulfilling the social/allocative functions ascribed to the project
(e.g. in respect of guaranteeing access to poverty groups, protection of the environment). The
structuring of these projects therefore requires clear definition of community service and other
obligations.
The key constraint to efficient and equitable involvement of the private sector in urban
infrastructure service delivery is the capacity of the public sector to manage such projects. This
is the case in Australia, which has world-class expertise in the field. Aid assistance in building
capacity to manage such projects in the public sector would be provided under the government
partnerships outlined above. However, two additional areas of potential aid involvement in this
field can be justified. These are:
In order that such projects as the Buenos Aires water and sewerage concession go ahead and
achieve potential efficiency and equity gains, some form of credit enhancement may be
necessary. This enhancement normally involves hedging (covering) an area (areas) of risk
which cannot be hedged with commercially available financing instruments and insurance.
Such support will often not require cash input, but will constitute a contingent liability
which (as in the case of World Bank guarantees) constitute disbursement of aid and for
which provision should be made in the aid budget. Other indirect supports to private sector
projects are possible, such as the provision of equity through a local intermediary. Direct
equity input on the part of AusAID is inappropriate and administratively difficult.
In a case where a government cannot provide for needed/required community service

obligations (CSOs), such as extension of networks to low income areas, limited support
should be provided to government in this area. Such support would normally not take the
form of revenue payments to a private company, but would be in the form of capital
subsidies for infrastructure utilised by poverty groups or for environmental protection. The
support must be limited in terms of duration and amount. In parallel, strengthening of
government and/or community capacity to fund said CSOs on a sustainable basis should be
undertaken. Such activity can even be undertaken on a loan basis, as was the case in respect
of an IFC loan to the concessionaire in Buenos Aires. This loan predominantly funded
redundancy packages for surplus staff.
These interventions should be scoped in the USIR as they require coordination across
partnership groups.
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RECOMMENDATIONS
The analysis and outcomes of the research set out above enable four main recommendations to
be made in the context of the current urban sector programme of AusAID. These are:
Recommendation One: A prototype urban sector initiatives review should be trialed in order
to judge its efficiency in:
identifying focus areas of poverty alleviation support;
designing interventions for sustainable economic, social and

environmental development; and
preparing a programme of development assistance in support of

investments which meet both the approval of the recipient
country and AusAID policy and administrative requirements.
Such a review should be drafted by a small team headed by AusAID

staff and include members with experience in community
partnerships and in private sector participation in order to ensure all
target partnership groups are adequately addressed. The review
methodology should then be documented.
Recommendation Two: Prototype community, government and public-private partnership

projects identified by the review should be detailed in terms of their
performance measures, monitoring systems and contract forms in
order to ensure efficient and transparent procedures are used in
implementation. Consultation with NGOs and the private sector will
be required in regard to the performance measures, monitoring
systems and contract forms documented.
Recommendation Three: Based on the Lessons Learnt Database, a learning system for
best practice in the urban sector in AusAID should be established.
Structured by sector, focus of project (community, government or
private sector) and organisation, this system should document best
practice (including best practice in avoiding common problems).
The system should not require more administrative documentation
for project officers, but should comprise regular debriefing on
project progress and analysis of project outcomes based on
evaluation reports and debriefings. Regular review of this best
practice should result in a review of AusAID guidelines.
Recommendation Four: The study has highlighted two areas in which more information is
needed and for which better dissemination of best practice is
required. These are:
the provision of support to NGOs/ CBOs in community-based

projects; and
the provision of support to the public sector in the management

of private sector initiatives.
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1 AN URBANISING WORLD
1.1 The Purpose and Organisation of the Study
As urban areas are increasingly the engines of economic growth and the home of the majority of
humanity, it is necessary to review the major issues and problems of urbanisation. Australias
aid program must decide how to address the urbanisation of poverty - the fact that the majority
of the world poor will soon live in urban areas. Eighty percent of the Gross Domestic Product
(GDP) growth in developing countries is expected to come from urban economies in the 1990s
(Urban Management Programme (UMP), 1994) and while this development will provide
resources to alleviate poverty, the equitable distribution of these resources will need
development assistance support. This review will provide an understanding of the scale of needs
of people in urban areas, in particular the poor people, and enable an assessment of the role the
Australian development assistance programme can have in addressing these needs. The study
focuses on Asia, a region undergoing great social, economic and environmental change and,
generally, rapid economic development. This region and the urban areas of the region, are also
most closely related - in terms of economic and social relationships - to our own urban regions.
As the focus of much economic activity, particularly high value-added activity, the efficiency
and equity with which urban areas are managed is important to both urban and rural citizens of
a country. For rural areas, cities and towns are sources of remittance payments, markets for rural
products, sources of services and products used in agricultural production and markets for
under-employed rural labour. The objective of alleviating poverty requires that due
consideration be given to the urban poor. In some countries the incidence of urban poverty is
higher than in rural areas (World Bank, 1993). The World Bank (1994b) has forecast that over
half of the worlds absolute poor will be living in urban areas by the year 2000. It is estimated
that the proportion of people living below the poverty line in cities in developing countries
increased by 73 percent during the 1970-1985 period (Gilbert, 1992). In Asia the percentage
below the poverty line is lower (23 percent in 1988), but constitutes 42 percent of the world
total. As will be discussed in detail below, the inter-relation and inter-dependencies between the
alleviation of rural and urban poverty argue for a comprehensive approach focused on both rural
and urban poverty alleviation in a geographically defined regional economy.
Such an approach must take into account the environmental consequences of development.
Concentrating economic activity and consumption in cities has both direct and indirect
environmental impacts. The direct environmental impacts are the result of producing levels of
pollution which environmental resources (such as water bodies), acting as waste sinks, cannot
sustainably absorb. The breakdown of local and global ecosystems and the health consequences
of such levels of pollution are manifest. Indirect environmental impacts are evident in the
depletion of environmental resources (such as forests) in order to satisfy consumption - the
footprint of the city is large. The environmental sustainability of urban development is thus in
question and, in turn, this raises questions in respect of the sustainability of rural development
predicated on urban markets (which, after all, is most non-subsistence rural development).
However, sustainable development encompasses more than environmental sustainability.

Sustainability must also be seen in terms of social and economic dimensions. Development
impact on equity and social cohesion will determine the political sustainability of a given urban
system. The ability of that system to deliver income to people, foster productive investment and
support efficient provision of infrastructure will determine its economic sustainability.
These issues of poverty alleviation and sustainable development will be central and recurring
themes of the study. In order to adequately describe the phenomenon of urbanisation in Asia in
terms of these themes and to determine the most effective approach to support of poverty
alleviation and sustainable development, it is first necessary to build a picture of urban areas in
the region. The remainder of this chapter will quantify this phenomenon and set out the major
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issues relating to it. Chapter Two will focus on the institutions involved in managing urban
systems and the commonly agreed management issues for those institutions.
Chapters Three and Four will place this picture in a dual context. On the one hand, urbanisation,
particularly in Asia, needs to be understood in the context of the globalisation of the world
economy. On the other hand, the context of development assistance support to the urban sector
needs to be understood.
Chapter Five summarises the findings of four city case studies - Cebu, Philippines; Hanoi,
Vietnam; Calcutta, India; and Phnom Penh, Cambodia - conducted for the study. These cases
focus more specifically on the issues of poverty alleviation and sustainable development,
especially the performance of local institutions.
Chapter Six sets out the conclusions of a review of best practice in urban projects by sector.
Again, the focus is the performance of community, government and private sector institutions in
support of poverty alleviation and sustainable development.
Chapter Seven assesses Australias skills in the urban sector with a view to identifying areas of
core competence which should be central elements in the development assistance activity for
Australia.
Chapter Eight details the findings of the study. It recommends the adoption of delivery systems
more appropriate to the circumstances identified by the study as determining the effectiveness
of development assistance support to poverty alleviation and sustainable development, and to
the skills of Australian institutions.
1.2 Trends and Patterns
1.2.1 The Scale and Scope of Urbanisation

Urbanisation has been an essential part of most nations development towards a stronger and
more stable economy over the last few decades. It has helped underpin improvements in living
standards for a considerable proportion of the worlds population. The countries in the South
that urbanised most rapidly in the last 10 to 20 years are generally those with the most rapid
economic growth (Asian Development Bank (ADB), 1996a:61). Most of the worlds largest
cities are in the worlds largest economies, which is further evidence of this link between gross
economic wealth and cities. Cities and towns also have important roles as centres of artistic,
scientific and technological innovation, and of culture and education. The following discussion
of urbanisation trends is drawn substantially from Yeung (1994) who provides an excellent
overview of the Asian urbanisation process.
In a global context, Asia has been a rapidly urbanising continent. Between 1970 and 1990, the
worlds urban population increased by 1,038 million, of which Asia accounted for 589 million or
56 percent. By the end of the century, one in two urban dwellers in the world will live in Asia. By
that time and for the first time in human history, more people in the world will be living in cities
than in the countryside. It has been forecast that by the year 2000, 51.1 percent of the worlds
population will be living in urban places; the figure for Asia will be 42.7 percent. Table 1.1
gives the numbers and percentages of the urban population for Asia between 1970 and 2000
(regional and sub-regional figures indicated) compared to the world as a whole.
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Table 1.1: Asias Urban Population, 1970 - 2000

1970 1980 1990 2000
Pop (000s) % Pop (000s) % Pop (000s) % Pop (000s) %
World 1,352,449 36.6 1,757,265 39.5 2,390,170 45.2 3,197,679 51.1

Asia 481,104 22.9 687,336 26.3 1,070,375 34.4 1,585,438 42.7
Eastern Asia 243,952 24.7 322,215 27.4 526,784 39.4 776,832 51.4
China 144,357 17.4 195,370 19.6 380,803 33.4 614,514 47.3
Hong Kong 3,534 89.7 4,614 91.6 5,507 94.1 6,065 95.7
Japan 74,294 71.2 88,995 76.2 95,040 77.0 99,782 77.7
Dem. P.R. of Korea 7,789 53.3 10,387 56.9 13,023 59.8 16,479 63.1
Republic of Korea 12,995 40.7 21,678 56.9 30,794 72.0 37,773 81.4
Macau 238 97.0 317 98.2 473 98.7 649 98.9
Mongolia 556 45.1 854 51.3 1,145 52.3 1,569 55.1
South-Eastern Asia 57,894 20.2 86,571 24.0 132,824 29.9 197,214 36.9
Brunei Darussalam 80 61.7 111 59.9 153 57.7 196 59.0
Cambodia 812 11.7 659 10.3 959 11.6 1,460 14.5
Indonesia 20,534 17.1 333,514 22.2 56,293 30.5 86,401 39.5
Lao PDR 261 9.6 431 13.4 770 18.6 1,372 25.1
Malaysia 2,929 27.0 4,769 34.6 7,701 43.0 11,255 51.2
Myanmar 6,190 22.8 8,108 24.0 10,316 24.8 14,523 28.4
Philippines 12,380 33.0 18,064 37.4 26,602 42.6 37,775 48.8
Singapore 2,075 100.0 2,414 100.0 2,723 100.0 2,997 100.0
Thailand 4,750 13.3 8,088 17.3 12,609 22.6 18,738 29.4
Viet Nam 7,820 18.3 10,350 19.3 14,600 21.9 22,340 27.1
Southern Asia 147,441 19.5 218,757 23.1 328,157 27.3 490,473 32.8
Afghanistan 1,503 11.0 2,514 15.6 3,021 18.2 5,884 22.2
Bangladesh 5,074 7.6 9,968 11.3 19,005 16.4 34,548 22.9
Bhutan 32 3.1 49 3.9 81 5.3 149 7.8
India 109,616 19.8 158,851 23.1 230,269 27.0 336,542 32.3
Iran (Islamic Rep. of) 11,661 41.0 19,291 49.6 30,953 56.7 43,621 63.4
Maldives 16 13.5 35 22.3 63 29.4 106 37.5
Nepal 450 3.9 909 6.1 1,837 9.6 3,446 14.3
Pakistan 16,354 24.9 23,946 28.1 39,250 32.0 61,477 37.9
Sri Lanka 2,736 21.9 3,196 21.6 3,679 21.4 4,701 24.2
Western Asia 31,817 43.2 50,794 51.5 82,609 62.7 120,920 70.3
Bahrain 173 78.7 279 80.5 428 83.0 583 85.4
Cyprus 251 40.8 291 46.3 370 52.8 455 59.7
Democratic Yemen 481 32.1 687 36.9 1,078 43.3 1,741 50.8
Gaza Strip (Palestine) 287 82.1 397 90.2 554 93.6 721 94.9
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Table 1.1: Asias Urban Population, 1970 - 2000, continued

1970 1980 1990 2000
Pop (000s) % Pop (000s) % Pop (000s) % Pop (000s) %
Iraq 5,254 56.2 8,799 66.2 13,488 71.3 19,843 75.3

Israel 2,504 84.2 3,435 88.6 4,214 91.6 4,973 93.5
Jordan 1,162 50.5 1,753 60.0 2,725 68.0 4,105 73.9
Kuwait 579 77.8 1,240 90.2 1,949 95.6 2,565 97.2
Lebanon 1,466 59.4 2,016 75.5 2,261 83.7 2,895 87.0
Oman 33 5.1 72 7.3 159 10.6 329 15.1
Qatar 89 80.3 197 86.1 329 89.5 456 91.3
Saudi Arabia 2,796 48.7 6,265 66.8 10,928 77.3 16,933 81.8
Syrian Arab Republic 2,713 43.3 4,110 46.7 6,321 50.4 9,941 55.8
Turkey 13,571 38.4 19,455 43.8 34,274 61.3 49,445 74.0
United Arab Emirates 94 42.3 824 81.2 1,236 77.8 1,518 77.8
Yemen 364 7.5 970 15.3 2,295 25.0 4,418 33.4
(Source: United Nations (UN), 1991, World Urbanisation Prospects 1990, UN Department of International
Economic and Social Affairs, New York, pp. 106-128)
The definition of urban, urban area and urbanisation is problematic. Urban can either mean
of a city, of cities, or non-rural. This distinction is important because inter-city expressways
do not constitute urban infrastructure under the first definition, but do under the latter two.
Power generation (consumed mostly in cities) would not fall under the first two definitions, but
would fit the third. Even if one general definition is taken, detailed definition can be problematic.
For example, urban population meaning the population of a city will vary according to the
national convention as to where to draw administrative boundaries around a city.
In Indonesia where boundaries have not been adjusted in accord with new spatial development,
much of a citys population can live in the surrounding rural Kabupaten (Local Government
District). In China many rural villages are counted in the estimates of some cities populations.
Consequently, cross-country comparisons can be misleading. This being said, there is no
practical way of ensuring consistency, other than slow standardisation of statistical convention,
promoted mostly through the United Nations (UN) system. The statistics presented here should
thus be taken as indicative and the original references consulted for guidance as to the
assumptions underlying and comparability of, statistics. In general, the report will adopt broad
definitions - urban being non-rural, that is, not agriculture, livestock and extractive
industries, urban area being the area where residents derive substantial amounts of household
income from non-rural economic activities focused on a particular town, city or group of cities;
and urbanisation being the process by which increasing proportion of a countrys people live
within urban areas.
Figure 1.1 indicates the proportion of the urban population for the world and Asia between 1980
and 2000. Within Asia, there are considerable intra-regional differences in both the size of the
urban population and the level of urbanisation. Western Asia, for example, is notable for its
overall high level of urbanisation - in 1990 it reached 62.7 percent and is expected to increase to
70.3 percent by 2000. For Eastern Asia the percentage of those living in urban areas will
increase more than two-fold, from 24.7 percent to 51.4 percent. For South-East Asia and
Southern Asia the increase is slightly less - 20.2 percent to 36.9 percent for South-East Asia and
19.5 percent to 32.8 percent for Southern Asia.
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Figure 1.1: Urban Population as Percent of Total, 1970-2000

100
90
80
70
Population
60
50
40
30
20
10
0
World Asia Eastern South- Southern Western
Asia Eastern Asia Asia Asia
1970 1980 1990 2000
The urban populations in countries of Asia can be very large despite lower levels of
urbanisation, as indicated in Table 1.1. For example, in 1990 there were 380 million urban
dwellers in China, 230 million in India, 95 million in Japan, 56 million in Indonesia and 44
million in Korea.
Table 1.2: Average Annual Growth Rates of Asias Urban Population, 1970 -2005
Average annual growth rate (percent)
1970 1975 1980 1985 1990 1995 2000
1975 1980 1985 1990 1995 2000 2005
World 2.61 2.63 3.06 3.09 3.00 2.82 2.55

Asia 3.33 3.54 4.58 4.54 4.18 3.68 3.09
Eastern Asia 2.47 3.09 4.85 4.98 4.31 3.46 2.49
China 2.09 3.94 6.72 6.63 5.41 4.16 2.89
Hong Kong 2.39 2.94 1.88 1.66 1.05 0.88 0.44
Japan 2.55 1.06 0.81 0.51 0.50 0.48 0.44
Dem. P.R. of Korea 3.67 2.09 2.38 2.15 2.39 2.31 2.00
Republic of Korea 5.31 4.92 3.97 3.05 2.31 1.77 1.40
Macau 1.34 4.39 3.96 4.05 3.53 2.82 2.07
Mongolia 4.38 3.85 2.94 2.92 3.09 3.21 3.25
South-Eastern Asia 4.15 3.90 4.33 4.24 4.09 3.82 3.47
Brunei Darussalam 3.73 2.72 3.07 3.40 2.52 2.40 2.24
Cambodia -2.09 -2.07 3.54 3.96 4.19 4.22 4.30
Indonesia 4.92 4.88 5.37 5.00 4.56 4.01 3.36
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Table 1.2: Average Annual Growth Rates of Asias Urban Population, 1970 -2005,
continued
Average annual growth rate (percent)
1970 1975 1980 1985 1990 1995 2000
1975 1980 1985 1990 1995 2000 2005
Lao PDR 5.52 4.50 5.58 6.03 6.00 5.55 5.12

Malaysia 4.99 4.76 4.87 4.71 4.11 3.47 2.88
Myanmar 3.25 2.15 2.13 2.69 3.23 3.62 3.84
Philippines 4.02 3.54 3.97 3.77 3.61 3.40 3.17
Singapore 1.73 1.30 1.15 1.25 1.07 0.84 0.63
Thailand 5.59 5.05 4.66 4.22 4.02 3.91 3.70
Viet Nam 2.86 2.75 3.22 3.66 4.16 4.35 4.39
Southern Asia 4.00 3.89 4.15 3.96 4.03 4.01 3.87
Afghanistan 6.11 4.17 -0.47 4.15 8.51 4.83 4.50
Bangladesh 6.74 6.76 6.57 6.33 6.14 5.81 5.37
Bhutan 3.95 4.24 4.72 5.43 5.90 6.25 6.13
India 3.76 3.66 3.80 3.63 3.82 3.77 3.66
Iran (Islamic Rep. of) 5.35 4.71 5.43 4.02 3.20 3.66 3.49
Maldives 8.69 7.33 6.17 5.91 5.43 4.91 4.38
Nepal 6.72 7.35 7.21 6.86 6.48 6.11 5.51
Pakistan 3.76 3.87 5.01 4.87 4.48 4.50 4.28
Sri Lanka 1.83 1.28 1.23 1.58 2.19 2.71 3.16
Western Asia 4.95 4.40 5.14 4.59 4.09 3.53 3.11
Bahrain 4.42 5.19 4.56 3.97 3.37 2.82 2.38
Cyprus 1.06 1.95 2.43 2.35 2.16 1.96 1.78
Democratic Yemen 3.31 3.82 4.32 4.68 4.85 4.74 4.42
Gaza Strip (Palestine) 3.32 3.17 3.66 3.00 2.74 2.51 2.36
Iraq 5.05 5.26 4.48 4.06 3.95 3.77 3.56
Israel 3.57 2.75 2.13 1.96 1.73 1.59 1.42
Jordan 4.27 3.96 4.43 4.39 4.26 3.93 3.44
Kuwait 7.53 7.71 5.24 3.80 3.04 2.46 1.98
Lebanon 5.17 1.21 1.25 1.05 2.69 2.25 1.93
Oman 6.83 8.70 8.36 7.45 7.35 7.17 6.95
Qatar 9.40 6.44 5.73 4.49 3.65 2.87 2.60
Saudi Arabia 8.40 7.74 6.02 5.11 4.56 4.20 4.04
Syrian Arab Republic 4.23 4.08 4.15 4.46 4.56 4.49 4.35
Turkey 4.09 3.11 6.11 5.21 4.17 3.16 2.34
United Arab Emirates 29.04 14.32 4.84 3.26 2.24 1.87 1.81
Yemen 9.58 10.04 9.08 8.15 7.08 6.01 5.68
(Source: United Nations (UN), 1991, World Urbanisation Prospects 1990, UN Department of International
Economic and Social Affairs, New York, pp. 154-159)
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Figure 1.2 overviews the annual growth rates for urban areas in Asia for the period between
1970 and 2005 which are detailed by country in Table 1.2. These growth rates have been
consistently higher than for the world as a whole. The sub-regional and country growth rates
have reflected peculiar development patterns within them. For example, in China the higher
sub-regional growth rates are increased by structural changes in China which allowed
significant increases in rural-urban migration since 1978. Thus Chinas urban population
growth rates were almost 7 percent per annum during the 1980s, radically higher rates than
earlier periods.
Figure 1.2 shows that the annual growth rates for Eastern Asia increased markedly from 1970 to
1990 when it peaked. Elsewhere in Asia the annual growth rates are less pronounced. In
Western Asia the rate increased from 4.95 percent in 1970 to a peak of 5.14 percent in 1985-
1990, while in Southern Asia over the same time period it increased from 4.00 percent to a peak
of 4.15 percent.
Figure 1.2: Average Annual Growth Rates of Urban Population, 1970-2005

6.0
5.5
5.0
4.5
4.0
Population
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
World Asia* Eastern Asia* South- Southern Western
Eastern Asia Asia* Asia*
19701975 19801985 19901995 20002005

19751980 19851990 19952000 *(Urban)
Similarly, in Southern Asia, urbanisation rates varied due to specific country conditions.
Generally urbanisation took longer to get underway but is expected to accelerate dramatically,
attaining almost East Asian levels in the 1990s. Finally, in Western Asia the newly found wealth
in some of the Gulf nations since the early 1970s has accounted for high rates of urban
population growth, with double or near double-digit annual growth rates recorded by countries
such as Oman, Saudi Arabia, United Arab Emirates and Yemen. Many of the cities in these
countries became magnets drawing large numbers of workers from other countries of Asia
(Blake and Lawless, 1980).
At the same time as the Asian population is becoming more urban, the proportion of the urban
population concentrated in large cities is also increasing. Cities with a population of one million
or more can be taken as an illustration. There were only 24 million cities in Asia in 1950, but
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the number increased to 77 in 1980 and 115 in 1990. A heavy concentration of these cities is
found in eight countries in Asia; their growth in numbers over the years has been especially
dramatic in China and India, but it has also taken place in the Republic of Korea, Indonesia and
Pakistan (see Table 1.3). Projections indicate (see Table 1.3) that the concentration of
population in the current group of large cities will intensify, with no more million cities being
added to the year 2000. Further, in some Asian countries there is a clear trend of concentration of
population in the largest city, the so-called primate city. Thus, in 1990 more than one-half of
Thailands urban population lived in Bangkok and one-third of the urban populations in the
Republic of Korea, Bangladesh and the Philippines lived in Seoul, Dhaka and Metro Manila
respectively. Istanbul, Jakarta, Karachi and Teheran accounted for almost 20 percent of their
respective nations urban population (UN, 1991).
When examining the largest urban agglomerations, or megacities, in the world, the
prominence of Asia over time is even more pronounced. In 1990, 17 of the 28 largest urban
agglomerations in the world were located in Asia. Cities such as Beijing, Bombay, Calcutta,
Jakarta, Seoul, Shanghai, Tianjin and Tokyo had a population of close to or above 10 million.
Some of these cities are said to perform key functions in the global economy (see Chapter
Three on globalisation) and may be called world cities (Friedmann, 1986). Other world cities
have been identified in Pacific Asia (Yeung and Lo, 1992).
Table 1.3: Asias Million Cities, 1950 - 2000

Selected Countries 1950 1960 1970 1980 1990 2000
China 8 13 25 33 38 38
Japan 3 5 5 6 6 6
Republic of Korea 1 2 3 4 6 6
Indonesia 1 1 3 4 6 6
India 5 7 9 10 24 24
Iran 1 1 1 1 5 5
Pakistan 1 2 2 3 6 6
Turkey 1 1 2 3 4 4
All Asia 24 38 59 77 115 115
(Source: Yeung, 1994:29)
However, too much should not be made of this trend. Although there is a growing number of
megacities, these still contain a small proportion of the worlds population (United Nations
Centre for Human Settlements (UNCHS), 1996:xxvi). If megacities are considered to be cities
with more than 10 million inhabitants, by 1990 only 3 percent of the worlds population lived in
megacities. If the population threshold for a megacity is reduced to 8 million inhabitants, less
than 5 percent of the world population lived in megacities in 1990. As discussed above, the
population size of some of these megacities is also exaggerated through boundaries being set for
city-regions that include large numbers of people living outside the citys built-up area. The
most recent censuses also found that many of the Souths largest cities had several million
people less than had been predicted, including Sao Paulo and Mexico City. The predictions that
cities such as Calcutta and Mexico City will have 30-40 million inhabitants by the year 2000 are
not eventuating; Calcutta is likely to have less than 13 million while Mexico City is likely to
have less than 18 million.
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The links between rural and urban areas are extensive and there is considerable diversity in the
scale and nature of migration. There are around 30,000 large urban centres in the South, each
having its own unique pattern of in-migration and out-migration that constantly changes,
reflecting (among other things) changes in that centres economic base, labour market and age
structure. It also reflects social, economic and political changes within the region and nation and
is influenced by such factors as crop prices, land-owning structures and changes in agricultural
technologies and crop mixes in surrounding areas and distant regions.
Each detailed study of migrants in urban settings and of conditions in areas of out-migration
reveals a long list of factors which influence migration, including: those relating to individuals or
household structures and gender-relations within household; local social, economic and cultural
factors; regional and national social and economic change; and international factors. In each
location the relative importance of the different factors is subject to constant change. This
cautions against seeking too many generalisations and general recommendations in regard to
rural-urban migration. Recent studies have highlighted the extent to which migration patterns
are also differentiated by gender. Various studies have shown how female migration is of much
greater volume and complexity than was previously believed and also how the migration of
females differs in many ways from that of males in its form, composition, causes and
consequences (see, for example, Chant and Radcliff, 1992; Hugo, 1992; Pryer, 1992; Radcliff,
1992; Hugo, 1995). Some of these differences will be discussed further in the sections below.
Further, McGee (1987) and Ginsburg (1990) have drawn attention to a predominantly Asian
variant of urban agglomeration, observed in many long-standing and rich agricultural regions of
Asia, centred on a number of large cities. These are Extended Metropolitan Regions (EMRs)
which are regions of rural-urban integration. In many, this integration takes the form of a
process of urbanising the countryside where rural people do not have to change residence or
move to the cities. Simple transport modes like the bus or the scooter have been effectively
extending the economic sphere of the cities, in contrast to a citys hinterland which includes its
demand for rural products, to as far as 100 kilometres around them. This is resulting in
increasing importance of rural non-farm jobs as a source of employment and income, and
substantial circular migration between city and countryside. The process has been noted to
occur in Java, Taiwan, China, India and in other regions of Asia.
Because of the gradual gradation of land use and economic functions from the city to the
surrounding rural areas, the existence of such EMRs has led to more stable rural populations
(United Nations Development Programme (UNDP), 1996). Rural industrialisation and
urbanisation have proceeded in tandem, and thus have taken pressure from the core city. In
Jabotabek, Bangkok, Kuala Lumpur and other large cities in the region, more rapid growth in
population and economic development has occurred in the fringe areas than in the city proper.
Cheaper land costs, less stringent regulatory controls and unclear planning mechanisms
prevailing in the grey areas have spurred rapid development in these areas. In some areas, this
has facilitated substantial Foreign Direct Investment (FDI) flows for certain economic
activities, but pollution control is problematic.
Urban and rural poverty are also linked, the former being fed by the latter as people escaping
from rural poverty have migrated to the city. Table 1.4 shows the extent of urban poverty
derived from various sources. Between one-fifth and a quarter of the worlds population live in
absolute poverty, lacking the income or assets to ensure they have sufficient food and to build,
purchase or rent adequate shelter; more than 90 percent of these live in the South (UNCHS,
1996:xxxvii). Although the number of people living in absolute poverty in rural areas is still
higher than in urban areas, research during the late 1980s and early 1990s found that the scale of
urban poverty had been greatly underestimated - largely because poverty lines were set too low
in relation to the cost of living in cities. Such research showed how many aspects of deprivation,
such as vulnerability and social exclusion, had also grown (UNCHS, 1996:xxxvii). The number
of urban dwellers living in absolute poverty grew rapidly during the 1980s, especially in Latin
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America and Africa and in the less successful Asian economies. Much of the growth in poverty
was associated with deteriorating macro-economic conditions and structural adjustments.
Changing labour markets also brought less job security and lower wages, increasing the number
of people with inadequate income.
Table 1.4: Urban Poverty in Selected Asian Countries

Proportion of the population below the poverty line
Separate
Country or Region Urban areas Rural areas Whole nation Date rural/urban
poverty lines
Asia (excluding China) 34.0 47.0 43.0 1985

Bangladesh 58.2 72.3 1985/86 Yes
China 0.4 11.5 8.6 1990 Yes
India 37.1 38.7 1988
Indonesia 20.1 16.4 17.4 1987 Yes
Korea, Republic of 4.6 4.4 4.5 1984
Malaysia 8.3 22.4 17.3 1987
Nepal 19.2 43.1 42.6 1984/85
Pakistan 25.0 31.0 1984/85
Philippines 40.0 54.1 49.5 1988
Sri Lanka 27.6 45.7 39.4 1985/86 Yes
(Source: Hamid and Fouad, 1993)
1.2.2 Problems and Issues

Although urbanisation has been a concomitant of economic development in post-war Asia, the
subject did not receive systematic or wide-spread attention until the 1960s. Over the past three
decades, the planning of support to Asian urbanisation, not unlike that of the Third World as a
whole, has reflected notable shifts in emphasis and conceptual underpinnings.
Three major issues and associated problems dominate current discussion in the sector. These
are:
poverty alleviation and urban economic development;
the urban environment and the sustainability of urban development; and
human resource development (education and health) and the quality of life in general, and of
women in particular.
These issues interrelate but are important to review at the outset of this study as they set the
scene for later analysis.
Poverty Alleviation and Urban Economic Development

The increasing globalisation of the world economic system (see Chapter Three) has been
recognised as an important aspect of urbanisation in Asia, with, for example, Export Processing
Zones (EPZs) established in many countries and cities. The overwhelming bias in the analysis of
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the contemporary Asian city, Michael Douglass (1993) argues, is to treat it as an economic
engine of growth, rather than as habitat for all of those drawn into living in its expanding
sphere. Despite obvious prosperity, we have seen in the preceding sections that significant
poverty persists in many Asian cities. For the most part in the 1980s, the International Monetary
Fund (IMF) and World Bank structural adjustment programmes treated poverty alleviation as a
secondary issue. But the negative impact of these programmes, especially on women and
children, in Asian countries such as the Philippines has led to an increased concern with
escalating health problems and other family and community crises (Douglass, 1993).
Nevertheless, there is an important relationship between economic development and poverty
alleviation in urban areas.
There is a generally well-established correlation between economic development and level of

urbanisation in the Asian region (ADB, 1996a:61). Three broad groups of countries can be
identified. The first, represented by Australia, Japan, New Zealand and the newly industrial
economies of Hong Kong, Republic of Korea, Singapore and Taipei, have per capita incomes of
over US$3,200 per year and levels of urbanisation between 70 and 100 percent. The second,
represented by the member countries of the Association of South-East Asian Nations (ASEAN),
plus Pakistan, have per capita incomes of between US$500 and US$3,200 per year and
urbanisation levels between 23 and 43 percent. The third group represented by South Asian
countries, Peoples Republic of China and other East Asian nations have incomes below
US$500 and urbanisation levels below 28 percent. What is particularly important is that of the 46
large urban agglomerations in the region in 1990, 10 were in the high income countries, six in the
middle-income countries and 30 in the low-income countries. This reinforces the point that it is
the poorest countries that face the biggest problems of funding and managing infrastructure and
services for their cities.
In addition to these correlations between development and urbanisation, there is clear evidence
of the increasing importance of cities to the macro-economy. For example, Prudhomme (1995)
shows that output per capita per worker is greater in urban than non-urban areas, with ratios of
city GDP per capita to national GDP per capita of 1.92 for Manila, 2.5 for Calcutta, 3.45 for
Bangkok and 3.66 for Shanghai. Prudhomme suggests that a possible explanation for this
phenomenon is the size and accessibility of the labour market, which in turn implies three
critical dimensions to city productivity:
overall population size;
relative location of jobs and homes; and
transport efficiency.
As a result, in nearly all countries the percentage contribution of urban areas to national GDP is
significantly higher than the percentage of population in urban areas, showing the impact of
higher productivity and economies of scale common in urban areas. Specific city examples
demonstrate this characteristic. For example, Metro Manila contributes some 33 percent of
Philippine GDP with only 14 percent of the population; Bangkok contributes 74 percent of
Thailands manufacturing with only 10 percent of the population; and urban India contributes
some 55-60 percent of national GDP with only 27 percent of the population producing 87
percent of national industrial output (Rockett, 1994). Macro-economic changes within the
region and in the regions economic transactions with Organisation for Economic Cooperation
and Development (OECD) countries - in particular, the emergence of the global economy - will
benefit the economies of poorer, as well as richer, countries in the region and will further
increase the role played by urban areas in these countries (see Chapter 3).
Cities and EMRs, also provide the best conditions for informal manufacturing, commercial and
other service enterprises to flourish since there is the widest potential for formal/informal
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business linkages, as well as opportunities for domestic, retail and other service industry jobs.
In fact, the growth of the EMR is both a cause and effect of the importance of informal
employment in the region. Such a scattered low density form of urbanisation provides the best
chance for low-income households and business to gain access to land and still remain within a
reasonable distance of formal employment and residential areas.
This trend follows the more general analysis of informal sector activities - such attributes are a
natural response to the costs of entry to the formal sector and production methods and locations
are designed to maximise the use of labour (Economic and Social Commission for Asia and the
Pacific (ESCAP), 1993), especially rural migrant labour.
Harris (1990) agreed that in-migration to cities was a function of rural poverty, resulting in
cities becoming centres of informal sector activities where the marginal productivity of labour
was close to zero. However, he does not agree with the proposition that subsidies and other
incentives available for investment in manufacturing, along with protectionist policies, continue
to lower returns to agriculture in most countries. If this proposition were true, it would result in
a urban-rural wage gap which would encourage urban migration and, in turn, result in excessive
urban unemployment. Harris noted that evidence for these arguments is not convincing; that (i)
rural incomes are not uniformly below urban rates, allowing for higher urban costs of living, (ii)
informal sector incomes are not always below formal sector incomes and, in some cases, may
exceed them, and (iii) there is evidence that the majority of migrants who remain in cities
improve their standards of living.
ESCAP (1993) agrees with this conclusion, noting that various policy changes in the urban and
rural sectors have restored some balance of policy impacts and financial transfers between
urban and rural sectors. For example, governments seek to make their cities more financially
self-sufficient, recovering costs for services by fees and taxes paid by city residents and
businesses. The development of EMRs also blurs previous urban-rural distinctions, spreading
the growth of both formal and informal employment in manufacturing, services and agriculture
into areas previously considered rural. Further, the widespread availability of information on
city conditions resulting from better communications means that potential migrants are likely to
be much better briefed on the advantages and disadvantages of living and working in cities.
Given the extensive support for the objectives of poverty alleviation and economic
development, within a broad spectrum of international development agencies, intense interest
has been shown in the development and use of mechanisms within development assistance
projects and programmes which spread the benefits of economic growth both spatially and
across income groups. In particular, support to micro-enterprise development and basic
infrastructure projects is justified in these terms. Details of best practice in such activity will be
discussed in Chapter Four.
The Urban Environment and the Sustainability of Urban Development

The major issues raised in respect of the environment are set out clearly in
UNDP/UNCHS/World Bank UMP Policy Paper on Environmental Strategies (UMP, 1994).
It describes the critical and most immediate problems facing developing country cities as the
health impacts of urban pollution that derive from inadequate water, sanitation, drainage and
solid waste services, poor urban and industrial waste management and air pollution (especially
from particulates). Collectively dubbed the brown agenda, this set of problems is closely
linked to the poverty-environment nexus - the close connection between the relatively high
impact of environmental problems on the poor and the inability of the poor to protect the
environment (see below). Important underlying or related issues typically involve inappropriate
land uses, precarious housing, deficient public transportation and road congestion and
accidents.
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These pressing problems according to the policy paper are also related to what may be
considered more properly the green and the social issues of urban areas, such as the depletion
of water and forest resources, the degradation of environmentally fragile lands, the occupation of
areas prone to flooding or landslides, overcrowding, degradation or loss of historical and
cultural property, noise pollution and other problems. Similarly, the brown emissions of cities
resulting from energy use for cooking, heating, industry and transport contribute significantly to
such global problems as climate change and acid rain.
While the brown agenda is recognised broadly as a universal priority for low-income countries,
individual cities may also face many of the other green and social problems identified above.
Poverty, economic development and the environment are inextricably linked. This linkage
raises issues of equity (such as the willingness to pay for better environmental services and the
issue of subsidising basic urban services for the poor) and of the changing nature of
environmental problems at different income levels.
The urban poor are affected disproportionately by brown environmental problems and their
actions. The need to cope with poverty leaves few resources to cope with environmental
problems. Their inability to devote resources to environmental protection exacerbates urban
environmental problems. The actions of the urban poor are the result of imperatives linked
strongly to the urban labour markets and markets for land and housing. About a quarter of the
worlds urban population live in absolute poverty - and many more live in substandard
conditions. In many parts of the developing world urban poverty has grown faster than rural
poverty because of the impact of macro-economic adjustment, inefficiencies in the urban
economy and misallocation of public resources. While many subsidies have benefited the
middle classes disproportionately, their removal sometimes impacted disproportionately on the
poor as even a small adverse change can have a great impact on poverty groups who face higher
prices for food, shelter and essential services. The weakest suffer the most. Among the poor
those most vulnerable to environmental threats include women, children, cottage industry
workers and the elderly. Ways must be found to reduce their vulnerability and risk. Confronted
by improperly functioning land markets, the poor often have little choice but to occupy
hazardous or polluted areas. This lack of access by lower income families to serviced land,
affordable shelter and basic environmental infrastructure and services has plagued fast growing
developing country cities for several decades.
The persistent neglect of the basic needs of the poor, together with mounting environmental
problems, are taking a heavy toll on urban health and productivity. Today, 30 percent of urban
dwellers - some 450 million people - lack any form of sanitation. Thus, inadequate sanitation is
a major cause of sickness in cities and is a drain on urban economies (because of lost work days
due to illness, the costs of treating pollution-related illnesses and the cost of clean up activities).
Other examples of serious environmental effects on productivity abound. According to one
estimate, the costs of pollution problems alone in developing countries exceed 5 percent of
GDP (UMP, 1994:2). Clearly, there is an economic imperative to improving the situation of the
urban poor allowing them to devote resources to environmental protection. Such activity is thus
an essential pre-condition for reducing urban environmental hazards.
The UMP policy paper emphasises that, in confronting urban environmental problems, efforts
to reconcile tensions in environmental management are further complicated by the need to make
difficult political and economic tradeoffs. These tradeoffs occur at several levels. On one level,
the tradeoffs are between the higher productivity of cities due to economies of scale and
agglomeration, and the increasing costs of providing environmental infrastructure and services to
sustain this productivity (for instance, overcoming traffic congestion in Bangkok and Jakarta).
On another level, tradeoffs are between the implementation of strategies for achieving effective
environmental management and the short-term political and economic consequences of such
strategies. Important tradeoffs are also required when making difficult choices about the
allocation of scarce resources among activities to ameliorate environmental problems and
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between those activities designed to meet other needs (such as basic health and education).
Such allocation decisions require broad-based agreement on local priorities.
Political tradeoffs must not be ignored. Politicians are acutely aware that, for all environmental
decisions changing the status quo, there will be winners and losers. The losers often will be
powerful special interest groups who have access to, or are part of, the political machinery and
have gained from regulatory measures drafted to protect their special interests and from public
investments. The clearest example is the common instance of upper and middle-income
households enjoying subsidised water, sanitation and waste collection services while the poor
go without. In making the decision to remove subsidies and re-allocate resources, local
politicians may risk losing support.
The challenge is to make the transition to a genuine form of environmental justice that is pro-
poor. If organised, the urban poor can create strong interest groups that can effectively lobby for
shelter, services and neighbourhood infrastructure. Instances of such organisation will be
canvassed in the review of best practice summarised in Chapter Six.
Even when political commitment to environmental protection exists, budget constraints force
difficult choices - for example, whether to invest in a safe waste disposal site, or education, or
health services programmes, or whether to build new roads in response to growing consumer
demand, or invest in less polluting public transport systems. Decision-making, therefore, will
require a realistic assessment of the urgency, full costs and likely benefits of alternative
interventions. It will also require consideration of cultural and political factors, as well as
complex interactions among the many influential public and private actors.
Support to such processes has proved difficult to achieve through traditional development
assistance channels. Non-Government Organisations (NGOs) have fostered community interest
groups, but often at the cost of alienating government institutions. Development agencies have
augmented the resources and capacity of environmental agencies, but sometimes have found
these agencies less effective than hoped and underestimated the extent of constraints emanating
from political needs. Efforts to bring together community and government across the spectrum of
formal and informal institutions are rare and not always successful. Again some examples of
best practice will be reviewed in Chapter Six.
At the broader level, the impact of cities in general needs to be better understood. These impacts
encompass both the impact of wastes and the impact of urban consumption - the citys
ecological footprint (Rees, 1992; Rees & Wackernagel, 1994). The ecological impacts and the
carrying capacity of cities are increasingly seen as being important concepts in the sustainable
debate. In attempting to account for the importation of carrying capacities from other regions,
Rees has put forward the concept of the Ecological Footprint on Appropriated Carrying
Capacity (EF/ACC), which is defined by the question.
How much land in various categories is required to support the regions population indefinitely
at a given material standard? (Rees, 1992).
This will vary depending on a regions standard of living and is a per capita index which is an
indication of the land area required (or consumed) to support a given population (Rees, 1992).
Rees and Wackernagel reason that every major category of consumption of waste discharge
requires the productive or absorptive capacity of a finite area of land or water (ecosystem). In
accounting for this land, the total area becomes the ecological footprint or the carrying capacity
appropriated by that economy.
The concept of the ecological footprint describes how much carrying capacity is appropriated
by any region, based on its standard of living, through the importing of resources from around
the globe. The aim of the EF/ACC is to provide society with a tool which indicates resource
consumption and can be used in ranking development options based on their ecological impact.
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This tool can also be used in guiding policy decisions regarding development and its impacts.
Such impacts need to be recognised by national and regional strategic planning systems in order
to ameliorate them in the longer-term. In order to foster capacity building in such systems, a
broad approach to environmental planning is required. An example of such an approach is the
Sustainable Cities Programme detailed in Chapter Six.
Human Resource Development and Quality of Life

Cities can be characterised by extremes in the social, cultural and religious patterns of residents
lives. Generally, in-migration from more traditional rural environments to urban areas
comprises the largest of all migration flows in developing countries (Gedik, 1996). Detailed
data outlining the nature and extent of rural-urban migration are either non-existent or difficult to
access. Available data indicate:
In the Philippines in 1991 the National Statistics Office estimated that 7.1 percent of Cebu
Citys household population aged 5 years and older originated from outside the city limits
five years prior to the census.
In Cambodia, internal migrants comprise 63.8 percent of the total current population of
Phnom Penh due to past civil strife.
In India, the National Institute of Urban Affairs in the Report on State of Indias
urbanisation during the decade 1971 to 1981, natural increase accounted for 41 percent of
the total urban increase, net migration for a little over 40 percent and reclassification for
about 19 percent (ESCAP, 1993).
In 1993, 50 million Chinese peasants migrated to urban areas, with 20 million migrating to
the booming south-eastern provinces (Migration News, 1994). In 1994, China had an
estimated 100 million migrant workers from rural areas, including 8 million in Guandong
Province bordering Hong Kong. As the males leave rural areas in search of work, females
are left to do farm work. In 1993 females comprised 70 percent of the farm workforce, a
figure estimated to increase to 75 percent by the year 2000. Rural workers are drawn to
urban coastal areas where wages are 2 to 3 times higher. Generally it would appear that rural
migration has contributed 40 percent to urban growth in the last twenty years in most Asian
countries, although that figure is much lower for more developed countries (ESCAP, 1993).
In the cases above, female migrants tend to have fewer opportunities than males, with the first
employment for many migrants (both sexes) being occupationally lower than their initial
expectations (United Nations Population Fund (UNFPA), 1996). Upward mobility for males is
greater than for females, with males more likely to enter formal sector jobs, especially in
production and manufacturing, and females gaining work in the informal sector, as well as in
clerical, sales and service occupations.
Inevitably, high levels of in-migration and the subsequent exposure to urban lifestyles generates
tensions - sometimes great tensions. For example, expected behaviour of rural women may
differ greatly from that exhibited by, and expected of, urban women. This is particularly likely
when combined with the common polarisation in large cities between a rich, powerful and small
group of society, often owning major landholdings and other critical assets, and the majority of
low-income households. The very density of many cities exacerbates contrast and tensions
between different lifestyles.
Crime levels are of increasing concern in many Asian cities. Contributions to this trend are
many. Tensions arising from assimilation of rural migrants and the monetary imperatives of the
urban poor are important. In-migrants are lured by the prospects of higher living standards only
to find that the wealth produced in cities is not uniformly distributed. The relative degree of
inequality is cause for concern as opportunities for the more advantaged continue to outweigh
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those available to the disadvantaged (UNFPA, 1996). Combined with assimilation tensions and
monetary pressures, these demonstration effects of conspicuous consumption exacerbate
crime. On the one hand, they set up a goal of monetary success at any cost and by any means
and, on the other hand, generate tensions in regard to lack of monetary success. Escalating
urban violence can thus only be halted in the long-term by reducing the bias towards the
advantaged and in preventing its perpetuation in the next generation.
As discussed above, the willingness of new migrants to take low paid and/or part-time jobs in
large cities, combined with the commercialisation and rapid increase in costs of land and
inevitably longer journeys to work, is leading to the urbanisation of poverty. The World Bank
has forecast that over half of the worlds absolute poor will be living in urban areas by the year
2000 (World Bank, 1994b). In Asia 23 percent live below the poverty line (1988 data)
constituting 42 percent of the world total. The impact of outright urban poverty is most obvious
in the low-income countries of Bangladesh and India, but is also felt in some middle-income
countries such as the Philippines. The urban poor are under-resourced in respect of their access
to education and health services. They are thus less productive and the human capita potential of
the country is not realised. This is particularly the case in respect of women.
Gender-related issues also vary greatly among countries. There are large variations between
regions and nations in the proportion of female-headed households and in the extent to which
this proportion is changing. For instance, only an estimated 13 percent of households in Asia
and the Pacific are female-headed, compared to 19.1 percent in Africa and 18.2 percent in Latin
America (Varley, 1996). In some non-Asian countries, the proportion of female-headed
households can rise to more than a third of all households. In some countries, such as India and
the Philippines, female household headship does not seem to have risen much or at all since the
1960s, while in others it has grown quite substantially.
Although female-headed households are not unique to urban areas, and in some regions such as
South Asia they are more characteristic of rural districts, many of the factors responsible for
female-headed household formation arise through urbanisation. Urbanisation and its outcomes
brings changes in gender roles and relations and in gender inequalities (although with great
variety in the form and intensity from place to place). This can be seen through the
transformation of household structure, the shifts in household survival strategies and changing
patterns of employment.
In addition, the urbanisation process is itself frequently shaped by gender roles and relations.
For instance, there is the scale and nature of female migration into urban areas (which is much
influenced by decisions in rural households about who should migrate and for what reason).
Then there is the influence on the urban labour market arising from constraints placed on
womens right to work outside the home by households and societies, and by the extent of the
demand for female labour. The degree and nature of gender-selective movement to urban areas
is often a major influence on both the frequency and the spatial distribution of female-headed
households within countries. In general, where males dominate rural-urban migration streams
as in South Asia, urban sex ratios show more males than females and female-headed households
are usually more characteristic of rural than urban areas. In the towns and cities of East and
South-East Asia, rural out-migration is female-selective, urban sex ratios usually show more
females than males and levels of female household headship are higher in urban areas.
Female-headed households face greater difficulties than male-headed households because of the
discrimination females face in, for instance, labour markets and access to credit, housing and
basic services. Single parent households, most of which are female-headed, also face the
difficulties of one adult having to combine income-earning with household management and
child rearing. This generally means that the parent can only take on part-time, informal jobs
with low earnings and few, if any, fringe benefits. Urban programmes, particularly those
focused on health, education and income generation need to be designed with these
characteristics in mind.
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1.3 Management of Urban Change

Having canvassed the scale of urbanisation and the magnitude and complexity of the associated
issues and problems, the difficulty of the task facing those responsible for dealing with the
issues and problems will be apparent. Thus, urban management is a central concern of current
urban policy. The institutions that manage urban systems are complex and are different in each
country. Lessons learned in one country must therefore be adapted in another. The following
chapter discusses the framework of urban institutions and describes the management objectives
associated with addressing the issues and problems identified above, particularly in respect of
economic activity (especially land use), transport and environmental management.
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2 URBAN INSTITUTIONS AND MANAGEMENT

2.1 Urban Institutions
Urban institutions are the organisations which regulate and build the city and its infrastructure
and the legal and cultural framework in which they operate. Fifty years of practice in fostering
development has resulted in a renewed focus on capacity building of institutions and a step
away from getting the mechanics of projects right to getting the management structures right.
Central to this process is the capacity of local government, although many areas of
state/province and national government are involved in managing cities as well. North (1990)
discussed the importance of institutions in fostering development in some depth. As one of the
proponents of the new institutional economics, he sees his task as going beyond the mechanics
of describing market transactions to describing the mechanics of the market. Theory (at least
that of the new institutional economics) thus aligns with practice in its judgement of priority
areas for focus.
The following discussion setting the institutional context for the subsequent section on urban
management is drawn substantially from Living in Asian Cities, a UNDP (1996) publication on
Asian cities.
2.1.1 Urban Government

In the early colonial era the colonising powers essentially left existing local government
structures intact. It was only in later years, towards the second half of the 19th Century, that
local government structures were formalised, often based on domestic models from the
colonising country. At independence, however, even these nascent forms of representative local
government were seen as running counter to the requirement for strong central government.
They were often superseded by centrally appointed civil servants who had veto powers over the
decisions of local councils. In other cases, local councils were given limited legislative and
regulatory powers which were administered by centrally appointed bureaucrats.
As a result of this post-independence focus on developing national political and administrative

structures, local institutional and administrative development was either ignored or given low
priority. Career opportunities in local government were limited. Instead of building local
capacity to manage rapidly growing cities, top management echelons at the local level were
often filled by centrally or provincially appointed civil servants. In India, Bangladesh and
Indonesia, most local administrative decision-makers are members of the national civil service.
They can be, and are, transferred from city to city or between central and local government at
the behest of the national government.
Local governments were, and in many countries still are, responsible for the delivery of services
and the raising of revenue through various forms of property tax, other local taxes and the issue
of licenses. However, because their financial and human resources were not maintained at levels
commensurate with the requirements of rapidly growing urban areas, local governments
became increasingly unable to maintain the local tax system. In many countries, therefore, local
revenues were supplemented by central government grants. In Malaysia and Thailand, for
example, 35 percent of local funds are provided by the national government as loans or grants.
Most of this money is used for capital investments in urban areas.
Thus, the ability of municipal governments to raise revenue and provide and maintain adequate
services continued to deteriorate as city populations grew. In addition to these shortcomings,
governance in general and local governance in particular, suffers from a duality of government
structures in many countries. Formal government institutions are set up on the Western model,
while governance itself is often carried out through informal channels and through personal
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connections. This dual system of governance results in government institutions being non-
transparent and those controlling them averse to change in the status quo.
All of the policies and activities that have been described so far were implemented within a
context in which the nation state and centralised government were taken as given. However,
during the 1980s, the growing supremacy of market-based capitalist economies and pressures
resulting from the globalisation of the economy combined to produce a new paradigm. In this
paradigm the governments role is that of an enabler, assisting the private sector and
communities both to undertake productive investment and in the provision and maintenance of
infrastructure to support that investment.
In Asia, this approach is reinforced by critical reviews of government economic and social
policies, which have confirmed the inability of governments to meet the development challenge
alone. The success of projects like the Orangi Pilot Project (an upgrading project in Karachi)
and Grameen Bank (a grass-roots bank in Bangladesh) indicate that, with catalytic support, the
poor could provide for most of their own basic needs through their own resources. There is a
growing realisation that community participation is essential to poverty alleviation. In certain
countries, participatory approaches included in such programmes as the Kampung
Improvement Programme (KIP) in Indonesia, the land-sharing projects in Bangkok, Thailand
and the Million Houses Programme in Sri Lanka showed the advantages of participatory
approaches even in government-initiated programmes.
2.1.2 Urban Development and the Poor

After World War II, import substitution-based industralisation and its accompanying urban-
based distortion of resource flows, together with advances in education and health care, had two
major impacts on urban areas. First, they led to a rapid increase in urban populations as
discussed in Chapter One. Second, they concentrated additional wealth among the already rich
and, to some extent, the middle classes, at least in the capitalist and mixed economy countries. In
Thailand, from 1980 to 1990, for example, roughly 70 percent of total government investment in
the urban sector was spent on Bangkok, already a primate city, while the rest of the funds were
shared by all other urban centres.
Although numbers of poor decreased in many countries, upward mobility was not possible for
all of the large numbers of the resident poor in cities and poor migrants. Nevertheless, the
regions cities still constituted powerful magnets, so that most of the rapid urban population
growth in the 1950s and 1960s was due to rural-urban migration resulting from both pull factors
and push factors - consisting of relatively high rural population growth and static land supply
driving increased (relative) rural poverty. As cities expanded, another important growth factor
was that many peripheral villages became incorporated into urban areas. In some countries,
disruption associated with the struggle for independence also added to urban migration.
As discussed in the previous section, the weak institutional base of local government meant that
city planners and managers were unable to cope with this accelerated increase in urban
populations. The result was a rapid increase in urban slums, squatter settlements and illegal sub-
divisions where the poor worked at traditional labour-intensive modes of production.
The formal urban economy was unable to absorb the expanding labour force. Some of the poor
found jobs in formal sector industries or the public sector, while other more enterprising
members of the community started small service or manufacturing ventures to meet their own
needs, as well as those of the lower middle classes. However, these small-scale enterprises were
not legally recognised by the government which was, and in most cases still is, biased towards
modern, more capital intensive activities. Policies towards the poor, where these were explicitly
formulated, were usually top-down and paternalistic.
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In the past few years, much research has been done on the informal sector, outlining its linkages
with the formal economy (see, for example, van Dijk, 1996). Garments and goods for export are
prepared by informal sector subcontractors operating home-based industries. It is estimated
that in some cities as much as 40 to 60 percent of the labour force is employed in this sector, yet
governments are reluctant to recognise its existence or made planning provisions for it. The
sustained failure of governments to effectively manage urban areas in line with the reality of
economic activity has led to a sizeable portion of the population being alienated within the
community with concomitant social consequences, such as increasing crime and corruption. In
some cities, government control over city functioning has become marginal.
Over time, with few exceptions, the poor remain relatively poor. Even when absolute incomes
are rising, disadvantaged areas remain disadvantaged over long periods of time. Nor does the
population of these areas turnover rapidly. Anecdotes of continuous occupation of squatter
areas over periods of more than twenty years are common. Only when GDP per capita raises to
Malaysian levels is there a wholesale movement into formal sector shelter and employment
(replaced, in this case, by an influx of Indonesian migrants). However, this lack of wholesale
graduation out of poverty does not justify abandoning support to poverty alleviation activity -
it merely suggests that such support must be long-term, flexible and incremental, addressing the
needs of poverty groups as they evolve and progress in terms of rising out of absolute poverty.
2.1.3 Institutional Framework

Infrastructure Development
Finding the most effective design for the institutional framework of urban management has
been an incremental process in all countries - a process which continues today. Broadly there
are two main streams of activity - the management of infrastructure delivery and housing
development. As part of the evolutionary process, many countries have found that community-
level provision of housing and infrastructure has required institutions at a grass-roots level.
These institutions are generally NGOs or Community Based Organisations (CBOs). This
section will thus address the evolution of the institutional frameworks for infrastructure delivery
and housing development and will discuss NGOs in a separate section.
National government institutional interventions at the local level in response to deteriorating

urban systems have often exacerbated the already weak condition of local government. The
chief means of these interventions was the semi-autonomous parastatal agency, or Quasi Non-
Governmental Organisation (Quango), that effectively bypassed local government. A range of
such agencies responsible for different aspects of urban development were established
throughout the region.
These agencies took several forms, including special project offices set up to execute a
particular project and then disbanded upon its completion. Such project offices were often
created for the design and execution of internationally-funded projects, and were staffed by
international consultants who left both the project and the country on its completion. The
expatriates usually had local counterparts seconded from other government agencies or
departments, rarely from local government. The counterparts also usually returned to their
agencies at the completion of the project, thus leaving no increased capacity at local level. Such
instances were not confined to projects run by foreign consultants. For instance, the design and
supervision of the World Bank-funded North East Lahore Sites and Services project in Pakistan
was undertaken by a special project office contracted out to a local firm of consultants.
A frequent problem, arising from the exclusion of local authorities from the design and
implementation of urban development projects, was the assumption that local agencies
automatically had the capacity to absorb the routine management and maintenance functions
once the project was handed over to them. Often this was not the case. For instance, the Tondo
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Foreshore Dagat Dagatan Development Project office was set up within the Philippines
National Housing Authority (NHA) specifically to manage the upgrading of the Tondo
Foreshore. The intention was that, once complete, it would be closed. However, the project
office had to be kept on as a separate management office in the NHA long after the formal
completion of works. This was because the metropolitan authorities were unable to absorb the
loan recovery and infrastructure management functions that had been planned for them.
The most significant of the quangos were the Urban Development Corporations (UDCs) or
Authorities (UDAs) that were established in many cities in the region in the 1970s. For many,
the model was the Singapore Housing Development Board which, in 1960, emerged from a
transformation of the Singapore Improvement Trust that had been in existence since 1924. This
style of development authority had a significant capital budget and, sometimes, powers to
borrow on the open market. It could also acquire and develop land and enter into partnerships
with, or compete with, the private sector. Many UDCs were intended to provide only project
design, finance and coordination services, with other agencies, including local government,
being required to implement development projects.
Another rationale behind the creation of UDCs was that urban growth had exceeded municipal
boundaries, so that supra-local bodies were needed to develop and plan cities from a regional
perspective. However, the more powerful and successful UDCs, frustrated by the inefficiency
of the local implementing agencies and the complexities of coordinating them, soon took over
the implementation and management of projects and programmes as well. An example is the
Calcutta Metropolitan Development Authority (CMDA) which was established in 1970 with a
staff of 40 and a mandate to coordinate, finance and supervise the implementation of projects by
a total of 89 different municipal and state agencies. Because of its inability to coordinate these
agencies, CMDA gradually took over project implementation and management functions. By
1985 its staff had grown a hundred-fold to 4,200, these being divided between nine operational
directorates.
In addition to the establishment of quangos, central governments in several countries in the

region transferred the daily management of local services from municipal authorities to central
agencies, rather than attempting to strengthen local capacity. For instance, in Malaysia, federal
and state government agencies have assumed direct responsibility for the delivery of local
services. In 1975, the Metropolitan Manila Commission was appointed by the nations President
to coordinate the management of local services including fire-fighting, garbage collection and
traffic control. It was not long, however, before it assumed de facto responsibility for the daily
management of these services.
For a variety of reasons including, lack of coordination, local support and resources, most central
agencies failed to cope with the urbanisation pressures of the 1970s and 1980s. Thus, by the end of
the 1980s, when pressure was growing throughout the region for both economic and
administrative reform (structural adjustment) based on deregulation, decentralisation and the
devolution of authority to locally accountable bodies, many city administrations were in a weaker
relative position in respect of institutional capacity than at any time in the preceding 30 years.
Housing Development
Direct public sector intervention in urban housing grew directly out of widespread and growing
disillusion with the initial patterns of national development in the region. In the 1960s and
1970s, this intervention comprised public provision of housing finance, the development of
land, and/or the construction of dwellings for rent or sale. Ministries of housing and government
housing departments and agencies were established for this purpose. For instance, in India the
majority of the state housing boards were set up in the early 1960s, while the Housing and
Urban Development Corporation (HUDCO) was established as a second tier national housing
bank in 1972. The Indonesian National Housing Corporation (Perumnas) and the National
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Housing Policy Board and Mortgage Bank were constituted in 1974. In the same year, the
Thailand NHA was established as a consolidated public housing agency by merging the Welfare
Housing Office of the Public Welfare Department and the Slum Improvement (clearance)
Office of the Bangkok Metropolitan Authority.
These public low-income housing programmes failed to provide the quantity of

appropriate/affordable housing required to meet burgeoning demand. The history of direct
public sector involvement in urban housing in the region has often been that of the initiation of
ambitious housing programmes for low-income groups, followed by the gradual withdrawal
from this role of provider.
This policy sequence can be categorised as follows:
the public works tradition of government-built housing and slum clearance programmes
that is most readily identified in Asia with the post-independence period of the 1960s;
the organised (or aided) self-help movement that was strongly promoted in the late 1960s
and early 1970s;
sites and services projects and slum upgrading programmes that commenced in the 1970s
and continued throughout the 1980s in most parts of the region; and
the current enablement paradigm of support-based partnerships between government,

private sector, communities and individual households.
In almost all countries in the region at least two of the above policy approaches are currently
being utilised.
Non-Governmental Organisations
A product of the disillusion with central intervention was the formation of NGOs and their
advocacy of alternative forms of development that were more in tune with the economic and
social conditions of the poor. NGOs assumed many different sizes and forms. However, an
almost universal theme within the NGO community was, and still is, dissatisfaction with the
status quo.
Within this context, NGO interventions on behalf of the poor have taken two main directions.
The first strand was activist and opposed the powerful cliques in society on behalf of the poor
who were organised to fight evictions, campaign for better working conditions and for
redistribution of the benefits of development. It was ideologically-driven and often did not
focus on actions beyond resisting the establishment. The work of Youth for Voluntary Action in
India, the Urban Poor Associates in the Philippines, the Society of Community Organisations in
Hong Kong and the Korean Coalition for Housing Rights are examples. However, in recent
years many such NGOs have realised that cooperation with the government and organisations
of the poor to meet their own needs is perhaps a more sustainable solution to the housing
problem than outright protest. Some have even moved into the sphere of policy advocacy and, at
least in India and the Philippines, have been instrumental in changing government policies
towards eviction.
The second strand derived from the tradition of charity. The poor were assisted with the
provision of services and infrastructure to improve their quality of life through provision of
health and education facilities, income generation and credit, and improvement of low-income
settlements. While being less paternalistic and more participatory than government, this
approach also created a dependency among the poor. Essentially led by middle class activists,
this strand was independent of the government, but not averse to building collaborative
arrangements with it. It has developed towards increasing the capacities of the poor to develop
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and manage their own situations, and also towards mainstreaming alternative development
approaches in government policies.
Thus, a convergence of circumstances resulted in NGOs which were willing and capable of
playing an active role in infrastructure delivery and shelter programmes more in tune with the
enabling paradigm currently being advocated in many quarters.
2.1.4 The Enabling Paradigm and Urban Institutions

In understanding the nature of enablement, it is important to know who needs support and what
institutional arrangements should provide it. The nature of the production, maintenance and
management of shelter and urban infrastructure is that of diversity in delivery systems involving
many groups in a variety of roles. However, all of these systems involve the public, private and
community sectors.
In addition to distinguishing between the three sectors, it is also important to recognise their
sub-divisions into:
the public sector: central government, provincial/state government and local government;
the private sector: formal sector and informal sector; and
the community sector: NGOs/CBOs.
The characteristics and capacities of each of these sub-sectors, in relation to their needs for
support in the production, maintenance and management of housing and other urban services
and their ability to provide it, obviously vary from country to country. Nevertheless, it is
important to realise that efficient and equitable development of the urban sector in Asia requires
all three sectors and their sub-divisions, to have effective capacity to undertake and maintain the
investments required for that development. It is only through such a process that urban poverty
can be addressed effectively and policies for sustainable development formulated and
implemented.
In housing and in the provision of other social and physical infrastructure, urban institutions
undertaking an enabling role need to be focused on key management areas. It is those
management issues which will be the subject of the next section.
2.2 Urban Management

This section is based on the conclusions of a recent ADB seminar on Megacity Management in
Asia which identified the following key management functions as applicable to all urban areas
irrespective of size (although the emphasis placed on particular mechanisms will vary among
cities of differing sizes) (ADB, 1996b:8):
Governance - the basic relationships between national, regional and local governments in the
management of the megacity; the agreed roles of public and private sector organisations; the
roles of various agencies that cross boundaries and the capacity for change; and
arrangements for accountability and transparency in decision-making.
Development policy and investment coordination - the short and long-term strategies for city
development to meet overall development goals within defined budgets and with agreed
responsibilities for implementation by key public and private sector organisations.
Management of assets and services - the organisation, maintenance and delivery of city
services, their pricing, charging and assigned responsibilities to public and private sector
organisations.
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Fiscal and regulatory functions - use of taxes, charges and financing mechanisms to influence
the demand for, use of and supply of urban services, and the provision of regulatory
frameworks for public and, in some cases, private sector organisations and individuals.
Monitoring functions - the regular collection, assessment and dissemination of data relating to
many aspects of city development, including dissemination to the public and use of the data
to monitor performance of service delivery and modify policies and programmes.
2.2.1 Goals of Improved Urban Management

The performance of these functions must be measured against broader objectives of urban
policy. Several objectives for improved urban management were identified at the ADB seminar
(ADB, 1996b:9). These were:
to maximise the economic efficiency of cities - in the context of the global economy,
measured in terms of productivity, provision of employment, attraction of new inward
investment and contributions to the national economy.
to maintain and improve the quality of life for residents of cities - measured in terms of
improved environmental conditions, support mechanisms for the disadvantaged, reduced
crime levels and improved physical and financial access to services.
to achieve more sustainable forms of urban development - defined as:
- maximum economic efficiency in the use of development resources, including the goods
and services provided by the natural environment, while maintaining renewable natural
resources at, or above, their present levels;
- social equity in the distribution of city development benefits and costs, with particular
emphasis on the needs of low-income groups;
- avoidance of unnecessary foreclosure of future development options; and
- maximum efficiency in the use of financial sourcing and cost recovery mechanisms
involving both public and private sector actions.
The remainder of this section restates the management issues relevant to achieving the goals
identified by the ADB seminar.
2.2.2 Organisational and Financial Dimensions

Most large cities in the region are characterised by having more than one local government and
a number of special purpose agencies responsible for water supplies, public transportation and
other services. With rapid growth and with so many agencies involved, there is a need for
coordination both across sectors and across agencies within a sector; and for strategic planning
aimed at identifying major infrastructure, environmental protection and development
requirements.
As part of implementing enabling strategies, there is a need for decentralisation and

development of more market-based approaches to the provision of services and more emphasis
on privatisation. This would require changes in the roles of higher levels of government and in
financing mechanisms and careful guidance of the process of institutional change.
Thus central governments should:
prudently pursue the decentralisation process, incorporating the following components of

good practice:
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- decentralising the responsibilities and resources simultaneously, with the Philippines

providing an example of best practice in this regard;
- strengthening local government capabilities and, where necessary, legal powers to

undertake more effective urban management, with Indonesia having a long history of
Integrated Urban Development Projects which have progressively strengthened local
government institutions;
- collecting, processing and distributing information on local government activities with

comparability over space and time; and
- retaining certain functions for reasons of efficiency, income redistribution and macro-
economic policy;
develop appropriate strategies for the whole urban hierarchy from megacities to the small
towns;
provide a legal framework for privatisation and public/private partnerships;
encourage cooperation among cities by providing a legal framework for cooperation, using
financial incentives or powers of persuasion; and
provide financial assistance to local governments appropriate to their responsibilities in a

form which encourages efficient use of resources and does not act as a disincentive to local
revenue raising.
Local governments should:
take the lead in cooperating with CBOs and NGOs;
engage in regional cooperation, using metropolitan institutions as necessary;
develop long-term policies at the metropolitan level, incorporating a set of integrated

objectives and the means necessary to achieve them; and
introduce systems to support the efficient use of resources, including incentives for
achieving potential revenue targets and engaging in privatisation and/or public/private
partnerships.
Because most countries in the region are moving towards market-based reforms involving
liberalisation, deregulation and privatisation, it can be expected that cities will be in a stronger
position to reinforce their resource base as they realise the gains from their competitive
advantage. The success of cities in financing urban development will depend on local policies
for resource mobilisation, but there are various constraints to be overcome. Property taxes are
among the most under-exploited of taxes because of low assessments and infrequent
reassessments. Also, service users are often reluctant to pay higher charges. There are other
constraints such as: the slow pace of decentralisation of revenue raising powers relative to that of
responsibilities necessitating increased expenditure; lack of institutional capacity and
deficiencies in financial management.
A number of steps can be undertaken to improve financing to overcome these constraints. They
include:
making economic pricing a goal to be achieved by first attaining efficiency, competition and
cost reductions, followed by improvements in rates of collection to allow maximum cost
recovery;
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giving local government the responsibility for a property-based, local taxation system using
capital cost-based property values and incorporating a conversion or betterment charge for
new land development;
developing computerised, cost-based collection systems and incorporating requirements for

periodic updating;
instituting cross subsidies for community service obligations that are beneficial to the poor,
subject to maintaining overall levels of supply sufficient to meet demand and avoiding
distortions to the structure of markets;
allowing the informal sector to continue as the provider of goods and services and
regularising, as far as possible, its operations, reducing financial and other costs and
enforcing payment of remaining taxes and user charges;
allocating an important role for central government transfers; shared tax, or surtax, within the
context of improved local collection systems; cost effective user charges; and a higher level
of local government self-reliance;
increasing local government and parastatal access to domestic and international private sector
financing and to capital markets through revenue bonds and general obligation bonds.
In addition, cities could be allowed direct access to aid funding subject to central review (as in
Indonesia). Combined with private sector funding, such a financing mix will enable the
formulation of projects which maximise the efficiency of financial sourcing (see objective, in
Section 2.2.1).
2.2.3 Management Strategies for Sustainable Development

Operational strategies to meet the objective of sustainable development as defined in Section
2.2.1 can be conceptualised as acting through three elements of the urban system:
physical concentrations of economic activity and housing and its associated infrastructure
(land uses);
transport links between land uses; and
the environmental resources which act as inputs to economic activity and waste sinks for
pollution.
Management of urban areas thus comprises three types of management - land, transport and
environment. These three management issues overlap and interrelate but, as they correspond to
major institutional responsibilities, it is important to discuss the issues involved. Chapter Six
provides a discussion of best practices in projects which address these issues.
Land Management
Effective land management is essential to support the role of cities in generating national
economic growth and in improving quality of life. However, as discussed in Section 2.2.1, the
large number of organisations involved, their overlapping responsibilities and the politically
charged nature of land-related issues has made effective management of land difficult. The
resulting scramble to negotiate in and around many existing management systems has resulted in
the weakest - the poor - being excluded from the formal land market. Even for those who can
negotiate the system, the costs are so significant as to reduce economic efficiency.
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Key land management tasks are thus:
ensuring that land development at the metropolitan level reflects national and regional
economic objectives;
merging spatial planning activities with the wider urban management process to allow
effective integration of spatial, financial, economic and institutional strategies;
defining clearly the roles and functions of organisations involved in land management - this is
particularly important with the emergence of EMRs covering many local governments;
clearly evaluating urban expansion choices for the city - in most cases it will be realistic to
support market-driven city-out expansion;
enhancing public participation in strategic planning and implementation - this is vital to

generate ownership of plans and programmes;
analysing land development policies in terms of their impact on income groups, particularly
the urban poor;
developing innovative techniques to help the urban poor gain access to land, shelter services
and employment including, on-site solutions for squatting such as land sharing projects in
Bangkok, new policies to support private rental housing and access to credit such as the
Community Mortgage Programme (CMP) in the Philippines;
adopting enabling policies and techniques to help individual households and enterprises
obtain land and shelter - these could include streamlined land transaction procedures and
provision of tenure to informal sector households;
re-evaluating planning and regulatory systems, focusing on the use of more effective plans,
the potential for deregulation and demand management, and the needs of sustainable urban
development; and
encouraging city management to take the lead in developing land information systems which
can benefit a wide range of government organisations and the public as a whole.
Transportation Management
An effective transportation policy is central to the sustainability of quality of life in the cities.
First, it can promote economic efficiency by creating accessibility and reducing the economic
costs of congestion. Second, it can improve lifestyles by reducing commuting times, air and
noise pollution, improving the urban environment and reducing traffic accidents. Third, it can
reduce poverty by making jobs more accessible for those reliant on public transport. To achieve
these objectives, there needs to be a coordinated strategy to address the core problem of traffic
congestion. But there are major constraints including, (i) lack of a consensus on what needs to be
done, (ii) lack of institutional purpose to deal with highly political policies and projects, (iii)
high costs of acceptable solutions and (iv) weak intersectoral planning processes.
The development of an integrated transport/land use planning capacity is thus crucial for a citys
central urban management team. This team needs strong political and community backing to be
able to take an active stance in coordinating private sector interest groups and in seeking
consensus on the big questions (e.g. funding, tariffs, environmental acceptability and land
availability). Such integrated planning can lay the groundwork for the creation or extension of
rail and/or bus systems that can become the backbone of transportation in a city. In parallel, it
can generate other major benefits such as guiding urban growth to preferred expansion areas,
minimising long journeys to work and reducing social, economic and environmental costs.
Further, in order to enable the private sector to play a significant and efficient role in transport,
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government must determine, through an integrated planning process, its policies and priorities.
In the absence of such planning there is a danger of the private sector pre-empting the
government and of economically and socially inefficient outcomes.
Key management objectives are:
to implement a good housekeeping agenda comprising:
- road maintenance and rehabilitation;
- management of the available road space;
- investment to create a hierarchy of roads;
- fuel and road pricing policies;
- efficient and responsive bus and tight/heavy rail services that meet the needs of most
income groups;
- new roads at the city periphery to guide future growth; and
- a plan to reduce air pollution that focuses on vehicles, fuels and enforcement.
to develop a meaningful plan for a healthy sustainable city, the plan must be created and
owned at the heart of government, have inputs from the private sector, and be flexible and
innovative;
to institute transport planning that is strongly implementation-oriented and outgoing,

interacting with the many parties involved and progressively developing consensus for
courses of action;
to ensure government transportation priorities and policies are determined first, and then to
give the private sector a major role - realism about what the private sector can deliver is
essential; and
to develop policies that support the development of an integrated public transport system to
address the core imperative of controlling traffic congestion, and then introduce car restraint
measures. Best practices in urban transportation management include Singapores central
area traffic control scheme and Hong Kongs toll and taxation measures, which have helped
reduce congestion, and Singapores Mass Rapid Transit (MRT), Hong Kongs MRT and
Bangkoks bus lanes, all of which have helped create viable alternatives to private car use.
Environmental Management
Environmental conditions in the cities in the region, particularly those related to water,
wastewater, solid waste and air pollution, have deteriorated in parallel with rapid urban growth,
industrialisation and increases in vehicle density. While many of the remedial actions needed
are understood, many countries are rightly concerned with economic growth and have given
low priority to environmental management in the past. However, the concerns of inward
investors about worsening environmental conditions, the growing environmental concerns of
local community and other interest groups, and the emerging awareness of sustainability issues
amongst policy-makers are all indicative of changing priorities. The discussions at the 1996
ADB seminar on magacity management revealed a need to promote ownership of
environmental issues and to develop more systematic approaches to environmental management.
Institutional responsibilities for urban environmental management are often unclear. While
most countries have established national level institutions to set standards and implement
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strategies, in fact, most decisions affecting the environment are made by agencies with
mandates unconnected to environmental concerns. The institutional framework is further
complicated where infrastructure and service needs extend across administrative boundaries.
Key management tasks are therefore:
establishing clarity in institutional responsibilities for service delivery roles and relationships
between the public and private sectors;
adopting instruments to implement policy that are appropriate and feasible politically,
socially and culturally;
enhancing the effectiveness of services and efficient management by strictly implementing

regulations and monitoring compliance;
directing education and training to change the behaviour and attitudes of people toward the
environment;
using demand management in environmental project development;
including environmental considerations, environmental components and institutional

frameworks in the city management decision-making process;
including, as part of a desirable environmental project, the principle of a mix of traditional

urban infrastructure components, environmental components, and policy and institutional
reforms;
where the problem of wastewater exists, encouraging conservation measures such as water
quality control, recycling, substitution and process changes, through the use of financial
incentives;
ensuring harmony in the decision-making process, by facilitating public participation and

well-planned consultation between the responsible agencies and the affected population;
and
developing and using information bases to inform the public, authorities, professionals and
business groups on how investment decisions can improve environmental management.
Best practices in urban environmental management include: the creation of pollution control
zones in Thailands urban areas; the use of clean burning fuels to help control air pollution in
Bangkok; and the installation of sewage treatment facilities to help clean up the Han River in
the Republic of Korea.
2.3 Urbanisation Overview and Implications for Development Assistance

in the Sector
Chapters One and Two have set out the rapid pace and importance of urbanisation; discussed
the key issues of poverty alleviation, sustainable development and human resource
development; described the institutions which are charged with addressing these issues; and
detailed important objectives and strategies for the management of cities. These sets of
objectives and strategies define the task to be achieved in Asian cities. Of necessity, they have
been formulated in general terms, responding to the specific sectoral problems of cities. In order
to progress this review of urbanisation further towards its goal of charting a course for more
effective development assistance in the urban sector, the study must take a step back to review
the context of urbanisation, on the one hand, and focus on learning lessons from practice on the
other hand.
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The following two chapters will thus provide two key elements of context by reviewing the
globalisation of the urban economy and by setting out the scale and scope of current
development assistance activity in the urban sector. Chapters Five and Six will analyse specific
cases of project activity in the urban sector.
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3 THE URBAN SECTOR CONTEXT

This chapter describes an important aspect of the global context of the urban sector - the
globalisation of the international economy.
3.1 Globalisation Issues

In order to assess what type of support should be provided to the urban sector in the future, the
trajectory of urban economies within the global economy must be described - at least in broad
terms. Support should then be designed so as to a) facilitate measures which integrate
economies into the global economy and alleviate poverty and b) link with the appropriate
sectors of the Australian economy so that benefit may be gained within the globalisation
process, initially for the recipient country organisations and later, perhaps, also for the
Australian organisations involved.
Traditionally, the competitiveness of nations was measured by the ability of companies to

access the lowest cost inputs - capital, labour, energy and raw materials (Porter and van der
Linde, 1996). In recent times, globalisation is changing our perception of competitive
advantage, as companies source low cost inputs anywhere in the world, and new rapidly
emerging technologies offset many cost disadvantages of high cost labour. Today, it is not
simply having resources that matters, rather it is using resources productively that constitutes
competitiveness. Consequently, to be globally competitive is to be able to innovate rapidly and
to provide the right conditions to attract or sustain individual business activities. The economic
boom in many South-East Asian countries is making it harder for them to compete on price
alone, as it is increasingly necessary to compete on the basis of knowledge at relatively - that is,
relative to OECD countries - low costs (Knowledge in Action, 1996).
In recent times there has been a plethora of literature dealing with globalisation and the new
global economy. The global economy is a highly urbanised phenomenon. The 1994 Joint
OECD/Australian Government Conference Cities and the New Global Economy (1995) was
instrumental in bringing attention to the linkage between rapid economic growth and
urbanisation occurring in Asian-Pacific cities. The capacity of these cities to grow and change is
critical to the ongoing expansion of the global economy. The following discussion of
globalisation draws on research undertaken by Amin and Thrift (1995), Knox and Taylor
(1995), Yeung (1995) and UNCHS (1996) and develops the themes expounded by the
OECD/Australian Government conference.
3.2 Globalisation Forces

There are a number of complex structural changes and forces in the world economy that have
resulted in altering the importance of different economic sectors, with major consequences for
human settlements.
The changes in the global economy which occurred in the wake of the breakup of the Bretton
Woods system (the system of regulation of the international economy that was established by
Bretton Woods during World War II) in the early 1970s have resulted in a closer global web of
economic linkages which, in turn, has significant spatial consequences. The first is the
increasing centrality of the financial structure through which money is created, allocated and
put to use, and the resulting increase in the power of finance over production. Thus, Harvey
(1989) writes of the degree to which finance has become an independent force in the modern
world, while Strange (1991) writes of the increased structural power exercised by whoever or
whatever determines the financial structure, especially the relations between creditors and
debtors, savers and investors. The global reach of finance which is particularly striking, as
global financial institutions, in a variety of forms, influence and discipline the worlds national
economies and businesses.
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Second, is the increasing importance of the knowledge structure (Strange, 1988) or expert
systems (Giddens, 1990). In the disciplines of economics, sociology and management science,
more attention is being paid to the importance of knowledge as a factor of production. It seems
clear that the production and, later, distribution and exchange of knowledge is a crucial element
of the global and local economic system on a scale not previously known. The overwhelming
dominance of technology-based solutions, the acceptance of a scientific ethos and common
cultural context provides a common language among professionals. This, combined with the
ubiquity of enabling communications media and technologies, means that the knowledge
structure is becoming less and less tied to particular national or local business cultures,
although some technopoles (see box below) continue to thrive.
Technopoles and Innovation

The term technopole is used to describe deliberate attempts to plan and promote
within one location technically innovative, industrial-related production. Technopoles
include industrial complexes of high technology firms that eventuated in the absence of
deliberate planning, although government and universities had a significant role in their
development (e.g. Silicon Valley in California and Bostons Route 128). Technopoles
include science cities or scientific research complexes that are spatially separated from
manufacturing (e.g. Tsukuba in Japan and Taedok in the Republic of Korea).
Many attempts to generate technopoles have failed to achieve an innovative milieu

necessary to drive the innovation and synergy between different firms, that allows a
technopole to achieve self-generating development. There are also old metropolises
which retain their leading role as centres of high technology firms and research (e.g.
Paris and Tokyo) and newer metropolitan centres that developed as centres of high
technology production (e.g. Los Angeles and Munich).
(Source: UNCHS, 1996)
These trends have resulted in a need to go global. There is a sense in much recent writing that
corporations have no choice but to go global very early on in their development, for at least
three reasons (Strange, 1991):
new methods of production with different patterns of returns to scale have resulted in a need
to market globally to take advantage of these changes;
greater transnational mobility of capital has made investing abroad easier, quicker and
cheaper, resulting in corporations being open to competition at an early time; and
major changes have occurred in the ease of transport and communication.
The result is that national measures of concentration and market share have become less
relevant as corporations manoeuvre in global markets, with obvious consequences for the
balance of economic power.
The growing power of global corporations has also resulted in the rise of transnational
economic diplomacy. Governments and firms bargain with themselves and one another on the
world stage. In addition, transnational plural authority structures like the World Trade
Organisation (WTO), the UN, G7 and the European Community (EC) have become
increasingly powerful (Held, 1991). The result appears to be an increasing use of issue-based
agreements between members of plural authority structures (Gilpin, 1987).
Finally, of specific relevance to urban areas, the result of the processes described above is the
rise of new global geographies (Amin and Thrift, 1995) - borderless geographies with quite
different breaks and boundaries from the past. Whether it is the global economy seen in terms of
a space of flows (Castells, 1989), as almost without a border (Ohmae, 1990), as localised
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production districts strung out round the world (Storper, 1991), as the centralisation of
economic power and control within a very small number of global cities (Sassen, 1991), or as
something in between these extremes, it is clear that the global economy is now an important
factor in local geography.
The key elements of this impact on urban areas can be summarised as follows (ADB,
1996a:66):
The development of international markets for goods and services is encouraged by large
free trade zones such as ASEAN and, more recently, the Asia-Pacific Economic
Cooperation (APEC) and the establishment of new industrial core areas, such as the
Peoples Republic of China Special Economic Zones (SEZs), which support the
development of industrial companies with access to air transportation and business services.
The Pacific Rim countries are now dominating the global economy in both labour-intensive
and high technology manufacturing and these activities are overwhelmingly based in cities.
Increasingly, decisions on manufacturing location by multi-national firms are based on

comparison of labour costs and other key factors of production across a range of potential
host countries. Such decisions are influenced increasingly by the qualitative attractions of
alternative locations, as well as with financial costs, long-term economic prospects for the
country and sector-specific conditions concerning such items as investment incentives and
regulations.
Cities in the region and particularly megacities/EMRs, are competing among each other for
inward investment that may arise from OECD countries, as well as from Asian regional
investors in such countries as Hong Kong, Singapore, Taiwan and China. For example, at
one level, the massive commercial development of Pudong, Shanghai, competes with the
fast growing Eastern Seaboard development in the Bangkok Metropolitan Region. At
another level, financial service conglomerates in Europe may be trying to choose between
Bangkok, Jakarta, Kuala Lumpur and Singapore for a new regional base for their
operations. An OECD-based textile conglomerate may be comparing labour costs, textile
quotas and many other factors in a decision whether to locate in Dhaka or Calcutta.
In parallel, there is an emergence of information-based industries such as financial services,

producer services (accounting, advertising, legal), research and development, media and the
headquarters of large corporations. This trend goes hand-in-hand with new techniques for
the faster diffusion of data. Cities are the natural base for information-based industries and
Sassen (1995) notes that the increasing interrelationship of services and the increased
importance of time is leading to the formulation of a producer services complex in all major
cities. It might be expected, given advances in communications, that such services could be
located in more dispersed patterns but, in fact, the advantages of agglomeration economies
and highly innovative environments are major forces in favour of a city location. The
agglomeration trends are, however, taking new forms. While the information-based services
will prefer a central location, particularly those with a strong international orientation, other
more traditional service industries may prefer cheaper locations in the suburbs or outer
metropolitan area. Sassen envisages a new geography of the centre, one that could involve
a metropolitan grid of networks connected through advanced telematics. These are not
suburbs in the way we conceived of them 20 years ago, but a new form or space of
centrality.
These pressures mean that there is an increasing need for cities to promote themselves in
terms of their traditional comparative advantages of transport links, communications and
infrastructure related to the production base but, in addition, in terms of such attractions as
lifestyles, good housing, cultural attributes, cost of living and tourism opportunities. Many
cities are using professional marketing companies to promote their attractions. It goes
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without saying that government incentives for such footloose manufacturing or service
employment are common, and include tax-free holidays for an initial period, enterprise
zones/export zones, subsidised housing and training facilities. Increasingly, Asian cities are
likely to benefit from trends to specialisation among inward investments, as they do from
specialisation trends in the domestic economy.
In addition, globalisation has both positive and negative impacts on the environment. In efforts
to hold down costs in order to compete in the global economy on product price, countries are
tempted to go easy on enforcement of environmental standards. On the other hand,
globalisation spreads environmental awareness and forces for compliance to standards. For
example, multi-nationals are lobbied to apply the same standards abroad as at home,
international NGOs monitor activity throughout the world and the multilateral banks and
Official Development Assistance (ODA) agencies such as Australian Agency for International
Development (AusAID) enforce environmental screening in their projects.
The global economy thus has, and will continue to have, a major impact on urban management
objectives and policies.
The case studies of the Philippines and Vietnam summarised in Chapter Five have documented
efforts to come to grips with the manifestations of the global economy. The following section
attempts to place these efforts in context and to identify macro-level strategies which foster
successful integration into the global economy.
3.3 Globalisation and the Poor

Globalisation is a fundamental process of change that is transforming the world economy. As
seen above, this change is reflected in widening and intensifying international linkages in trade
and finance. It is being driven by a near-universal push toward trade and capital market
liberalisation, increasing internationalisation of corporate production and distribution strategies,
and technological change that is fast eroding barriers to the international tradability of goods
and services and the mobility of capital. Markets for merchandise trade are expanding, more
and more services are becoming tradeable, and capital is flowing in increasingly diverse ways
across countries and regions in search of profitable investments. These changes have significant
impacts, both positive and negative, on the poor in developing countries.
3.3.1 The Role of Developing Countries

A prominent feature of the ongoing global economic change is that developing countries are
active participants, as both agents and beneficiaries of that change (World Bank, 1996a). The
outward-oriented reforms being embraced by a growing number of developing countries are
both contributing to globalisation and expanding opportunities for them to share in its benefits.
By promoting domestic efficiency and productivity and providing an environment that is
friendlier to exports and foreign investment, these reforms lie at the heart of developing
countries improved economic prospects. In the seven years following the launch of the
Uruguay Round in 1986, developing countries were responsible for 58 of the 72 autonomous
liberalisation actions reported to the General Agreement on Tariffs and Trade. Since 1986,
international trade in goods and non-factor services (exports plus imports) as a proportion of
their GDP has risen from about 33 to 43 percent and FDI inflows have increased six-fold.
Alongside the new opportunities in trade and external finance offered by globalisation have
come new challenges of economic management in an increasingly open, integrated and
competitive global economy. Policy-makers are confronted more and more with a new
discipline, the need to maintain the confidence of markets, both domestic and, increasingly,
international. In this setting, sound economic policies command a rising premium. To an extent,
globalisation is having the effect of encouraging the initiation of policy reform in developing
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countries in contrast to earlier processes in which reform was often initiated through external
pressure. Greater integration into the world economy raises the payoffs to increased
competitiveness, but also compounds the losses from a failure to act. Increasingly, it is the more
efficient policy regimes that will win out.
3.3.2 Disparities in Integration

The pace of integration into the global economy among developing countries, however, has
been uneven. Just ten countries contributed more than three quarters of the last decades rise in
the overall developing country trade ratio. Trade ratios fell in some 44 out of 93 developing
countries. The distribution of FDI was also skewed: eight countries comprising 30 percent of
developing country GDP garnered two-thirds of FDI in 1990-93 and half of the countries
received inflows of less than 0.2 percent of GDP.
For policy-makers in developing countries, these developments raise the following questions.
Why does integration matter to developing countries? What factors determine its pace? What
approach should policy-makers take towards it?
Global integration permits a country to seize the opportunities presented by a favorable external
environment, notably the importation of new technology, the more efficient allocation of
productive resources and the reduced cost of capital. Thus, increased integration has a
substantial impact on domestic growth and general living standards (although adjustment
creates groups - sometimes large groups - who are worse off). Conversely, a slow rate of
integration is usually a sign of underlying policy deficiencies, of which the most serious is
macro-economic instability. There are wide disparities among developing countries in the rate
of integration. The strong integrators have shown how perceived obstacles (for instance,
breaking commodity dependency and liberalising trade) can be overcome. Over the last decade
per capita growth in the quartile of fastest integrating developing countries was over three
percentage points more than in the quartile with the lowest pace of integration. Faster
integration was associated also with more stable growth: the standard deviation of growth in
fast integrators was about four percentage points less than in laggards.
3.3.3 Integration and Growth

Lessons from country experience include the following (World Bank, 1996b):
macro-economic stability was important as was a climate that encouraged investment,

including investment in commodity sectors;
the abolition of public sector monopolies in production and marketing produced large
efficiency gains;
technology was upgraded by fostering market incentives in the private sector and by the
removal of regulatory barriers, especially to foreign firms; and
the public sector played a complementary role in the provision of research and development
and physical infrastructure.
Global integration is strongly associated with higher levels of economic growth.
3.3.4 Growth, Inequality and Poverty

Contrary to much contemporary belief, economic growth almost always benefits the poor
(World Bank, 1996c). Although growth does not consistently affect inequality one way or the
other, the level of inequality does affect growth. In general, developing countries with a more
equal distribution of assets, specifically land, grew more rapidly than countries with a less equal
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distribution of assets. This presents a serious problem for those countries (many in Latin
America) where asset distribution is unequal, since very few countries have achieved
significant reductions in inequality.
Following are key facts emerging from the World Bank (1996c) research.
Growth almost always benefits the poor
- In the 88 cases studied by the World Bank where a country achieved per capita GDP
growth for a decade, inequality improved slightly in about half the cases and worsened
slightly in the other half. Because the changes in inequality were quite small, growth
almost always improved the incomes of the poor.
- Among the 88 cases, the incomes of the poorest fifth of the population increased in 77 (88
percent).
- Among the 57 countries that grew at least 2 percent for a decade, incomes of the poorest
fifth of the population improved in all but three. In India, poverty declined in all 14 states
that achieved growth in mean income.
In general, the higher the rate of growth, the more rapid the reduction in poverty
- In Indonesia, where GDP grew at an average annual rate of 3.7 percent from 1970 to
1990, real income increased three-fold from about US$700 to US$2,000. Over the same
period, the percentage of people living in poverty fell from 60 percent to 15 percent.
- In US, where the economy grew at an average annual rate of about 2 percent between
1959 and 1991, real income increased from US$9,900 to US$17,500. Over the same
period, the percentage of people living below the official poverty line fell from more than
18 percent to less than 12 percent.
- In Cote dIvoire, where GDP declined by an average 2.7 percent between 1985 and 1990,
the proportion of the population in poverty increased from 14 percent to 20 percent.
Inequality, poverty and growth - the Asian experience in context
- East Asia has a relatively equal distribution of land and has achieved unusually high rates
of growth (an average across countries of more than 4 percent per annum between 1960
and 1990). Between 1985 and 1990, poverty has fallen in all the countries for which data
are available, except China.
- Latin America has an unequal distribution of assets; growth has been erratic (1.3 percent
per annum on average). Between 1985 and 1990, poverty has increased in six countries,
fallen in four and remained unchanged in two.
- Land distribution patterns vary widely in Sub-Saharan Africa. But even countries with
relatively equal land distribution that pursued ineffective economic policies have had
very low growth. The region has been characterised by poor policies and very low growth
overall (0.3 percent on average). Available information suggests that poverty has
increased.
Nevertheless, the restructuring required to achieve global integration impacts on poverty groups
and also creates some poverty. Such impacts are important from both social and political
viewpoints and must be addressed with development assistance support.
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3.4 Industrial Countries Stake in Successful Integration of

Developing Countries
The increasing integration of developing countries into the global economy represents a major,
perhaps the most important, opportunity for raising the welfare of both developing and
industrial countries over the long-term. The process of integration will not be without its
problems, but both groups of countries have a large stake in ensuring that it continues to
advance.
Contrary to popular fears there is strong evidence that the growth of developing countries and
their increasing integration into world trade and finance benefits, rather than harms, industrial
countries (World Bank, 1996a). Gains to industrial countries from increased trade integration
with developing countries are potentially larger than those from additional integration among
industrial countries. This is because the cost-price differences between developing and
industrial countries can be more than twice as large overall as those between industrial
countries.
Beyond a more efficient use of resources, medium to long-term gains through increased
investment and innovation and higher productivity growth are likely to be substantial. These
gains arise from increased market size, competition and technology spillovers. Insufficiently
recognised in traditional analyses of trade, such dynamic gains are likely to be a multiple of the
initial efficiency gains from trade integration. Dynamic gains from trade are likely to be
especially important in the case of integration with developing countries, which are forecast to
grow about twice as fast as industrial countries. The scope for gains from trade integration will
expand with the increasing tradeability of services. The gains to industrial countries from trade
integration are estimated to be equivalent to a permanent increase in GDP of 0.4 percent due to
first-round static effects, followed by dynamic gains of between 0.8 and 3.2 percent (World
Bank, 1996a).
Industrial countries also stand to gain from increased financial integration with developing
countries. Increased FDI allows firms in industrial countries to reap the benefits of
specialisation in production and distribution on a global scale. In portfolio investment,
emerging markets provide an outlet offering higher returns and risk diversification for the
savings of the aging populations of industrial countries. For industrial country savers, the higher
risk-adjusted rates of return associated with portfolio and FDI flows to developing countries
could translate into gains to the tune of 0.4 percent permanent increase in GDP. Again, the
dynamic gains resulting from financial integration are likely to be higher by a few multiples.
However, the process of increased integration with developing countries will not be without
adjustment costs. Labour-intensive and low-skill industries and low-skill workers in industrial
countries are likely to be disproportionately affected. Economy-wide and over time, these costs
should be far outweighed by the gains from integration. Trade with developing countries will
spur other industries and services in which industrial countries will retain comparative
advantage. But, the reallocation of resources that this structural change entails is not easily
accomplished and will inevitably generate frictions and protectionist demands. Indeed, the
possible intensification of protectionist pressures poses a major risk to the realisation of
increased, mutually beneficial integration between developing and industrial countries. For a
successful transition, much will depend on industrial country policies for mitigating the social
costs of adjustment and facilitating the reallocation of resources toward activities that will be
spurred by integration. Increasing the flexibility of labour and product markets will be central to
this effort. Protectionist pressures to slow or reverse integration must be resisted, since that
would create losses for both industrial and developing countries.
In summary, in promoting growth in developing countries, the promotion of an efficient and

effective macro-policy context is essential. Such growth will also be beneficial to Australia
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provided exporters respond effectively to the markets generated by that growth. In terms of
development assistance, activities and programmes undertaken in an effort to support economic
development must also be poverty alleviating. Section 3.7 reviews the implications of
globalisation for development assistance, but, firstly, the next two sections set out concrete
manifestations of this globalisation impacting on developing countries.
3.5 Globalisation Impact on Cities in South-East Asia

As a response to the dynamics of the global economy, many countries in South-East Asia have
created EPZs mostly near established urban areas and have, at a macro-level, linked nearby
areas of complimentary economic structure (Yeung, 1995). EPZs include those in Baguio and
Bataan in the Philippines; Bayan Lepas in Penang and several others on the west coast of
Peninsular Malaysia; and Lat Krebang outside Bangkok, which were mostly formed in the late
1960s or early 1970s. A variant of the EPZ is Chinas SEZs which were created for the first time
in 1979 at Shenzhen. Other SEZs include Zhuhai and Shantou, located in Guangdong because of
their proximity to Hong Kong and Macau and Xiamen in Fujian with the geographical
advantage of being close to Taiwan on the western side of the Taiwan Strait. The latest creation
of EPZs is in Vietnam which, with its recent re-entry into the world community, has been active
in promoting FDI inflows and market-based economic development. The commonality of all
these zones is that, to a large extent, their establishment was predicated upon job creation
through manufacturing production, primarily for the world market.
Another innovative economic device to access the world market is the emergence of sub-
regional economic cooperative zones, called growth triangles, to date a uniquely Asian
phenomenon. Such sub-regional economic entities, crossing national borders, came into being
to maximise the efficiency of utilisation of the factors of production, which single country
development would not permit (Thant et al, 1994). For this reason, Singapore, Malaysia
(Johore) and Indonesia (Riau Islands) have been actively pursuing cooperative development in
the State of Johore and Batam Island, in an area that has been called the SIJORI Growth
Triangle. Here, excellent economic complementarities exist where Singapore as a world city has
been providing capital, technology and entrepreneurship, while the other parts of the
neighbouring countries provide land and labour at cheaper costs. One impact, from a spatial
viewpoint, is the acceleration of ribbon-type urban and industrial development in western Johore.
Other growth triangles exist or are at the planning stage in Pacific Asia. The Southern China
Growth Triangle, centred on Hong Kong, involves the participation of Hong Kong with Taiwan
and Chinas southern provinces of Guangdong and Fujian. In addition to economic
complementarities that exist in abundance, there are cultural and linguistic affinities which
further facilitate cooperative development. Growth triangles have also been proposed at the
mouth of Tumen River in North Asia and several others in South-East Asia, such as one linking
Myanmar, Laos, Thailand and Chinas Yunnan (called the Golden Quandrangle); the Northern
Growth Triangle involving northern Malaysia, southern Thailand and northern Sumatra
(Indonesia); and the Eastern Growth Triangle covering Mindanao (Philippines), Sulawesi
(Indonesia), Sabah and Sarawak (Malaysia) and Brunei (Yeung, 1995). There is some potential
benefit in this form of economic cooperation for countries in the Asia-Pacific region, as it
provides impetus for its current emphasis on free trade and open regionalism.
Related to the above processes of cooperative regional development focused on sub-regions and
EPZs, has been the emergence of EMRs in Pacific Asia. The process has been documented by
Ginsburg et al (1991) and was introduced in Section 1.2.1. In the context of globalisation, even
more complex issues of policy are raised for concerned countries and planning authorities in the
areas of land use, population migration, FDI flow and pollution control to name just a few
important areas.
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3.6 Citizens, Cities and Globalisation

As an extension of economic globalisation, and facilitated by the same technology and transport
links, a tentative globalisation of a political nature is underway. Cities residents can participate
in the political arenas that extend beyond their literal jurisdictions.
3.6.1 Municipal Foreign Policy (MFP)

In the last decade, urban-based American citizen groups (NGOs) have become increasingly
active around issues of national foreign policy and international relations. These groups, acting
on the belief that action at the local level can affect national and international issues, have
worked in two directions: by exhorting their political leaders and fellow citizens to address
policy problems that often exist outside of the locality, and are the jurisdictional responsibility of
higher levels of government; and by working with counterparts in other countries directly. MFP
activists have been involved with a wide range of issues, from peace and security (local
referenda on a Palestinian homeland or the establishment of nuclear free zones) to economic
development and cooperation (creating local world trade centres or divesting from South Africa).
A strong line of academic research relevant to MFP has emerged relating to cities and global
economic interactions. Promotions of trade, investment and tourism are some of the more active
ways in which residents of cities (as well as states and some regions) have tried to increase their
influence, sometimes supporting or circumventing national efforts along the same lines. Frys
(1989) analysis of local-global interaction argues that economic competitiveness requires active
global participation by actors at all geographic scales. He also sees utility in moral stances,
such as anti-apartheid resolutions when they are explicitly tied to economic sanctions. Such
movements, embodied in Northern NGOs, have been instrumental in forcing special interest
areas onto the international development agenda.
3.6.2 Twinning
City to city relationships are fostered by organisations such as Sister Cities International (SCI) in
the United States of America and Australian Sister Cities in Australia. In SCI, in 1989, there
were 834 US cities having foreign partners with 1,275 cities in 90 countries and associations of
local governments. They provide a channel for funding of projects, mainly in developing
countries. The Federation of Canadian Municipalities has assisted with exchanges between
various Canadian cities and their partners - for example, Vancouver and Guangzhou (China),
Hamilton and Mangalore (India) and Regina and Pereira (Columbia). A good example of
twinning as a project delivery system is seen in the city of Victoria (assisted by the Federation)
which is developing a water treatment project in Suzhou, China.
The institutional arrangements for twinning evolve as needed. The Council of the City of
Victoria established a relationship with four cities and in order to ensure that a whole-hearted
commitment is made and sustained, it has confined its energies to those four. Earlier, the various
connections were made either as the result of the mayor or a councillor of the time visiting a city
and responding to a request from that city, or from an influential citizen who had some reason for
promoting the liaison. Contact with twin cities was coordinated by an appointed Council
member who reacted as needed to citizen requests (or to proposals made from various sources or
foreign cities) without any long-term planning.
In 1988, Council decided that the community should become more involved in the
establishment of twin city partnerships. A committee, named the Sister City Advisory and
Liaison Committee (renamed the Twinned Cities Advisory and Liaison Committee in 1993) was
formed, consisting of representatives from a variety of sectors. Volunteers from business,
tourism, education and the cultural life of Victoria contribute to this group. The committee
assesses possible new relationships and oversees existing ones. It recommends all related policy
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to Council for action. However, it also acts as a promoter, encouraging the community to take
advantage of the benefits accruing to the city.
Citizens of Victoria who are interested in a specific twin city have developed local volunteer
associations for three of the four city relationships. These groups are devoted to maintaining
those relations abroad. Such groups are powerful sources of energy in nurturing each liaison.
They are involved in fund-raising, hosting and hospitality for visiting delegations. Their arms-
length connection with the city means that individual people, not just municipal politicians, are
truly reaching out.
In Australia, sister city relationships are established among numerous cities, (for example
Sydney with San Francisco, Nagoya, Portsmouth, Guangzhou (China) and Manila
(Philippines); and Melbourne with Boston, Osaka, St Petersburg and Tianjin (China)). The State
of New South Wales is twinned with Jakarta Province in Indonesia and Guangdong in China;
South Australia with Penang in Malaysia; and Victoria with Jingsu in China. However, there are
no examples of these relationships being used as delivery systems for aid although Brisbane
City Council has recently established an agency which could operate in this role.
3.7 Globalisation Implications

The implications of the above review for the formulation of development assistance activity are
important. In the context of assisting a developing country to take advantage of the growth of
the international economy, several issues need to be addressed. These are:
the need to strengthen financial systems in view of the primacy of finance - the challenge is
to ensure the poor have access to appropriate services from the financial system in order to
finance income generation/poverty alleviation activity;
the need to strengthen the knowledge structure and technological development - for the
poor, it is important that a broad educational base be provided which links through to the
higher tech sectors of the economy, thereby avoiding a dualism in the structure of human
capital development;
the need to ensure competitive forces are at work to achieve efficient outcomes and
regulatory processes are not coopted by vested interests - this also means selective pork
barrelling of the poor will be more difficult, and thus the process is controversial even
among the poor as it will usually involve the application of user pays principles;
the need to strengthen citys bargaining and promotion skills in respect of FDI providers to
attract appropriate higher value-added industry and to create employment - the challenge is
to adequately protect workers whose low cost is the key motivation for their employment;
the need to strengthen appropriate regional trans-border urban systems (growth triangles);
and
lend support to network integration, both in terms of technology (especially

communications) and in terms of including representatives of cities in regional and global
networks for sharing of information - such as the Pacific Rim Council for Urban
Development (PRCUD) at one end of the spectrum and effective community-based
twinning arrangements at the other.
In terms of our engagement in Asia over the longer term, Australian organisations need to
understand, and be part of, these systems and networks. It is thus reasonable to assume, both on
the basis of need and on the basis of Australian interest in effectively and usefully linking into
Asian economies, that more resources will be required from the aid programme to address
urbanisation issues.
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4 AID IN THE URBAN SECTOR

This chapter describes an important aspect of the global context of the urban sector - the trends
in development assistance support to the sector.
4.1 Actors in the Field

Developing countries receive financial and technical inputs from many sources including aid
inputs. The following account of aid delivery draws substantially from Serageldin (1995).
Increasingly, the variety of actors in the field, their differing motivations and the differences in
their operational styles and administrative requirements, have highlighted the need to
strengthen administrative capacities and political clarity in the recipient countries. This complex
scene has also highlighted the need for improved aid coordination. This overview groups the
actors in the field of developmental assistance under the following broad headings:
the UN system;
multilateral agencies and International Financial Institutions (IFIs);
bilateral assistance; and
NGOs.
In addition, substantial and increasing levels of funds are channelled to the urban sector through
FDI (in particular) and South-South cooperation.
Ultimately, almost all financial development assistance flows are channelled from OECD
savings. This broad statement should be balanced partly by pointing out that there are also flows
from the developing countries to the OECD in the form of repatriation of dividends on OECD
investments, repayment of debts and some FDI from the developing countries in the OECD.
Significant South-South flows occur also. OECD savings are channelled to developing
countries through:
financing the bulk of the UN systems costs;
intermediation of IFIs;
direct ODA handled by bilateral aid agencies or intergovernmental transfers;
commercial banks;
NGOs; and
direct investments by public or private bodies in the economies of the developing countries.
All of these channels are important for the urban sector.
With this background in mind, it is pertinent to review in more detail the major actors in the
field of development assistance to the sector - the UN system, the multilateral agencies and IFIs,
and the bilateral donors. First, however, the scope and scale of developing countries needs in
the sector will be reviewed. While some of the data are a little dated (early 1990s), these were
generated for the Habitat II Conference and have been used for consistency of presentation.
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4.2 Need in the Urban Sector

Asias economic growth is expected to continue, although perhaps not at the remarkable rates
achieved in the 1990s, with each country at a different point along the path towards sustainable
development. What they have in common is the enormous need for highways, ports, power
plants, water mains, airports, waste disposal facilities, railways and telephone systems. Taken
together, their needs run into the trillions of dollars which cannot be completely sourced from
their domestic capital markets. Between US$1.3 trillion and US$1.5 trillion is forecast to be
spent in East Asia outside Japan between now until 2004 (World Bank, 1994a). Half will likely
be spent in China where nearly three dollars in four will go to power or transport facilities.
The mammoth amounts are needed to support a projected 6 percent growth in East Asias per
capita GDP and an expected increase in city populations of one billion. Also making up for low
investments in the past, infrastructure spending will have to rise from about 5 percent of GDP
currently to between 6.5 percent to 7 percent in coming years (see Table 4.1).
Table 4.1: Infrastructure Spending Forecast for East Asia, 1995-2004

Country Power Telecomm. Transport Water & Sanitation Total
$B % of % of $B % of % of $B % of % of $B % of % of $B % of % of
GDP Total GDP Total GDP Total GDP Total GDP Total
China 200 2.0 41 141 1.4 55 302 3.0 50 102 1.0 66 744 7.4 49
Indonesia 82 2.9 17 23 0.8 9 62 2.2 10 25 0.9 16 192 6.8 13
Korea 101 2.1 20 32 0.7 13 132 2.7 22 4 0.1 3 269 5.6 18
Malaysia* 17 1.7 3 6 0.6 2 22 2.1 4 4 0.4 3 50 4.8 3
Philippines 19 2.7 4 7 1.0 3 18 2.5 3 4 0.4 3 48 6.8 3
Thailand* 49 2.4 10 29 1.4 11 57 2.8 9 10 0.5 6 145 7.2 10
Others 25 3.1 5 18 2.2 7 14 1.7 2 4 0.5 3 61 7.5 4
East Asia** 493 2.2 100 256 1.2 100 607 2.7 100 153 0.7 100 1,509 6.8 100
Note: * Government spending only for Malaysia and Thailand

** Excludes Japan and includes Indian Ocean and Pacific states
(Source: Asiaweek, 1995c)
These investments will, on the one hand, provide the systemic infrastructure to support
economic development - trunk infrastructure such as expressways, water treatment plants and
power generation - and local level infrastructure required by rich and poor communities. In the
case of poor communities, particular attention needs to be paid in the planning of investment to
ensure that the poor obtain access to the facilities and services which result from these
investments.
The issue of access is important. While claimed official primary school enrolment rates are
generally high in Asia (though ranging from 24 percent in Afghanistan to 100 percent in the
Philippines), actual enrolment rates for the poor are lower and the quality of education obtained
by the poor is also lower. Poor quality and crowded housing, lack of potable water and
substandard sanitation are the rule in the areas where poverty groups live and this affects the
poor disproportionately. Although national statistics are unreliable, UN figures indicate that
access to health care is low - from a low of 45 percent of urban population in Bangladesh; as is
access to clean water - from a low of 40 percent of urban population in Vietnam; and access to
sanitation - from a low of 35 percent of urban population in Vietnam.
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In the past, Asian governments used ODA to build such projects or borrowed from export-
import banks, the World Bank, the ADB, or occasionally, commercial institutions. While the
capital needs are huge, and ODA will continue to be needed, new options have appeared for
financing infrastructure projects. New mechanisms of finance are being facilitated by a more
liberal investment climate, with formerly insular countries like India inviting investment from
abroad, either directly or through stock exchanges. Asian companies are becoming aware of
domestic and international bond financing and are raising billions of dollars each year. Schemes
are being tried in which roads, power plants and other infrastructure projects are built by private
investors. Such schemes allow ODA (and counterpart government) funds to be focused more on
poverty alleviation (see below).
Foreign investment, both direct and through other channels such as mutual funds, is clearly
needed to overcome substantial financing gaps. As discussed in Chapter Three, this investment
is beginning to flow to a number of countries in the region. According to the World Bank
(1995), official government aid accounted for two-thirds of the capital inflow to the Asia-
Pacific developing countries in the mid-1980s. Now direct investment is the largest source,
followed by private loans and, only then, official assistance. Some foreign investment is already
finding its way to infrastructure projects through stock markets and the privatisation of
monopolies and utilities, such as the ending of the telecommunications monopoly in the
Philippines. The use of some ODA funds to facilitate private funds is a cost effective way of
supporting the required investment in many Asian countries.
4.3 The UN System

The UNs role in international development is large. Since 1971, the UNDP has invested more
than US$3 billion to support broad urban projects - for schools, clinics, power,
telecommunications and transport and regional planning. It has also provided nearly US$250
million for targetted urban projects - for example, planning, housing, infrastructure and services
and activities to generate income. Many of these projects are executed by the UN Centre for
Human Settlements (Habitat or UNCHS). Public perceptions of the UN system have been
negative but, on the whole, there is widespread recognition that the UN system is an important
contributor to the development process (but that its assets must be used more effectively).
Australia has a strong reform agenda in respect of the UN which concurs with this approach.
Economic and social policies are the responsibilities of several UN agencies, which can be
divided into those that fall directly under the responsibility of the UN General Assembly and the
UN Secretary-General, and those that fall under the responsibility of the Economic and Social
Council (ECOSOC). The most important distinction between the two groups is that the former
rely almost totally on the UN budget approved by the General Assembly, and the latter rely on
budgets that are approved by their own independent bodies. The UN agency with prime
responsibility for the urban sector is the UNCHS Habitat which falls under the responsibility of
the Secretary-General and its activities are funded partly from the UN budget, partly from
project funds and partly from project management fees.
Habitat is a specialised agency of the UN based in Nairobi, Kenya. The primary task of the
UNCHS Technical Cooperation Division has been to make technical cooperation in human
settlements available to developing countries in support of local, national, regional, inter-
regional and global action (UNDP, 1991). The UNCHS technical cooperation programme helps
translate global and inter-regional action strategies into concrete action at the country and
regional levels. Activities have been focused on capacity building in human settlements
management and on enhancing the sustainability of human settlement development efforts. The
UNDP (1991) maintains
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By promoting long-term programme approaches to national capacity building, the UNCHS

technical cooperation programme has been a vehicle for disseminating policy options,
analytical tools and strategies, and for consolidating technical capacities at national and
local levels for the more effective mobilisation of domestic and external resources.
In practice, UNCHS focuses on Technical Assistance (TA) projects which, in turn, focus on
building urban management and urban environmental management capacity. It has effectively
no funds for investment projects. Some other projects, such as the UMP (jointly funded by
UNDP and the World Bank), concentrate on dissemination of the considerable body of expertise
available through individual consultants associated with Habitat and on catalysing TA projects.
The Research and Development Division of UNCHS has been responsible for keeping human
settlement conditions and trends under constant review and for identifying global policy
options. The new urban agenda of UNCHS focuses increasingly on promoting the role of cities
in sustainable development and implementing the Global Strategy for Shelter to the Year 2000
and the Habitat II Global Plan of Action. UNCHS is currently faced with severe budgetary
problems and lacks a clear strategy to guide its future activity.
United Nations International Childrens Fund (UNICEF) disbursements to shelter-related

infrastructure and services totalled over US$4.5 billion during the period 1980 to 1993, with
three-fifths of the support going to primary/basic health care services (including support for
child health and nutrition and for community or family basic health services). This makes it the
second largest multilateral aid programme to projects in the urban sector health, despite the fact
the UNICEFs total annual funding commitments appear small relative to most multilateral and
bilateral agencies.
4.4 Multilateral Agencies and IFIs

With a central role in the present international system, the IFIs are the main providers of
development finance, primarily on a loan basis. These institutions include the IMF and the
World Bank Group and four major Regional Banks: ADB, the African Development Bank
(AFDB), the Inter-American Development Bank (IADB) and the European Bank for
Reconstruction and Development (EBRD). The regional banks are multilateral in structure, but
regional in their geographic areas of concern.
The World Bank is by far the worlds largest financier of development projects (UNCHS, 1996).
The International Bank for Reconstruction and Development (IBRD) and International
Development Association (IDA) have disbursed about US$16.5 billion for Fiscal 1992 and are
expected to increase disbursements to about US$20.4 billion in Fiscal 1993. They have a
portfolio of US$140 billion in lending commitments, supporting projects and programmes
totalling US$360 billion. Programmes in the urban sector comprise a significant proportion of
World Bank activity (see below). Current policy in the sector focuses on four areas - urban
poverty, urban finance, urban environment and urban productivity (World Bank, 1991).
4.4.1 Basic Services

The infrastructure and services associated with housing and residential areas receive a higher
priority from both multilateral and bilateral agencies than housing itself, or housing finance.
Table 4.2 shows disbursement in the areas of infrastructure and services associated with shelter.
This table also shows the noticeable increase in the priority given to such infrastructure and
services in the early 1990s.
The World Bank (IBRD and IDA funding) is by far the largest donor for this group of projects
both in terms of aid (through its concessional loans) and in terms of non-concessional loans.
Around US$22 billion was committed to the infrastructure and services associated with shelter
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between 1980 and 1993, with most of it allocated to urban areas. Close to half went to water
supply, sanitation and drainage, with around a quarter to primary health care, and just over a
fifth to basic education and literacy. Virtually all the rest went to social services or social
employment schemes. For the non-concessional loans, three-fifths of commitments during these
14 years were for water and sanitation, with close to a fifth for primary health care and for
primary or basic education. Thus, while the scale of the World Banks commitments specifically
to shelter has declined, the scale of the commitments to interventions, central to improving
housing and living conditions and providing services that every village or urban settlement
needs (e.g. primary health care and schools), has increased considerably. Asia dominates the
World Banks spending, receiving 50 percent of its total funding in the period of which basic
services and infrastructure (see below) received approximately one third.
Table 4.2: The Proportion of Aid and Non-Concessional Loan Commitments to Shelter-
Related Infrastructure and Basic Services, 1980-93
Total Proportion of total project commitments Percent of total
funding Water & Primary Basic Poverty commitments
(US$B) Sanitation Health Education Reduction 1980 1990 1992
Agency Care & Jobs 93 91 93
Aid (concess. loans/grants)

World Bank IDA
Africa 27.9 3.6 2.7 4.3 1.9 12.7 20.0 15.3
Asia 38.6 5.5 5.3 2.7 1.4 15.0 22.1 36.2
Latin Amer. &
Caribbean 1.9 3.8 3.5 1.8 7.6 16.8 41.1 11.8
AFDB 10.2 7.3 2.7 4.3 1.3 15.7 15.8 15.3
Asian Development
Fund (ADF) 14.3 4.4 1.6 1.7 0.3 7.9 7.7 22.6
IADB 6.5 18.0 1.4 3.1 1.3 29.6 28.0 37.8
Caribbean Development
Bank (CDB) 0.7 4.1 - - 0.5 4.9 3.1 2.2
UNICEF 6.6 13.7 33.5 7.9 - 55.1 57.4 47.9
Overseas Economic
Cooperation Fund (OECF),
Japan (1987-91) 36.5 3.8 - 0.4 - 4.5 3.7 -
Non-concessional loans
IBRD
Africa 29.6 8.0 1.2 0.9 0.1 10.4 12.3 12.9
Asia 90.6 3.3 0.9 0.9 0.04 5.1 7.9 6.6
Latin Amer.
& Caribbean 68.7 5.1 1.6 2.1 0.0 8.9 12.2 11.1
AFDB 17.6 9.0 0.4 1.6 0.4 11.5 13.5 14.5
ADB 30.9 4.5 1.0 - - 5.6 1.3 0.7
IADB 41.7 6.3 0.3 0.3 0.6 7.5 13.0 17.3
CDB 0.5 6.7 0.0 0.0 0.0 6.7 8.5 0.0
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Among the other multilateral agencies, the IADB with loan commitments of US$4.4 billion in
these 14 years is the largest donor. Table 4.2 shows the high priority this Bank gave to shelter-
related infrastructure and services in recent years. The ADB generally gives a low priority to
these kinds of projects although, as Table 4.2 shows, these received an unusually high
proportion of total commitments for soft loans (through ADF) for 1992 and 1993. Just over half
were for water supply and sanitation. However, in recent years, primary health care, primary or
basic education and social funds have received more support, while the proportion allotted to
water and sanitation has declined. The priority given to basic education has also increased in
recent years.
4.4.2 Infrastructure
Among the multilateral agencies listed, the World Bank remains the largest source of
development assistance to urban infrastructure and services (the larger-scale network projects
as distinguished from the generally local basic services discussed above), with commitments
totalling close to US$27 billion between 1980 and 1993 (see Table 4.3). Urban services such as
secondary and higher education and hospitals received around 40 percent of the funding, with
around 33 percent to urban infrastructure, 18 percent to integrated urban development and 7.5
percent to improving urban management. The trend over these 14 years has been a shift away
from large infrastructure projects to support for secondary and higher education, strengthening
the capacity and competence of city or municipal authorities in urban management and
integrated urban development.
In recent years the World Bank has given a greater priority to pollution control in urban areas.
Although loan commitments were made before 1990 (indeed, a loan commitment to Sao Paulo to
help control river pollution is recorded in the Banks 1971 Annual Report), it is only since 1990
that one or two projects have received funding each year. In 1993, three urban pollution control
projects received support with commitments totalling more than US$700 million.
The ADB made commitments totalling US$6.4 billion between 1980 and 1993. Just over two-
fifths went to urban infrastructure (mainly ports and urban electrification), with just under two-
fifths to urban services (mainly secondary and higher education) and one-fifth to integrated
urban development. The ADB also made its first loan for a comprehensive urban environmental
improvement project in 1992 - to Qingdao in China. The AFDB group committed about US$2.9
billion during these 14 years with most going to secondary and higher education, hospitals and
city electrification.
4.5 Bilateral Assistance

The bulk of international financial assistance, in terms of net transfers to the developing
countries, comes from the bilateral assistance provided by the members of the OECDs
Development Assistance Committee (DAC). The most recent DAC report shows that its
members contributed US$54 billion in ODA flows to developing countries and multilateral
institutions. This amount has shown a small, but consistent, decline in terms of the percentage of
member GDP devoted to aid (Randel and German, 1996). It is much more difficult to provide a
comprehensive overview of the commitment of bilateral agencies to human settlements
projects. Unlike the multilateral agencies, few publish details of all the projects they fund in
enough detail to allow an analysis comparable to that provided above for the agencies listed in
Table 4.2. The most up-to-date figures available for the bilateral agencies priorities in this area
are shown in Table 4.4. They are reported under a category termed social and administrative
infrastructure, which incorporates health and population, education, planning and public
administration and water supply and other. This is the category used by the DAC to report on
funding flows from the bilateral aid programmes of OECD countries. No more detailed
statistics are available that allow comparisons between these bilateral agencies.
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Table 4.3: The Proportion of Aid and Non-Concessional Loan Commitments to Urban
Infrastructure, Urban Services and Urban Management, 1980-93
Percent of
Proportion of total project commitments total commitments
Urban Mngt.
Total Urban Colleges & Public & Integrated. 1980 1990 1992
Agency (US$B) Infrastruct. Hospitals Transport Dev. 93 91 93
Aid (concess. loan/ grants)

World Bank IDA
Africa 27.9 1.8 4.4 0.0 2.6 8.8 10.0 11.3
Asia 38.6 1.1 5.3 0.3 3.6 10.3 16.1 12.4
Latin Amer.
& Caribbean 1.9 4.0 3.5 0.0 2.7 6.5 0.0 0.0
AFDB 10.2 3.5 2.7 0.0 0.5 13.1 14.7 14.7
ADF 14.3 2.7 1.6 0.0 2.8 11.8 12.9 17.7
IADB 6.5 2.9 1.4 0.0 6.0 16.9 8.3 7.1
CDB 0.7 4.4 - - 6.3 14.3 8.2 15.4
Arab Fund for
Economic & Social
Development 4.7 9.1 33.5 0.0 0.5 11.8 7.6 -
OECF, Japan
(1987-91) 36.5 6.6 - 2.4 2.2 n.a. 20.1 -
Non-concessional loans
IBRD
Africa 29.6 4.0 1.2 0.1 3.4 11.3 15.4 15.3
Asia 90.6 3.9 0.9 0.2 3.0 10.3 16.6 14.9
Latin America &
Caribbean 68.7 4.0 1.6 1.5 3.9 10.8 5.8 16.8
AFDB 17.6 4.4 0.4 0.1 0.1 8.2 3.4 9.1
ADF 30.9 6.9 1.0 0.0 3.4 14.8 18.4 16.1
IADB 41.7 2.5 0.3 0.0 3.1 7.4 4.2 3.3
CDB 0.5 13.0 0.0 0.0 5.0 18.6 20.4 3.8
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Table 4.4: The Priority Given by Bilateral Aid Programmes to Different Project
Categories within 'Social and Administrative Infrastructure', 1991
The Percent of ODA to:
Countries Education Health & Planning/ Water Supply Total social
Population Public Admin. & Others & administrative
infrastructure
Australia 30.1 1.1 4.8 7.9 43.9

Austria 22.3 0.6 0.2 5.4 28.5
Belgium 14.9 12.6 3.8 1.6 32.9
Canada 7.1 1.8 0.5 4.9 14.3
Denmark 9.4 11.9 0.4 17.9 39.6
Finland 4.9 1.2 2.7 11.1 19.9
France 22.5 3.2 2.4 3.8 31.9
Germany 12.9 1.6 2.4 7.8 24.7
Ireland 21.3 6.2 5.1 3.7 36.3
Italy 6.6 4.4 0.7 8.4 20.1
Japan 6.3 1.6 0.4 3.9 12.2
Netherlands 12.3 2.0 2.8 8.3 25.4
New Zealand 41.3 2.5 5.3 2.3 51.4
Norway 5.0 2.2 1.1 3.3 11.6
Spain 5.0 1.5 1.1 4.4 12.0
Sweden 9.1 8.8 2.8 5.4 26.1
Switzerland 6.4 3.6 0.2 4.5 14.7
United Kingdom 12.6 2.7 3.3 5.4 24.0
USA 2.8 4.4 4.4 3.6 15.2
Total DAC 8.7 3.2 2.4 4.9 19.2
(Source: OECD, 1994)
These statistics indicate a low priority to urban water and sanitation and to health and
population, in the context of the total aid effort. The average of total spending for water supply
and other was 4.9 percent, with 10 of the 19 bilateral programmes giving less than 5 percent.
Education receives a higher priority but, in most bilateral programmes, this does not reflect a
priority to basic education. Most bilateral assistance to education goes to support scholarships
for students from the South to study in the higher education institutions in the donor country.
In recent years, several bilateral and multilateral agencies have shown a greater interest in urban
poverty, even if this is not yet apparent in the latest statistics showing their sectoral priorities.
For instance, the Dutch Governments bilateral aid programme incorporates a new programme
on urban poverty.
The United States Agency for International Developments (USAID) Office of Housing and
Urban Programmes made large commitments to urban infrastructure, especially water and
sanitation between 1990 and 1993. For instance, during 1992-93, over US$400 million was
authorised for various initiatives to support USAID private sector or municipal investments in
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water, sanitation and other forms of urban environmental infrastructure. In 1994, this Office
became a unit within a new Environment Centre USAID, which was established to provide
technical and program leadership and lend support to USAID personnel (including its field
missions) and its domestic and international development partners on global and sustainable
development/environmental problems. The Office of Housing and Urban Programmes has been
renamed the Office of Environment and Urban Programmes.
The data available on most bilateral agencies is insufficient to permit a detailed analysis of
funding to urban infrastructure and services. However, the DAC documents the scale of support
from bilateral agencies to urban development as presented in Table 4.5. These figures suggest
that multilateral donors are far more significant sources of funding for urban infrastructure and
services than bilateral donors, the World Bank alone disbursing, on average, three to four times
total bilateral spending in the sector each year.
Table 4.5: Bilateral Agencies Official Development Finance Commitments for Urban-
Development by Purpose, 1986-1990 (US$ Million Constant1990 Value)
Total
1986 1987 1988 1989 1990 1986-90
Urban development 93.9 33.3 66.6 31.7 26.0 251.5

Housing 52.7 74.4 73.0 168.6 62.0 430.7
Water and waste mngt. 617.2 741.5 1,195.4 998.5 917.0 4,469.5
Transport 72.1 138.8 120.3 457.9 540.0 1,329.0
Gas distribution 38.9 0.0 576.7 68.5 1.0 685.1
Electricity distribution 175.2 570.5 522.0 984.2 397.0 2,648.9
Pollution control 0.0 0.0 0.0 0.0 5.0 5.0
Harbour/docks/airports 478.6 652.7 629.4 716.4 334.0 2,811.1
Health 95.0 108.8 165.4 191.1 100.0 660.3
Cultural activities 35.5 93.2 68.7 35.8 21.0 254.3
Total 1,659.1 2,413.1 3,417.5 3,652.6 2,403.0 13,545.3
(Source: OECD, 1992)
Between 1980 and 1993, a few donor agencies provided significant support to low-income
housing projects in urban areas, most of them in large cities. More importantly, most funds went
to projects that differed considerably from conventional public housing. For instance, support
was provided for slum and squatter upgrading schemes that sought to improve conditions
within existing low-income settlements by providing or improving water supply and for
supplying sanitation, drainage and some community facilities.
Many such projects also provided secure tenure to inhabitants whose house or occupation of the
land (or both) had previously been considered illegal. Although upgrading projects did
improve conditions for several million urban households at a relatively low cost, there were
often problems with maintaining the upgraded infrastructure and services. These programmes
made up for the lack of past investment by local authorities and by the private sector. While
such projects improved conditions considerably, rarely did they also increase the capacity of
local authorities and citizen groups to maintain them.
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Despite being dwarfed by multilateral programmes, bilateral assistance plays an important role
in the sector. In particular, much bilateral assistance is grant-funded and much of these funds are
for TA, which is important in augmenting the capacity of local institutions to manage the
investments undertaken with other (government, bilateral or multilateral) funds.
4.6 Non-Governmental Organisations

NGOs have played an increasingly important role in development assistance. In 1989, total
grants from private voluntary agencies (US$4 billion) represented 5 percent of total recorded
DAC resource flows (US$85.3 billion). Institutions such as the World Bank have recognised the
importance of NGOs in the process of fostering development, and the Bank has emphasised the
appropriate participation of NGOs in the design and supervision of Bank-funded projects.
NGOs have distinct advantages as agents of development. They usually have highly motivated
staff and low operating costs, are close to the grass-roots, and are independent of government
politics, maintaining a strong orientation towards the people they serve. The NGO experience
over the last 20 years has provided a basis for the design of many of the innovative poverty-
focused government/multilateral/bilateral programmes (see Chapters Three and Six for
examples). The weight of experience has been in shelter rather than infrastructure provision,
and it is this aspect that many government programmes have sought to replicate (UNCHS,
1996:386).
In many cases, NGO projects in the sector use small independent revolving loan funds in which
households repay funds to a capital fund which then makes the funds available to another
household. The revolving loan fund of Catholic Social Services in Karachi, Pakistan, is typical of
such programmes. The fund has a capital base of US$150,000. Between 1981-92, it supported
830 households with about one-third of the loans being outstanding at the end of this period.
Such experiences have demonstrated that a lack of loan finance for housing is an important
factor in increasing household consumption expenditures and delaying house consolidation. As
well as demonstrating the need for appropriate housing finance, they have also demonstrated
that low-income households are willing and able to repay. Indeed, repayment rates achieved are
much higher than those of wealthier groups repaying to many commercial banks or housing
finance institutions. The households involvement in loan repayments achieves important
development objectives at both a micro and macro-level. Linked with shelter needs, NGO
projects routinely crosscut health, water, sanitation and income generation needs. Such
projects are now incorporated into multilateral and bilateral programmes which often, and
increasingly, are utilising NGOs in implementation.
With increasing resource flows has come dual concerns. On the one hand on the part of NGOs in
both developed and developing countries, they do not wish to be captured by official ODA
agencies. On the other hand, on the part of these agencies, NGOs need to be accountable for the
efficient implementation of projects and programmes funded with public money (Edwards and
Hulme, 1995).
4.7 The Types and Experience of Aid in the Urban Sector
4.7.1 Project Aid

Much international agency support has come in the form of project aid, that is, financing and
TA tied to a specific investment or programme. The advantage of this kind of aid is that it
enables the concerned agency to appraise the merits of the proposed project. The World Bank
and many aid agencies remain primarily project financiers. This kind of aid still constitutes
about 80 percent of the annual commitments of the World Bank. A recent review of the World
Banks overall project portfolio, the Wapenhans Report (citied in World Bank, 1994b),
documented an increasing number of poorly performing infrastructure projects. One of the
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causes of this increase citied by the report was a tendency to concentrate in the appraisal process
on loan approval, which can lead to an upward bias in estimating rates of return. In addition, the
report showed that, relative to implementation capacities, projects were often too complex.
Finally, the report argued that greater attention to uncertainty and risk was warranted in project
preparation (World Bank, 1994b:86).
4.7.2 Technical Assistance

TA aid is where OECD country programmes or less common multilateral agencies pay for (the
transfer of) technical skills to the recipient country. This skill transfer is usually provided by
consultants, either individual or, working with consultancy companies, although a newer form
of technical assistance, twinning, has been recently used. This form of assistance enables
individuals from like organisations in donor countries to undertake TA assignments in
developing countries. The arrangement is more common in the utility areas - water enterprises
are one example. Mostly, this aid is used in support of the implementation of project aid which
represents an important element of foreign assistance. In 1987, TA to Sub-Saharan Africa
totalled US$4 billion. Buyck (1991) and Paul et al (1989) have reviewed the TA programmes of
the World Bank and provide a good analysis of such projects initiated by the various
international agencies. The record is far from perfect in respect of the effectiveness of TA
projects judged against their stated goals.
4.7.3 Other Forms of Aid

Although the two forms of aid discussed above constitute the mainstream channels of aid
delivery, when countries are reeling under external shocks and severe liquidity crises and their
economies are starved for imports, balance of payments support, or compensatory finance (non-
project finance) is needed. This assistance should, however, be linked to improvements in the
countrys macro-economic management. In addition, disaster and humanitarian relief is
required and debt relief, in cases of insupportable repayment levels, is needed in exceptional
circumstances.
4.7.4 Focus
The overview, prepared for the Habitat II Conference (UNCHS, 1996), of development
assistance in the urban sector points to the lack of focus in projects and programmes of the
institutions involved in the sector. The current focus on urban poverty is welcome, but basic
services at the community-level which are most important to poverty groups, do not have high
priority in most aid programmes. Education has a high priority, but the majority of funds tends to
be for higher level assistance. Environmental projects are of increasing importance. In the urban
sector, environmental projects have usually addressed the mechanics of pollution control and
monitoring. However, projects with a wider scope, such as the Metropolitan Environmental
Improvement Programme (MEIP) and the Sustainable Cities Programme (SCD), have also
addressed issues related to differing income groups within the context of a cross-sectoral
approach to environmental problems. NGOs are of increasing importance in the delivery of
assistance, but have encountered difficulties in scaling-up activities.
There are therefore, significant structural deficiencies in the focusing of delivery systems and,
indeed, as seen above, in the performance of those systems generally. Nevertheless, there are
examples of effective action to alleviate poverty and promote sustainable development. The
next chapter will undertake a more detailed analysis of delivery practice in such provision in the
case study cities. The subsequent chapter examines best practices in development assistance
delivery by sector. Before undertaking this analysis, however, Australian experience in urban
sector development assistance will be reviewed briefly.
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4.8 Australian Aid in the Urban Sector

AusAIDs urban programme is significant. Project approvals current (1996) in the urban sector
total - according to one set of categorisation - over A$900 million. The figure is indicative. On
the one hand it overstates urban spending because such items as the A$65 million Mekong
Bridge are included. On the other hand, it understates AusAID presence in the sector because
many sectoral projects, for example in health and community development, have significant
urban components but are not included in the estimate. In addition, NGO projects in urban
areas, in the Philippines for example, are not included in the A$900 million.
The spread of spending is relatively concentrated with one third (A$300 million) destined for
Papua New Guniea, A$160 million (of which A$90 million was through the former
Development Import Finance Facility - DIFF) for Indonesia, A$115 million for Vietnam, A$60
million for China (almost all DIFF) and A$50 million to the Philippines (A$35 million DIFF).
With the curtailment of the DIFF scheme, these figures will change significantly, although the
concentration of aid will not change substantially - with the exception of the reduction in
prominence of China. In terms of the preceding discussion of urbanisation trends, the under-
representation of countries with significant concentrations of urban poor, India in particular, is
clear. In some of the larger country programmes, the lack of geographical focus is seen as a
potential problem from the viewpoint of achieving rural-urban links within the programme and
synergies among sector areas and between the bilateral and NGO programmes.
The sectoral focus of project aid is towards water supply and sanitation, although the project
mix varies extensively among countries, as it should, reflecting development priorities of the
country concerned and Australias role in relation to other donors. Water supply and sanitation
are extremely important from the viewpoint of support to sustainable development, particularly
in view of the health/environmental nexus that is particularly important for the poor. However,
the small scale of other programmes supporting poverty alleviation and response to
globalisation forces, such as support to the telecommunications sector and to economic
development activity/private sector development (to micro-enterprises in particular), is striking.
In respect of the actual performance of projects, no comprehensive analysis of urban project

performance has been attempted. Such reviews as have been attempted, give no clear picture of
performance. However, the 1991 Australian International Development Assistance Bureau
(AIDAB) Effectiveness Review of Australian Development Cooperation with China did find
that only one out of three urban sector projects were effective, and this hit rate appeared to be
much lower than for agricultural projects. Although the criteria may be questioned, such results
give credence to the proposition that the inherent complexity of urban projects requires
upgrading of existing project delivery systems to ensure the adoption of best practice in the
sector concerned.
This being said, AusAID has carried out successful urban sector projects which respond to the
issues raised above. Over the last two decades, numerous urban sector projects have been
evaluated in terms of their performance against nominated outputs. Unfortunately, the results of
these evaluations cannot provide examples of best practice, as the projects were not evaluated in
respect of wider urban sector/institutional development goals (such as those set out in Chapter
Two). Where sector-wide evaluations were carried out - as in respect of the water supply sector
in 1990 - the results of the evaluations were not specific for urban projects (which are
dominated numerically by rural water supply projects). Other than those undertaken by NGOs in
Cambodia and the Philippines (see below) and the Hanoi Masterplan Project, the case study
cities contained no ongoing AusAID urban projects. One project which has significant potential
to act as an example of best practice, The Philippines Regional Municipal Development Project,
has not yet been implemented in Cebu.
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4.9 Conclusion
Generalising from the above analysis, the following observations on the major trends in
development assistance in the urban sector may be made.
Multilateral development banks focus on loan funding infrastructure, both at the city-wide
level and at the local level in support of shelter projects.
Bilateral and UN agencies have similar priorities, but their spending (declining as a
proportion of OECD GDP) is more oriented towards technical assistance focused on
capacity building particularly in formal education but increasingly in terms of improved
human resources and systems within urban management organisations.
Both bilateral and multilateral agencies are increasingly utilising NGOs in implementation of
projects especially in those aspects of projects which focus on grass-roots, poverty-focused
community development.
No magic formula for success in projects has been found. Large-scale projects have been
effective in both supporting economic development and poverty alleviation if they have
been effectively implemented and managed by recipient institutions. In many projects this
has not been the case. In grass-roots projects, the same lesson has been learned and, again,
experience with both government and NGO implementation mechanisms has been mixed.
The implications for the design of future development assistance are:
more efficient use needs to be made of scarce ODA funds (in the context of demonstrably
greater investment and capacity building needs), especially grant TA funds; and
efficiency improvements must focus on better implementation and sustainable

management/maintenance of investments catalysed by ODA.
The next two chapters will detail lessons relating to efficient implementation and maintenance by
drawing on the analysis of the case study cities and on examples of best practice in the sector.
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5 CASE STUDIES CALCUTTA, CEBU,

HANOI, PHNOM PENH
This chapter presents the findings of a study on urbanisation in the four case study cities
conducted by the Australian Housing and Urban Research Institute (AHURI) in conjunction
with its partner institutions in the Philippines, Vietnam, Cambodia and India.
5.1 Methodology and Concepts: Poverty Alleviation

Through Sustainable Development
Poverty alleviation has been central to the analysis of the case studies. Urban poverty
alleviation has been analysed under four major issue categories:
Micro-Enterprise Development and the Informal Sector
Human Resource Development
Health and the Environment
Rural-Urban Linkages
The four issue categories encompass the spectrum of activity in the area of poverty alleviation
and correspond broadly to categories utilised by multilateral agencies in structuring their
activity.
The case studies have shown the critical interdependence between effective micro-level actions
designed to alleviate poverty and the economic, social and environmental context within which
these actions are undertaken. This context determines:
the impact of such actions (e.g. the ability for a micro-credit scheme to go beyond the first
tranche of aid-donated funding to a few pilot households or enterprises in a given area);
and
the replicability of the actions (e.g. the ability to replicate such a micro-credit scheme in
other areas and cities).
If sustainable development encompasses the concepts of economic, social and environmental

sustainability as defined in Agenda 21 (United Nations Conference on Environment and
Development (UNCED), 1992) and Towards a Sustainable Future (AIDAB, 1994a), then it is
possible to construct a conceptual framework for placing the four broad categories in context, as
indicated in Figure 5.1. As shown in the diagram, the central concept of the Agenda 21
definition of sustainability was the need for sustainability to be achieved in economic, social
and environmental dimensions - and that these dimensions were interrelated. The discussion of
the four issue categories will illustrate their dimensional interrelationships.
The definition of sustainable development offered in Agenda 21 has been criticised as being
insufficiently defined and insufficiently strict. Elsewhere, Australian environment groups have
defined a strict definition of sustainable development which places more emphasis on
biodiversity and limits on natural resource use (Beder, 1993). The difficulty with strict
definitions is that such concepts as pricing to recover the full social and environmental costs of
their use and extraction are operationally difficult, even in Australia (AIDAB, 1994a). Thus,
the more general definition adopted in Agenda 21, given the variety of circumstances and context
in which it will be used in respect of urban development, is better suited to the current study.
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Figure 5.1: Conceptual Framework for Understanding Sustainable Development

in the Context of the Four Issue Categories
SUSTAINABLE DEVELOPMENT
Urban
Proverty
Economy Society
Enterprise Development Rural-Urban Links
Human Resource
Development
Health & Environment
Environment
In addition to the major issue categories identified above, several crosscutting issues were
utilised in the analysis of the case studies. These were:
institutional capacity
private sector participation
finance
gender.
These crosscutting issues interrelate and within this overview document they will be addressed
in each of the major issue categories.
5.1.1 Micro-Enterprise Development and the Informal Sector

The key to poverty alleviation is the generation of income for poor households. In many cities,
the majority of people are employed in the informal economy - that is, outside mainstream
economic activity in small micro-enterprise activities such as small shops and service
establishments, food and cigarette vending, bicycle and car repairs, transportation of
passengers, collecting and reprocessing rubbish and scavenging in garbage dumps.
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Although data on the number of persons employed in the informal sector are scant, the ADB
report that between 1980 and 1982 the percentage of the labour force in the informal sector in
many Asian metropolises was high. Using data from Lea and Courtney (1986) and ESCAP
(1992), the ADB (1995) estimate that between 1980 and 1982 in Jakarta 65 percent of the total
labour force was engaged in the informal sector, followed by Madras with 60 percent, Calcutta
with 54 percent and Manila with 50 percent.
In Vietnam, the informal sector or pavement economy is significant, with about 80 percent of
the unemployed and 60 percent of the casually employed estimated to be working in micro-
enterprises in 1989. In total some 125,000 persons in Vietnam earned their living from micro-
enterprise activities including mobile food catering, transport services and craft industries
(National Institute of Urban and Rural Planning, 1994:20). In Cambodia the informal sector
absorbs many of the new entrants to the labour force, estimated to number 135,000 in an
environment where the private sector can only absorb around 15,000 new entrants at present.
Females play an important role in Cambodias informal sector employment performing
activities such as maids, housekeepers, bar hostesses and sex work.
5.2 Urban Poverty and Sustainable Development

A summary of the case study findings is set out in the following sections.
5.2.1 Micro-Enterprise Development and the Informal Sector

The key to poverty alleviation is the generation of income for poor households. The majority of
the poor own or work in small enterprises which are generally perceived as informal, that is,
they are outside mainstream economic activity. This perception is fallacious. In many cities the
majority of people are employed in the informal economy. Due to its informality, however, it
faces institutional and financial constraints which hamper efficient investment, development
and expansion. Informal sector workers suffer from poor health and low skill levels.
Micro-enterprises and the informal sector operate within a framework of physical and social
infrastructure support provided, inter alia, by local government. Micro-economic reform
influences their relationship to the formal sector, especially the financial sector. Without macro-
economic success, it is difficult to alleviate poverty - an economy which is stagnant cannot
support more enterprises and employment.
The study has highlighted there is considerable scope to extend micro-enterprise development
and the informal sector. However, there exist considerable differences in levels of government
involvement, and in capacity of NGOs and CBOs involved, among the case studies. Disparities
in financial incentives for the poor to improve their conditions through small local initiatives
and differences in levels and type of ODA support to programmes which target micro-enterprise
development and informal sector activities, provide an opportunity to compare approaches.
The four case studies indicate the significant contribution that micro-enterprise development
and the informal sector can make to their national economies. Such positive gains must be
considered in respect of significant numbers of informal sector workers suffering from poor
health, low education attainment and low skills levels. An important finding of the study is the
contribution females make to micro-enterprise development and the informal sector.
Cebu
In 1992 it was estimated that almost all of the 67,000 self employed and 22,000 unpaid
family workers operated in the informal economy. Of these, 20 percent were urban
squatters, 25 percent had no access to sanitary services, 30 percent had no water or
electricity, around 50 percent had completed primary education, 66 percent did not have
skills necessary to perform in the industrial and formal service sectors and 34 percent had a
daily income of less than P50 (A$1).
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The importance of contribution to the economy and in the area of family support (many are
the primary money earners and are widows) is highlighted in that informal sector comprises
78 percent females (compared to 53 percent nationally).
Numerous NGO programmes and programmes utilising NGOs provide support to the
sector, with the most effective appearing to be such programmes as TST-SECA where a
NGO utilises its own money rather than acts as a conduit for external funds.
Calcutta
Micro-enterprises and the informal sector are strong, producing a number of consumer
goods, chemicals, light manufacturing and so on. Around 70 percent of the slum population
are employed in the informal sector and small scale entrepreneur programmes operate to
improve slum dwellers conditions (financed by Federal and State Governments, and the
United Kingdom Overseas Development Administration) through loans made available via
national banks.
In 1990 a new NGO-financed programme, Schemes for Urban Micro-Enterprises (SUME),

was established to provide financial help (subsidies and loans) to those unemployed and
under-employed living beneath poverty levels. The maximum assistance is Rs.16,000
(A$800) of which 25 percent is subsidised, with lower caste persons being eligible for an
extra Rs.5,000. Experience thus far with this programme has been positive, with a
sustainable financial base being established.
Two state government programmes are lending support to improve poverty alleviation -
Schemes for Urban Wage Employment (SUWE) which aims to provide employment to the
urban unskilled workforce and the Community Environmental Management Strategy
(CEMS) which gives disadvantaged and vulnerable communities more control over their
lives and the environment.
Phnom Penh
Micro-enterprises are an essential survival mechanism for Phnom Penhs urban poor.
Constraints to their success are poor location, increased competition, lack of credit lines and
lack of creativity.
The urban informal sector comprises mainly females working in excess of five hours per
day and young people (mostly young females as maids, housekeepers, bar hostesses, sex
workers). A lack of capital is perceived as the major impediment to profitable economic
activities in the informal sector with interests charged on loans varying between 0 and 45
percent per month. Women with access to permanent market stalls have access to Tin Tong
(savings group system).
The growth of the commercial sex industry in the informal sector (for example, in Phnom
Penh the number of sex workers has increased from an estimated 1,500 in 1990 to some
17,000 in 1994) is a consequence of poor social and economic conditions, including lack of
access to information and education programmes. Numbers of persons having sexually
transmitted diseases are increasing (for example, 90,000 Cambodians are currently HIV
positive). The outlawing of prostitution in Phnom Penh has forced females into discreet
business activities, with workers at the mercy of brothel owners and the police.
In Phnom Penh, 24 percent of households live below the poverty line. The incidence of
poverty is highest in the country-side where 40 percent of all households (comprising 32
percent of the rural population) were below the poverty line. These figures present
opportunities for rural based micro-enterprise initiatives to lessen poverty alleviation.
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Programmes focused on poverty groups mostly catalysed by international NGOs and, in

some cases, are still maintained by them. International NGOs, are, however, withdrawing to
a funding role as local NGOs capacity increases.
Hanoi
The inability to gain employment has seen the proliferation of micro-enterprises clustered
in the inner city and along transport routes through the city - the pavement economy.
Estimates of persons employed in micro-enterprises vary. In 1989, 52,000 persons were
estimated to be unemployed and 14,000 were either under-employed or in casual
employment. Of the estimated 125,000 persons employed in micro-enterprises, 41,600 were
from the ranks of the unemployed, 8,400 were under-employed or casual employees, with
the remainder being city residents. Micro-enterprise activities are clustered around mobile
catering, luggage handling, food market vendors, transport services and handicrafts.
A number of scavengers and junk buyers work the city dumps and collect materials thrown
along city streets for recycling. In peak times, around 6,000 scavengers work in Hanoi.
Many females specialise in junk buying and run pavement recycling deposits, while males
from rural areas travel to work as truck loaders, bottle buyers and scrap metal dealers.
Keeping pace with increasing urbanisation and additional consumption will exert pressure
on the limited existing government collection infrastructure, providing an avenue for waste
specialisation in the informal sector through improved capacity and capability.
Support for micro-enterprise is, however, slow. A Savings Day for Poor Women Fund has
been established by the Hanoi Womans Association (estimated at VND 1.4 billion
increasing to VND 2 billion, or US$190,000, by the end of 1996). The fund provides small
loans to poor women.
Lessons learned:
support to the informal sector is a high development priority and demand for such
support activities is high even if they are given on a cost-recovery basis;
support to the sector can effectively alleviate poverty, but little systematic analysis of
outcomes is evident - disbursements and repayments being taken as a proxy for
effectiveness in this area; and
best practice in the sector consists of ensuring the support programmes are
financially sustainable (they recover costs), well managed and provide linkages to
formal sector finance and markets.
5.2.2 Human Resource Development

The case studies have demonstrated the importance of vocational and other types of education as
essential for poverty alleviation. Generally the poor lack educational opportunities, both in
terms of the quality and number of facilities, and in overcoming the institutional and financial
difficulties associated with enrolment and attendance. In addition, there are significant
questions as to the relevance of the material taught in many of the educational institutions. The
case studies have also shown that human resource development for poverty groups must be
undertaken in the context of broader education and productivity/labour market policies. Social
education programmes are also lacking - for example, addressing the issue of domestic violence
in the Philippines and Cambodia. It is estimated that 6 out of 10 urban poor women are
subjected to domestic violence.
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Cebu
The World Bank (1995) has highlighted the under-financing of primary education in the
Philippines as a critical development issue (1 in 3 Filipino children entering first grade fail to
complete the elementary cycle, condemning them to a continuous cycle of poverty). Cebu
Province has a low level of primary school completion, reportedly worse than the national
average of approximately 70 percent.
The education qualifications of teachers are poor (for example, less than 50 percent have the
required qualifications to teach mathematics and science).
Physical infrastructure in schools is lacking with around 50 percent having no water

facilities and around 66 percent having no electricity in the 1980s. Public school class sizes
are high, numbering between 60-70 pupils.
Urban Basic Services Programmes (UBSP) projects contain community education

programmes (often focused on women) as part of integrated poverty alleviation activity and
have been successful in catalysing community support.
Calcutta
The government is committed to improving literacy with primary education in the metro
area which is provided at no cost in 500 schools. While high literacy exists (77 percent of
the Calcutta population), unemployment is increasing as job creation does not keep pace
with population growth, and the education curriculum is not commensurate with skills
required in the market place.
Women are disadvantaged in gaining access to education opportunities and income

generating opportunities due to male dominance, class exploitation and caste inferiority.
The UNICEF United Kingdom Overseas Development Administration funded UBSP

provides basic literacy education and some skills programmes, and is an effective
community-level education initiative.
Phnom Penh
There exists a disparity in educational attainment between males and females - 11 percent of
males have no education compared to around 22.2 percent of females. While 7.5 percent of
females complete upper secondary, only 3 percent are qualified to continue beyond post-
secondary (only 15 percent of students in the University of Phnom Penh are females).
There is a high incidence of street children (estimated at between 5,000-10,000) with 75

percent coming to the streets in search of employment. Street children have limited access to
services including education and are not protected by child labour policies or safety
standards. The plight of children is demonstrated by the high numbers working at the citys
main dump - 43 percent of the total dump labour force were children aged 5-18 years.
Women also comprise significant numbers of street persons and 75 percent of these were
accompanied by children.
Hanoi
There are disparities in education levels attained between Vietnam as a whole and Hanoi
and between Hanoi city and the suburban municipalities. Education levels in Hanoi city are
relatively high compared to suburban areas of the municipality and Vietnam (for example,
primary education attainment for total labour force in Vietnam is 44 percent, in Hanoi it is 79
percent). Around 34 percent of the labour force have completed secondary education,
compared to 19 percent in the suburban districts; 21 percent have completed tertiary
education compared to 4 percent in the suburban districts.
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Lessons learned:
the more successful programmes (that is, sustainable in social and economic terms)
were community-based and run and, with the exception of Cambodia, had no
ongoing involvement of international NGOs but did have some ODA input, and
these programmes targeted both adults (especially women) and children;
these programmes coexist with a situation in the formal education sector where,
primary education, in theory universally available, does not greatly benefit the
poor, as many of their children drop out and those that continue suffer poor quality
education due to unqualified teachers, inadequate facilities and unsuitable
curricula;
successful community-based education programmes are relevant to the life

experience of the poor and allow them to determine the allocation of resources,
given that these attributes require a relatively labour-intensive approach, the
programmes are delivered more effectively by CBOs which can mobilise community
support to lobby for, or pay for, better teachers and facilities and to ensure good
teachers are kept and facilities maintained; and
thus, mainstream educational systems should, in respect of the poor, focus on

supporting CBOs in the activities.
5.2.3 Health and the Environment

People must be healthy in order to work and study effectively. Health and the environment are
intimately linked for poverty groups. Success in improving conditions in both areas is
determined by shelter policies and policies determining access to basic infrastructure at the
local level. In turn, success in the formulation and implementation of such policies is
determined by the capacity of local government, the ability of the financial sector to fund both
poverty groups and local government, and the capacity of environmental authorities to set and
enforce appropriate standards.
The case study cities are subject to an array of urban management initiatives which have
provided improved water supply, sanitation provision, drainage, the collection of household
wastes and health care service. However, disparities persist in access to these services especially
between lower and higher income groups.
The study has indicated that poor quality and crowded housing, lack of potable water, and
substandard sanitation are the rule in the areas where poverty groups live. Despite several
generations of urban development projects, this situation persists in many areas and can be
attributed to a number of factors including:
changing government policy;
the role and level of participation of NGOs in aid programmes;
resource constraints;
the lack of macro-policies focusing on protecting and enhancing natural resource assets rather
than on financing consumption and the acquisition of capital: on the growth of energy and
capital intensive polluting industries with little consideration of impacts (e.g. reduced
labour demand, pollution);
the lack of a coordinated, collaborative urban development and management strategies;
the lack of clear property rights and ineffective management of common resources (e.g.
water, forests, mangroves, fisheries, coastal habitats) leading to serious environmental
degradation and public health problems; and
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low community-based involvement in deciding solutions to social, economic and

environmental problems.
Cebu
In 1990, in the Philippines, water-borne diseases comprised the three leading causes of
morbidity and second leading cause of infant mortality. The World Bank (1995) estimate
that clean water is, on average, not supplied to 26 percent of the Philippine population (28
percent in Cebu), while 28 percent do not have access to sanitary toilets.
The Philippine urban squatter population comprises 36.9 percent of the urban poor. In 1992,
58 percent of Cebus population were squatters or renters. Land ownership presents an
important problem in Cebu where only 1 percent of the urban poor own the land on which
their house is built, although 60 percent own the house they occupy. Land prices are high
and land suitable for housing is minimal due to mountainous terrain and limited amenable
locations.
Government spending on health totalled 2.4 percent of Gross National Product (GNP)
between 1985-1987 with only 0.6 percent of GNP spent on public health (a low level when
compared to other ASEAN countries). In 1990 only 25 percent of barangays (local districts)
had easy access to a health station.
Air quality in urban centres is poor as a consequence of urbanisation and the use of private
and commercial vehicles. For example, Total Suspended Particulates (TSP) in Metro
Manila exceeds US annual average TSP by over 200 percent (transport contributes 60
percent, industry 40 percent).
Waste management lags significantly behind developed countries with 40 percent of urban
households not receiving municipal garbage services - resulting in wastes being dumped in
bins, streets and waterways, or being burnt (35 percent of households) and deposited in
open pits (12 percent).
Calcutta
A number of environmental health problems exist as a consequence of urbanisation and
industrialisation including, air pollution, inadequate access to shelter, services and
occupational health services, water pollution from tannery effluent on the Calcutta eastern
outskirts (e.g. chromium compounds are greater than 1,000 times permissible level of 0.05
g/ml) and chemicals used in metal and pottery manufacture.
The incidence of homelessness is high with some 0.6 million people sleeping on the
footpath each night. Slum dwellers have little access to potable water, garbage clearance
and sanitary toilets, with open drains serving as sewers.
Health and employment programmes form a significant component of physical and socio-
economic improvement of city slums (including infrastructure and housing improvement
and preventative health programmes). Multiple programmes are undertaken: the Bustee
Improvement Programme, Employment Generation Programme, Colony Improvement
Programme and the Health Programme. These are supported by Federal and State
Governments with some foreign aid assistance (e.g. United Kingdom Overseas
Development Administration in respect of the UNICEF UBS programme).
A state government programme which is lending support to improving health is the CEMS.
This gives disadvantaged and vulnerable communities more control over their lives and the
environment.
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Phnom Penh
High numbers of families are urban squatters including the disabled, internally displaced,
refugees and female-headed households. These persons lack capital, have lived previously
in insecure rural areas (landmines and low level insurgency) and often have physical
impediments.
Water purchased for cooking and drinking provides 40 percent of water supplied to the city.
Piped water comprises less than 30 percent of water and water from well is less than 12
percent, with rain water being an important source.
Around 25 percent of households have no toilet facilities, 60 percent have water sealed
toilets and 15 percent rely on open pits or underneath houses. Sharing household facilities is
common practice due to kinship ties.
Over 60 percent of households live in one room structures often with more than one family
in occupancy. However, overcrowding may not be an important issue as concepts of
personal space may be deemed less important to notions of kinship.
Hanoi
The environment and infrastructure are in need of urgent attention with only 3 percent of
Vietnams construction funding allocated to Hanoi. To this end, the Hanoi environment will
likely be improved through the Vietnam Law on Environmental Protection promulgated in
December 1993. Also of significance is the need to enforce existing regulations and
procedures and to devise innovative responses to environmental problems.
Hanois environmental problems have impacted directly on public health with an increased
morbidity from, for example, upper and lower respiratory tract related diseases (nasal and
sinus conditions, headaches, TB, lung inflammation), skin and eye diseases, and
occupation-related diseases (dust, noise, exposure to toxic substances). Increased levels of
foreign investment and the closure of old State firms using out-dated technology will result
in many factories using more environmentally-friendly technology in industry processes.
However, this must be tempered with the knowledge that the introduction of more
sophisticated processes to generate new and improved products is often accompanied by the
use of dangerous chemicals and substances. This situation, if the disposal of these
substances is not undertaken effectively, offsets gains made through clean production.
In 1989, only 48 percent of housing was government-owned (a low figure for a socialist
system) and 47 percent was in private ownership. The average living space is small at
around 5.8m2. Government responsibility for housing is diminishing, with stocks being sold
off, spurring on the housing and land market. The private housing sector is experiencing a
boom with middle and upper income housing being constructed, although the high rate of
construction is not matched by the rate of infrastructure provision of roads, walkways,
water and sanitation. Thus, development will exert pressure on the natural environment,
with air and noise pollution from industry and motor vehicles exceeding international
standards. Water pollution of lakes and rivers as a consequence of industrial activity is a
major concern, given that waterways are a noticeable feature of Hanoi City.
In respect of solid waste disposal, 238,000m3 total volume was generated in 1987, of which
around 45 percent was collected with the remainder dissipated along roadways and in
waterways (an opportunity for micro-enterprise activities in recycling). Around 50 percent
of household wastes are organic and are buried to be later used as manure in agriculture.
Squatter settlements appear to be increasing. The Hanoi Police have identified 15 areas
containing 1,600 illegal dwellings, with occupants being either illegal migrants without
residential permits or squatters. Health and environmental conditions in these areas are poor.
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Lessons learned from the case studies in the health/environment sector are similar to
those learned for education. That is, that community-based delivery systems, backed by
formal agencies to the extent that their resources allow, are the most effective form of
delivery to the poor.
5.2.4 Rural-Urban Linkages

The study has confirmed that, for the case study cities, many of the urban poor originate from
rural areas and that continued inflow puts pressure on already overburdened infrastructure. As
well, migrants are often characterised by low skills and education levels (except relatively, in
Hanoi), virtually no capital and no access to urban land, with the majority entering the ranks of
the urban poor as squatters. While many may have a cash income above that of rural poor, the
urban poor are in many respects worse off than the rural poor, as they usually lack the support
mechanisms often available in rural areas, enabling people to overcome household crises. For
equity reasons and in order to stem migration, it is necessary to spread the benefits of the urban
economy to rural areas at the same time as rural development proceeds. The shape and size of
rural-urban linkages are determined in particular by transport systems, government investment in
physical and social infrastructure, and broader land market reform.
Cebu
58 percent of migrants to Cebu are females, mostly seeking employment. Female workers
receive, on average, only 37 percent of (already low) male wages for similar work. Urban
poor women are more likely to find work in the formal sector than are their rural
counterparts.
Migrants originate from the immediate hinterland of Cebu. Many women are sending
substantial sums to their villages, further reducing their disposable income and placing them
in a precarious financial position. Villages benefit from such cash income, however,
enabling purchase of agricultural inputs and education.
The Cebu City Hillyland Resource Management and Development Commission is a

community-based initiative to develop the villages in the hinterland of Cebu, providing
relevant health and educational support.
Calcutta
The population growth has slowed due to the better performance of the agricultural sector
particularly around the Calcutta metropolitan area. Growth in productivity and better
economic performance in rural areas is attributed to the West Bengal government land
tenancy and local government reforms.
Out-migration of affluent urban households occurs as these households relocate to the urban
fringe due to increasing congestion, poor housing and lack of hygiene in densely settled
areas. Improved transportation permits those outside Calcutta to commute to work (an
estimated 1.5 million persons daily). Villages surrounding the wealthy commuter enclaves
have benefited from service employment opportunities in these areas.
In-migration to urban areas of poverty stricken persons from rural areas occurs during the
lean agricultural months, adding additional stress to transport systems and inner city
infrastructure.
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Phnom Penh
Rural-urban migrants form a growing number of the urban poor, particularly in Phnom
Penh, with women, children, amputees, returnees, displaced persons, the old and infirmed,
the unemployed and the unemployable being most vulnerable to poverty. In Phnom Penh,
around 26 percent of households have female heads (Cambodia, 21 percent).
The focus of poverty alleviation programmes is on rural areas where 85 percent of

Cambodias population is found. Promoting rural development is perceived as essential to
stem expected flows of migrants to urban centres, especially if rural areas remain unstable
politically.
Hanoi
Generally, the rural economy is buoyant with Vietnam being an important rice exporter.
Rural residents living in proximity to cities are taking advantage of increased consumption
by providing goods for sale in city markets. The transition from communes to villages is
resulting in a shifting settlement pattern with new houses (often substantial structures, many
with shop fronts) along transport routes some distance from the original commune.
Accumulated savings and agricultural reforms have made building activity possible.
In Hanoi, at the 1989 Census, around 66 percent of the population were rural dwellers.
However, the economic reforms of the 1980s have seen the numbers of rural-urban migrants
swell putting pressure on the existing urban infrastructure (e.g. water, electricity, transport,
housing). The push from the rural areas is expected to produce faster urban growth rates
than the current 4 percent per annum.
Unlike the other case study cities, controls on in-migration have contributed to more highly
skilled, well-qualified persons entering the city to gain employment. Greater market
economic activity will put pressure on such controls, resulting in higher numbers of
migrants with diminished overall education levels and skills.
Lessons learned from the case studies show the diversity of links, all of them with a
positive impact on the rural economy, which can exist between a city and its hinterland.
Specifically:
remittances from urban workers;
employment for those within daily or short-term commute distance;
employment in satellites; and
markets for rural produce.
However, badly managed urban development can have negative consequences

including:
pollution; and
social costs of badly managed/inequitable land development.
Effective programmes to facilitate positive spillover to rural areas surrounding cities

are few. In Cebu, programmes in the surrounding hillyland represent the only example
found. Again, a community-based approach facilitated through local NGOs provides
the most effective delivery mechanism.
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5.3 Further Lessons Learned from the Case Studies
5.3.1 The Linkages of Poverty Alleviation and Sustainable Development

The central lesson learned from the case studies is that even good initiatives in respect of
poverty alleviation will fail to achieve their potential impact and will not be replicable
unless they are undertaken in the context of sustainable systemic reforms.
The case studies have shown the critical interdependence between effective micro-level actions
designed to alleviate poverty and the economic, social and environmental context within which
these actions are undertaken. This context determines:
the impact of such actions (e.g. the ability for a micro-credit scheme extending beyond the
first tranche of aid-donated funding to a few pilot households or enterprises in a given
area); and
the replicability of actions (e.g. the ability to replicate micro-credit schemes in other areas
and cities).
5.3.2 Sector-Specific Issues

A number of sector-specific issues were identified in the case studies - shelter; water supply and
sanitation; health; education; energy; transportation and other infrastructure; and income
generation.
Shelter
Tenure, finance and land management systems constitute the major impediments to the
production of affordable housing for low-income groups. Projects which do not squarely
address these issues will not provide sustainable shelter for such groups. The analysis of the
case studies indicates the need for more effective government facilitation of shelter provision
for poverty groups.
The Philippines provides an example of best practice in the sector with the CMP. Although
relatively bureaucratic, it has succeeded in providing security of tenure in many communities
and has led to upgrading of community infrastructure on a sustainable (cost recovery) basis.
In India there is diverse and long experience with shelter upgrading, usually limited in its
replicability due to the high levels of subsidy involved.
The private sector in Vietnam, enabled by lax regulatory systems, is active in supplying
housing for middle and higher income groups. The public system of provision has all but ceased
to function and poverty groups are facing increasing problems.
In Cambodia, housing and land management systems are so degraded that they constitute a
significant impediment to the provision of new development.
Water Supply and Sanitation

Local infrastructure is essential to the maintenance of the health of poverty groups and for
support to enterprises in the informal sector. This infrastructure is provided in the context of
city-wide infrastructure. It must be efficiently managed and provide opportunity for appropriate
levels of service provision to low-income groups. Often this is not the case. In order for it to be
sustainable, both local and network infrastructure should be provided on a cost recovery basis.
To address equity issues, there is scope for the use of transparent community service
obligations, providing cross-subsidy to certain groups, even in the context of a privatised
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service. Issues of water resource depletion and the waste sink capacity of receiving water bodies
are central issues of environmental sustainability.
Basic water supply and sanitation is approached on a systemic basis in Cebu. This, however,
constitutes best practice for the Philippines, with other jurisdictions lagging considerably.
India has a long tradition of supplying, effectively free, water to slum communities using
public taps. Water and sanitation systems in areas other than higher-income neighbourhoods are
generally poor, although Calcutta is considered to be better-than-average practice. NGOs such
as Sulabah and Excellent Novel Radical provide effective mechanisms for the supply of
sanitation to poverty groups.
Rapid growth is stretching water and sanitation infrastructure in Vietnam and poverty groups
living in illegal settlements are particularly disadvantaged. Major infrastructure upgrading is
planned however.
Private sector participation has been sought in Cambodia and significant upgrading has taken
place. However poorer neighbourhoods remain badly serviced.
Health
UNICEF has been instrumental in bringing international attention to the needs of the worlds
poor in respect of health care and providing a model for effective action through the UBSP.
UNICEF programme initiatives have indicated that cost-effective basic health care can be
provided to poverty groups generally, and for women and children in particular. The provision of
cost-effective health care has not, however, fully been integrated into the structure of the public
health system of the case study cities.
Philippines and Calcutta have UBS-type projects which are effective at delivering basic health
care. Such projects are socially sustainable in terms of their organisational structure being based
in the communities served, but currently depend on external resources to subsidise provision.
Questions remain about systemic-level priorities.
Vietnam has a good health system which is in danger of becoming less accessible to the poor as
the differential between private and public sector incomes widens. Cambodia is re-establishing
its health system by encouraging private investment in the sector. But such measures do not
assist the poor.
Education
Even more than for health, access to educational opportunities is constrained by lack of
appropriate vocational training, physical lack of provision in low-income areas and lack of
opportunities for financing education. This has serious consequences for the development of
poverty-alleviating micro-enterprise development and for gender equality, as access is often
even more restricted for females. The analysis of the case studies supports training of those
involved in micro-enterprises, and that this support must be highly flexible, recognising the
time constraints under which the urban poor operate.
Comments for the health sector are generally applicable for education. The situation in the
Philippines and India may be even more skewed than for health, as the education component of
UBS-type projects is usually less than the health component. While primary education is
adequate in the Philippines, there are echoes of Indias systems bias towards tertiary education.
Vietnam has a good education system which is in danger of becoming less accessible to the
poor as the differential between private and public sector incomes widens. Cambodia is re-
establishing its education system by encouraging private investment in the sector. But, such
measures do not assist the poor.
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Energy, Transportation and Other Infrastructure

While levels of provision are far short of needs and the capacity of organisations to operate such
services often falls short of what is required, it is at the policy level where much of the difficulty
can be found. Non-competitive tendering for capital items, inefficient labour practices,
ineffective revenue collection, lack lustre maintenance and a lack of funding for capital
programmes can all be traced to policies which maintain services in government hands without
appropriate incentives for efficiency.
At base, then, the efficient operation of urban services is a governance issue requiring the strict
application of competition policy, although the transition will need to be managed sensitively.
Again, there is scope for the use of community service obligations in order to address equity
issues even in a privatised regime. Extensive private sector financing is available if policy
context and financial mechanisms are appropriate. Infrastructure projects have high profile
impacts on social and ecological systems. Thus, planning for infrastructure provision must
ensure these impacts are within sustainable limits.
The Philippines leads the region in respect of privatisation of its power and transport systems. In
general the level of provision of its infrastructure is adequate. In India, despite some isolated
instances of success, investment in infrastructure lags demand by a considerable margin.
Calcutta is no exception.
Rapid growth is stretching water and sanitation infrastructure in Vietnam and poverty groups
living in illegal settlements are particularly disadvantaged. Major infrastructure upgrading is
planned however. Cambodia is seeking private participation in power sector projects.
Income Generation
Skill development, local infrastructure, finance and regulatory reform are essential to foster
entrepreneurs who employ poverty groups. The first two issues have been addressed above.
Small scale finance has an established body of practice and usually suffers only from lack of
promotion of such practices through the wider financial system and from lack of integration of
institutions in the field within the wider financial system. Regulatory reform, especially at the
local government level, will facilitate the operation of small scale enterprises by reducing the
uncertainty and arbitrary costs currently hampering such businesses. It is apparent that gender
issues need to be addressed in some countries, especially those where women either comprise a
disproportionate number of the poor or head poor households. Programmes need to be designed
so that women can have equitable access.
Specific projects aimed at support of the private sector, except in respect of the level of informal
enterprises, were not encountered in the case studies. In Vietnam and Cambodia, bilaterals
(including AusAID) support NGOs undertaking small enterprise development. In India, while
numerous programmes have been launched, all encountered in the case study are subsidised and
difficult to replicate on a large scale. In the Philippines, more effective and sustainable
programmes in support of the formal private sector operate at a variety of levels.
5.4 Crosscutting Issues

A number of crosscutting issues have been identified through analysis of the case studies. They
are institutional capacity, private sector and community participation, finance and aid delivery.
Improvement in these areas should be the focus of activity in the sectors above, as it is these
areas which constitute the major constraints to efficient and equitable management of urban
service delivery.
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Institutional Capacity
Institutional development programmes within urban projects are very common in all countries,
although in Vietnam and Cambodia they are in their first generation. The results in the
Philippines and India are mixed. These countries both have excellent educational institutions
producing international standard professionals. Below this level, however, there has been a
dearth of training. This lack of support, combined with the structures of the institutions in which
they operate, has often prevented high quality professional/senior staff from working
effectively. Such effects are nascent in Vietnam and Cambodia. In order to change this situation,
training and skill development opportunities must be provided to support staff and institutional
structures must be challenged. This must be expected to be a long-term, incremental process.
The Philippines has the highest capacity institutions and the most resources to utilise in solving
problems. However, even though Cebu is considered to be an example of best practice in
poverty programmes, the case study has shown that institutional performance remains highly
variable. A primary cause for this appears to be a lack of programme focus. A multitude of
uncoordinated, under-resourced and constantly changing programmes are administered by
numerous agencies (government and NGO).
Despite recent constitutional amendments which are designed to foster more efficient service
delivery, most urban areas in India suffer also from overlapping and under-resourced
institutions. These operate within a legalistic and hierarchical bureaucracy and are subject to
considerable political interference at the State level. In addition, there remains considerable
emphasis on government provision of services and infrastructure. Social justice arguments
justifying special treatment of particular interest groups - in particular the poor - result in well
intentioned, but bureaucratic programmes which have little impact on the conditions of the
target groups. Over-staffing and poor management combined with generalised, poorly
structured and unfunded community service obligations, hamstring investment by service
providers. This situation is especially serious because of the strong regulatory control of urban
development. Government agencies are usually the only organisations capable of undertaking
large scale development. While professional staff are often of high quality, they are unable to
utilise their skills effectively because of the institutional structure in which they operate.
Vietnam has evolving institutional structures in the larger cities and formally well-qualified
groups of planners and urban managers. However, skills are often out-of-date or inappropriate,
having been acquired in the Soviet Union or Eastern Europe. Upgrading of planning and
management skills will therefore be required for some time to come.
Cambodia has generally weak institutions and will require sustained long-term strengthening,
probably funded by support from international agencies. NGO coordination is good, with apex
NGOs in place and effective.
Private Sector and Community Participation

All countries involved in the case studies have lively private sectors. In all but the Philippines,
however, the private sector is viewed with some suspicion (for various reasons). International
links to the local private sector are, therefore, difficult in all countries but the Philippines (again,
for a variety of reasons). In all countries, the formal private sector has, in aggregate, the major
role in urban development but caters almost exclusively to the upper income market. The
informal private sector caters to the majority of the poor. While the private sector has had a
minor role, isolated major projects notwithstanding, in the provision of infrastructure, all
countries involved in the case studies have a policy that this situation should change. NGOs are
highly variable in their capacity and scope but, especially in respect of local social and physical
infrastructure, have undertaken or catalysed important investments.
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The Philippines has an extensive programme of private sector participation in the energy
sector, with smaller programmes dealing with the shelter and transport sectors - for example,
the Manila Rapid Transit. However, the country is slow in implementing private sector
participation in other areas, despite guidelines being in place which relate to most urban sectors.
NGO participation is encouraged and is fruitful. CBOs are also encouraged and are the core of
such programmes as UNICEF UBSP. NGOs are also widely variable in their effectiveness,
although their staff are often of high quality and dedicated.
India welcomes private sector participation in principle, but in practice few projects have
proceeded. Flagship projects such as the infamous Enron power station near Bombay have been
stalled. Even the Infrastructure Leasing and Financing Services (ILFS), established with
International Finance Corporation (IFC) equity and loan participation and powerfully connected
through the Housing Finance Company in Bombay, are finding it hard to actually implement
public-private partnership projects. In the urban sector the HUDCO is a central institution, but is
currently unsure of its future role in working with the private sector. State development
corporations and authorities remain tentative in their activity in all but a few States. NGOs vary
widely in their capacity. Some are small and basically act as consultants, while others have
India-wide reach and are highly professional. NGOs are successful in respect of provision of
specific infrastructure services to the poor.
Vietnam is open to greater private sector participation in urban development, but actual
progress has been limited. Joint venture undertakings in the cities have been mainly in hotels
and tourist services, office block development and infrastructure for industry (e.g. industrial
estates). Lack of clear guidelines and administrative structures has proved a dis-incentive to
investment. There is virtually no NGO participation in projects in the cities, though NGOs have
had a small role in some rural development efforts.
Cambodia is moving towards extensive involvement of the private sector in the provision of
urban services. Initial activity has occurred in the energy sector (e.g. Build-Operate-Transfer
(BOT) projects). Private health and educational institutions have been established. Perhaps the
greatest contribution to infrastructure for the poor has come through foreign NGOs under the
umbrella of the Cooperation Committee for Cambodia.
Finance
Financial constraints are similar across the case study cities, although the detailed context is of
course quite different. Similarities occur in the following areas:
local government finance remains weak although many initiatives are underway to
strengthen capacity in this area;
small scale finance for micro-enterprises and upgrading is limited and needs to be
integrated into the wider finance system; and
large scale finance for infrastructure development needs to be augmented by expanding the
range of institutions and instruments available, and by channelling external funds where
local capital markets cannot provide the funding levels required.
Pricing policies (user pays), cost recovery and transparent subsidies linked to community
service obligations (where a service is provided by the private sector) are central to the
sustainability of the financing of service provision.
The Philippines has a robust financial sector which has the potential to be highly effective in
supplying the required finance for urban development. Led by the Development Bank of the
Philippines (partly funded by the World Bank and KfW Germany and with links to ING
Barings) which has been active in Cebu, the sector has considerable expertise in infrastructure
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finance. Philippine local governments have the ability to issue bonds and have access to
(limited) loan funds from central agencies. Nevertheless, financial systems and skills in the
central and city agencies are limited and generalising specific examples of best practice is the
main challenge for the sector.
In India there are several agencies lending to State Development Corporations and
Development Authorities which have, until the present, been the mainstay of urban
development (especially in regards to the lower middle class and the poor). The two largest are
the HUDCO and the National Housing Bank. They have traditionally lent money at subsidised
interest rates, although this is rapidly changing as the central government loses the financial
flexibility to determine interest rates and direct credit. Both agencies have been the recipients of
substantial multilateral and bilateral assistance. They are not sustainable in their current form.
The State agencies they lend to are typically insolvent, although West Bengal appears to be an
exception. Private sector institutions are beginning to enter the sector, with the Housing
Development Finance Corporation (HDFC) and the ILFS being the most prominent.
Aid Delivery
A further lesson of the case studies is that such reforms are, as would be expected in view of the
complex institutional issues involved, difficult to achieve and sustain through the medium of
short-term, project-based external assistance.
Lessons may also be drawn from the case studies on the use of local and foreign NGOs for
delivery of aid in the sector. While local NGOs can be more focused and responsive than
government agencies, there are concerns about the capacity of some NGOs. Further, their
limited focus does not usually enable them to be the vehicle for the strategic planning of the aid
programme. Independent urban sector NGOs, where they exist, can have an important input
into the design of the aid delivery process. The utilisation of Australian-based NGOs to channel
aid to the urban sector is also viable, especially where the focus of delivery is narrow and within
the experience and remit of the NGO concerned.
5.5 Conclusions in Respect of the Case Studies

Although limited by the amount of data that could be procured, the case studies pointed to many
key issues in respect of effective service delivery in the urban sector and effective support to
strengthening the equity and efficiency of that process. The following chapter reviews a wider
geographical spread of best practice in the field in order to draw additional lessons from broader
experience.
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6 BEST PRACTICE
6.1 Overview
In addition to the insights gained reviewing the four case studies, it is necessary to undertake a
wider review by sector of programmes and project initiatives which represent best practice.
Some are successful at the community-level, while others impact at a wider systemic-level.
From the review of the case studies, it is evident that best practice constitutes effective action by
the community, government, and/or the private sector. The analysis of best practice therefore
described the roles of these actors and how the practice contributes to sustainable development
and poverty alleviation. Many of the best practice examples were taken from the Best Practices
Database, a joint project of the UNCHS (Habitat) and the Together Foundation (Together
Foundation and UNCHS, 1996), prepared in conjunction with the Habitat II conference in
Istanbul, Turkey, 1996.
It is evident from the examples cited that best practice often crosscuts sectors, particularly at the
community-level. For example, initiatives dealing with public health go hand-in-hand with
improvements in housing, education, water supply and waste disposal.
6.1.1 The Importance of NGOs and CBOs at the Community-Level

Poverty groups are also politically marginalised. Therefore, not only is their choice set
constrained by income but also by social status. In order to maximise their choices for
determining their own future, both economic and political constraints need to be addressed.
NGOs, acting as representatives of poverty groups, combine these political and economic
dimensions in their advocacy of such groups in their efforts to improve access to land and land
tenure, education, health care etc. Their role is particularly important (see Section 6.1.2 below)
when markets are made more efficient and the role of the private sector increases. In such
circumstances access of the poor needs to be built in through the use of community service
obligations and other techniques.
The analysis of best practice indicates the importance of CBOs and NGOs in the delivery of
community-level programmes and NGOs and CBOs can mobilise that involvement.
Community involvement is generally a cost-effective means to achieve poverty alleviation.
Programmes for urban service development that reflect the needs of the local community are
better maintained due, largely, to the community being directly responsible for their continued
well-being.
There are a number of internationally recognised examples of aid delivery systems which
support sustainable, self-reliant development that have been implemented by UNICEF and the
World Bank, as described in the review of best practice. Many of the examples cited are
significant for the contribution they make to increasing community awareness of existing and
potential problems, for expanding local community skills bases and for their ability to be
replicated, at often minimal costs, in other local communities experiencing similar problems.
The most successful programmes are those using low-tech solutions to problems, with these
solutions able to be mastered by local communities. Such examples can be enhanced by
collaborative partnerships between NGOs and CBOs, as has been demonstrated throughout the
review of best practice.
However, management problems have been encountered in respect of NGO/CBO projects.

These problems are due mainly to limited experience in project management by NGO managers
especially in circumstances requiring rapid scale up of activity, and to government/donor
agency procedures which are unable to make allowance both for lower management capacity
and for different management orientation than found in consultant-implemented projects. The
Ausaid
In order to foster a long-term orientation and an orientation towards achieving real institutional
change it is proposed that the central element in all these programmes be a long-term
relationship (a partnership, in fact) between an Australian partner and an appropriate
organisation or organisations in the developing country. This approach will have the flexibility to
respond to changing circumstances and to unforeseen institutional constraints encountered.
Administratively, the programmes will look like normal tender for one or more specific projects
which can be monitored as normal. However, the explicit expectation would be that the first
project(s) would constitute the first phase of a longer relationship which would continue if
agreed project performance criteria were met. Flexibility could be achieved by increasing the
contingency amount and allowing more explicit flexibility in moving project funds among
budget items.
The following sections describe the three streams of support in more detail and give examples
where such programmes have been utilised.
8.2 Community Partnerships

Best practice in community-focused aid delivery depends on NGOs and CBOs. Their activity
must complement appropriate activity by government (see Section 8.3 below). There is a
growing awareness of both the advantages and constraints in utilising NGOs, both Australian
and local, in the delivery of aid. The current delivery mechanism involving NGOs is diverse in
design, funding either Northern NGOs, local apex NGOs or CBOs directly with a variety of
funding paths from these organisations to the recipients as shown in Figure 8.1.
Figure 8.1: Current Community - Focused Delivery System
Multilateral or bilateral agency
Technical assistance and capital funding
Northern NGO
Local Apex NGO
Community-based NGO(s) or CBO(s)
Recipients
The length of the reporting chain and the complexity of the interactions involved indicates the
major difficulties encountered in respect of administration of aid channelled through this
mechanism in the urban sector - especially difficulties of unclear (even conflicting) objectives
and inadequate supervision. Management capacity of NGOs is also a concern.
The objective and structure of a proposed long-term programme of community-focused

development would be to provide local NGOs and CBOs with the capacity to be self-sustaining
without external assistance. In this regard the role of an international (Australian) NGO which
understands and overviews core community interests is central. In addition, this NGO will be
able to assist local NGOs in scale up if appropriate. Resources also need to be available to the
relevant NGO to hire expertise (consultants) in areas where it is not strong. An environmental
Ausaid
NGO may not be strong in micro-credit, but financing new avenues of income generation may be
crucial to achieve environmental improvement, for example.
The proposed delivery mechanism is shown in Figure 8.2.
Figure 8.2: Proposed Community Partnership Delivery System
Consultants Aust Local

Partner organisations
NGO Apex
Recipients
The delivery mechanism incorporates several principles (in addition to the AusAID code of
practice and such detailed operational guidelines as those for micro-credit programmes). These
are:

urban sector strategy.
programmes should be designed so that Australian NGOs are associated with and work
through apex southern NGOs where possible. Plan International constitutes Australian best
practice in this area with their policy of withdrawal after viable CBOs are established; of
working through the highest appropriate level of NGOs; and of linking to formal sector
organisations.
As discussed in Section 8.1 above, the contract with the Australian NGO should continue over
the duration of the design, funding, construction and initial period of operation of a major
project. The performance of the NGO managing the project will be assessed on the successful
completion to budget and time of the project, but also on other performance indicators in
respect of the organisational performance of the local associated NGO/CBOs. In general, the
objectives of such partnerships programmes will be to:
institution has responsibility; and
facilitate the NGO/CBO linkages to the private sector and to government.
Ausaid
This report has identified the need for community-based activity in poverty alleviation that
crosscut the investment sectors identified above. In particular, effective NGO activity has been
undertaken in:
development of local water and sanitation projects;
development of community health and education projects; and
micro-credit and enterprise development in the informal sector.
The partnership programme should be used by:
Australian NGOs in partnership with local apex NGOs; and
local NGOs of demonstrated capacity.
In support of local apex NGOs, the programme should undertake:
strengthening of management practice of both apex NGOs and community-based

NGOs/CBOs
Twinning in the Philippines

Training NGOs: the FICONG Programme
years as a counterpart apex organisation in South America. In Latin America there is a
strengthening and training of NGOs such as FICONG based in Buenos Aires. The
FICONG programme is implemented through a large network of NGOs and other
settlement institutions. It aims to enhance the capacity of NGOs and public agencies in
responding to the needs of poorer groups and to increase their effectiveness and the
scale of activities. FICONG also encourages NGOs and State organisations to develop
more effective partnerships with residents associations in low-income communities.
main supporters of the FICONG Programme are the Economic Development Institute
of the World Bank and the bilateral aid programmes of Sweden, the Netherlands and Japan.
strengthening links between the formal and informal sectors - for such purposes as
expanding the scale and profitability of micro-enterprises
Ausaid
Micro-Credit Programme, Philippines

Tulay sa Pag-Unlad Inc (TSPI) was established in 1982 by a group of business and
professional leaders based in Manila, to make small loans and training available to
micro-entrepreneurs. With growing support from international NGOs from Australia
and US, and subsequently with official aid support from Australia, US and Europe,
TSPI soon became one of the leading micro-credit NGOs in the Philippines, with a
good track record in creating incomes, jobs and micro-enterprises for the poor.
Following the 1986 peoples power revolution, President Aquino called upon the
Philippine NGO community and overseas aid donors to develop an effective
programme to alleviate poverty, especially in the poorer provinces, and as far as
possible using NGOs, community and church-based organisations to increase incomes
for the poor. TSPI responded to this challenge by creating six new provincial partner
organisations (among them ASKI and Kabalikat Para sa Maunlad Na Buhay Inc -
KMBI), which initiated programmes of micro-credit for micro-enterprises based largely
upon the TSPI model.
KMBI, has started an ambitious programme to build Self-Help Groups (SHGs) for
banking with the poor living in squalid squatter areas on the northern fringe of Metro
Manila. In the past three years, it has already built 245 small groups of five members
each, which combine into 35 person centres. These manage and operate the credit and
savings programmes of the combined groups, and are now receiving bank lines of credit
channelled through the NGO. Calming earlier fears about the problems to be overcome
among the urban poor, these groups are now working well, with loan repayment rates of
over 95 percent. KMBI estimates the average cost of establishing a SHG centre, over one
year, to be about US$1,031 (similar to the annual cost in India).
(Source: The Foundation for Development Cooperation, 1994)
Issues for Community Partnership Programmes

The proposed delivery mechanism may be seen as adding a more restrictive structure and even
additional levels if the Australian NGO links directly with a CBO to current flexible
arrangements, but the advantages of longer-term financing, more flexibility in resource
sourcing and more clarity of expectations on the part of all organisations involved should make
for more efficient project implementation.
8.3 Government Partnerships

This report has identified four broad areas of activity necessary to promote sustainable
development and poverty alleviation. These are:
development of physical infrastructure;
development of social infrastructure such as housing, education and health facilities;
capacity building for local formal and informal private sectors in the above areas; and
the strengthening of financial institutions servicing both the formal and informal sectors in
the above areas.
The government sector plays an important role in each of these focus areas.
In the context of the desirable characteristics of delivery systems set out in Section 6.2.2, the
current delivery mechanism (see Figure 8.3) is less-than-optimal if the focus is to shift to long-
Ausaid
term engagement of project implementation organisations. The fragmented nature of the inputs
and their short duration, combined with necessarily narrow terms of reference, can lead to a
project being ineffective in catalysing required institutional change. This picture is further
complicated if co-financing arrangements are involved, increasing the scope for dissipating
energies in the pursuit of multiple objectives.
Figure 8.3: Current Project Government Delivery System
Technical assistance funding
Capital funding
Consultants
Advice
Government agency/parastatal
- project implementation organisation
The proposed delivery mechanism (see Figure 8.4) is designed to answer the issues raised by
the ADB and addresses the organisational constraints of the current delivery mechanism.
Figure 8.4: Proposed Government Partnership Delivery System
Consultants Partner organisations
The delivery mechanism will involve the long-term association of an organisation, either:
Australian, State and Territory government central agencies (especially in the field of
regulatory reform);
Australian, State and Territory government sectoral agencies (especially in the fields of
implementation of regulatory reform and good practice in management and operations and
maintenance);
Australian local governments (fields as above); and
Australian commercialised or privatised service providers (fields as above).
Ausaid
There will also be an organisation undertaking similar activities in the recipient country. The
organisation will be resourced in two streams - one stream for its management and specific
tasks identified by the project, another stream to be used on approval of AusAID to address
project bottlenecks as they arise (in practice this will be constituted by a larger contingency
sum). These managing organisations would engage consultants either to serve in their
establishment, or to perform specific tasks just as they do in their Australian operations.
The contract should continue over the duration of the design, funding, construction, and initial
period of operation of a major project. The performance of the organisation managing the
project will be assessed on the successful completion to budget and time of the project, but also
on other performance indicators in respect of the organisational performance of the
implementing agency in the recipient country. The programme should encourage best practice
in governance and urban management techniques.
example, defining the regulatory framework, including issues important to poverty groups
support the relationship between the government organisation(s) and NGOs/CBOs

representing community groups.
In support of social and physical infrastructure investment and of Small and Medium Scale
Enterprises (SMEs), the programme should undertake:
strengthening of governance/regulatory practice

energy regulators in the Philippines and US is assisting the Philippines in improving
energy efficiency, whilst at the same time protecting the environment. With help from
the Oregons Public Utility Commission, the Philippines Energy Regulatory Board
(ERB) is developing a regulatory framework for the provision of energy efficient and
environmentally sound energy policies with a focus on Demand-Side Management

transfer and entrepreneurial development, as well as an enhanced quality of life for
(Source: World Bank, 1996b)
Ausaid
strengthening of government capacity for project formulation and structuring to facilitate

Private Sector Investment (PSI)
Buenos Aires Water and Sewerage

Joint Venture Structured by the World Bank
The urgent necessity for extensive rehabilitation works and new investment amounting
to some US$3.95 billion to provide adequate water and sewerage coverage for
Argentinas capital, coupled with the absolute lack of government funds, suggested the
need for external assistance. The World Bank, intended as the primary funding agency,
was not convinced the existing operator, Obras Sanitarias de la Nacion, possessed the
organisational capacity to implement the required works and to achieve the levels of
cost recovery required to make the project feasible. The Bank therefore promoted a
implementation of the required investment programme.
Local capital markets were not adequate to cope with the funding. The consortium
implementing the project formed a company which tapped the international capital
markets. Inter-American Development Bank and IFC private sector loans funded 40
percent of the capital costs. In terms of catalysing substantial private sector financing
(equity and commercial loans amounting to 25 percent of the capital costs), this seed
activity was successful. The presence of the World Bank/IFC in the financing structure
of the project reduced the perceived country/political risk and the information costs of
potential financiers. The use of a reputable foreign merchant bank to set up the tender
for the franchise ensured that state-of-the-art financial technology was available to the
tenderers and that approval costs would be minimised.
(Source: Idelovitch and Ringskog, 1995; Rivera, 1996)
support to agencies in their links to community organisations
The Local Government Engineering Department (LGED), Bangladesh

The LGED of the Ministry of Local Government, Rural Development and Cooperatives
has an establishment of 9,859 staff, of whom 540 are professionals (mainly engineers).
The organisation has offices in each Zila capital, engineers in each of the 460 thana and
seconds officers to municipalities where their capacity is limited in respect of project
implementation. Despite its name, the Department undertakes a wide variety of slum
upgrading, community development and micro-credit schemes.
The organisation supplies a broad range of support to local governments and

communities. It provides TA in the implementation of infrastructure and slum
improvement projects. It monitors the financial performance of local governments. It
undertakes training of municipal officers and community organisers. It coordinates and
funds the activities of NGOs in providing services to slum dwellers. This is in addition to
the direct implementation of a large rural roads programme and food aid programmes.
The organisation has successfully implemented a range of large internationally-financed

projects including projects sponsored by Germany, USAID, the ADB, the World Bank
and UNICEF.
(Source: Lindfield and Teerlink, 1995)
support to agencies in the implementation of sustainable development practice
Ausaid
Sustainable Cities Programme - Dares Salaam, Tanzania

In Tanzania, the Dar es Salaam Sustainable Development Project (SDP) was launched
in 1992. The SDP seeks to manage the sustainable growth and development of Dar es
Salaam through strengthening local capacity to plan, coordinate and manage
environment/development interactions, and preparing a long-term dynamic integrated
development plan and investment strategy. Included in the scope of the SDP are
improvements to solid waste management; upgrading under-serviced settlement;
servicing city expansion; coordinating city-centre sprawl; air quality management;
surface water management and quality control; open space management (e.g. recreation
zones, hazardous sites, green belts); managing coastal resources; and managing the
economy.
Partnerships have been made possible between the private sector, NGOs, CBOs and the
public sector via the establishment of cross-sectoral and multi-agency working groups.
These deal with each of the environment issues indicated in the SDP. There are a
number of project achievements thus far, including an improved living environment for
residents.
Prior to the project, less than 3 percent of the citys wastes were collected to be disposed
of in an hygienic environmentally friendly manner. There was no city dump site.
Collection has increased from 30 to 300 tons/day, benefiting directly 170,000 persons.
More regular and faster emptying of pit latrines has benefited 24,000 persons and
resulted in around 80 percent of roads drying out (previously sewage flowed onto
access lanes contributing to high rates of water-borne diseases). Some 1,115 metres of
stormwater drains and 690 metres of murram have been constructed in an unplanned
neighbourhood benefiting 5,000 persons. The coordination and reorganisation of bus
routes and city centre bus terminals has improved greatly the public transport system,
benefiting 40,000 passengers.
The strengths of the SDP are in increased services and with, improved delivery,
investment is attracted to the area; it is a replicable model at the area or town level; it
encourages capacity building; and it promotes institutional collaboration.
(Source: Together Foundation and UNCHS, 1996)
Issues in Partnerships
Two questions are central to the practical application of such programmes. They are:
Do the recipient agencies want it?
Will the arrangement meet the quality and quantum needs of efficient aid delivery?
In respect of the first question, the prospect of long-term support, provided that it carries with it
grant contributions to capital and TA programmes comparable with the existing aid effort, will be
welcome. The prospect of building long-term relationships with agencies will be seen as
valuable. Such a long-term relationship will take the pressure off recipient agencies to create
special units to process aid projects. Such units are often not sustainable and, in fact, their
isolation within the bureaucracy is one of the reasons institutional change does not occur. Less
welcome in some instances will be more stringent tests of real institutional change and fewer
opportunities to exploit fragmented implementation processes for personal gain. From the
governance viewpoint, however, such reactions should be seen as positive and a test of
institutional willingness to change.
Ausaid
In respect of the second question, provided that the objectives of the partnership are set out
explicitly in terms of needs for defined outputs of significant size, the issues of quality and
throughput should be addressed. It is envisaged that similar control procedures can be used as
with consultants (indeed, the World Bank does not distinguish the two approaches in its
operational guidelines). While the scale of output would not change, the management of such
outputs would change over the life of the partnership project. Initially, consultants would have a
bigger role, but the managing partner would have an incentive to minimise their use (in order to
simplify administration, even in the absence of incentives to do so) by replacing them with local
agency staff or local consultants managed by local agency staff. Intermediate outputs (projects)
would be monitored in the same way as projects are currently monitored.
Integrating the ownership of local agencies and established development assistance practice
would be the task of consultants and/or AusAID personnel carrying out an urban
poverty/sustainable development review (termed an Urban Sector Initiatives Review - USIR -
in this study). Such a review would identify projects in the normal way, but would formulate
partnership-based approaches to delivery. The agencies selected partners would have to
submit partnership project to their government coordinating agencies in conformity with
existing procedures.
8.4 Public-Private Partnerships

These investment needs of Asian countries, budgetary pressures and globalisation forces will
result in increased involvement of the local and international private sector, given the limitation
of ODA resources.
access).
obligations.
Ausaid
equity input on the part of AusAID is inappropriate and administratively difficult. An
example of such credit enhancement by the ADB in Pakistan is described below.

partnership groups (see Section 8.5 below).
Mechanisms of Public Private Partnerships

In the current economic and political context, private sector involvement in promoting
sustainable development catalysed through the aid programme invariably involves
partnerships with government. Government must be involved if only to structure institutions, so
that the private sector can become involved. However, the task of structuring a particular project
or programme in order to promote such activity is radically different from what might be called
the traditional model of aid delivery. In the traditional model, resources additional to any
raised internally by the service organisation were mobilised almost exclusively from
government taxation revenue and from ODA.
With public-private partnerships the picture is substantially more complicated, although this
complication reflects a multitude of opportunities. In order to gain the most leverage from aid
funds and minimising the funds used in these area, the programme should encourage investment
in these priority areas by:
the local private sector;
the Australian private sector; and
the Australian private sector in joint venture with an entity from another country, provided
the Australian partner contributes over 50 percent of project funds and has over 50 percent of
foreign equity, or is the lead manager (in the case of loans or portfolio investment from
funds).
The principal financing channels can be described diagramatically as in Figure 8.5.
Ausaid
Figure 8.5: Project Funding Opportunities
Multilateral and/or
bilateral agency*
Credit enhancement
Finance of principals
Banks
Financial
Funds Partner organisations
institutions Project finance:
- recourse &
etc non-recourse* equity (& loan)
Project
Finance of SPV3 implementation
organisation*
In this formulation:
the financial institutions involved may be local or foreign institutions or both;
the partners can be multilaterals, bilaterals, government agencies or parastatals,

local/foreign NGOs and local/foreign private sector companies or individuals - where one
of the principals is a foreign entity or person which/who contributes capital, the joint
venture becomes a recipient of FDI;
the project organisation may take many contractual forms - franchise, BOT, Build-Operate-
Lease, Build-Operate-Own (BOO) and the like,
financing can be:
- direct to the partners (principals),
- direct to a specific project managed by the partners, but predicated on the reputation of
one or more of the partners either on a non-recourse basis (meaning that if the project
fails the financing institution has no right to ask the principals to service the debt), on a
recourse basis (meaning that the principals are liable for debt service), or on a limited
recourse basis (meaning that the principals are liable in certain circumstances)
- direct to a Special Purpose Vehicle (SPV) - that is, an organisation established

specifically to implement one project.
financing can utilise several modes:

- equity (issue of shares)
- loans
- bonds.
governments, bilateral agencies and/or multilateral agencies may enhance any of these modes
by issue of guarantees, contribution of lower-cost funds, contribution of TA and the like.
Ausaid
The objective of these partnership-based delivery systems is to provide the required finance for
the least cost while fulfilling the social/allocative (Vickers and Yarrow, 1989) functions ascribed
to the project (e.g. in respect of guaranteeing access for poverty groups or protection of the
environment). The structuring of these projects therefore requires clear definition of community
service and other obligations.
Successful structuring for these obligations, and for efficient implementation through
competitive bidding processes, will maximise the economic benefits for a country from the
supply of the necessary urban services and infrastructure. Such structuring requires proactive
institutions in several areas of project-related activity. The key areas of activity may be deduced
from the structure of Figure 8.5:
the assembly of partnership groups competent to undertake the investment required and
utilisation of the most appropriate contractual forms among the participants, especially in
terms of building the capacity of the recipient governments ability to tender and manage
such projects; and
strengthening of financial institutions and the capital markets in which they operate so as to
provide the quantity of long-term finance required - in particular to promote the use of a
range of financial channels and instruments to enable the choice of the most appropriate
(that is the cheapest) combination for particular project circumstances.
This report identifies four broad areas of activity necessary to promote sustainable development
and poverty alleviation. These are:
strengthening of financial institutions servicing both the formal and informal sectors in the
above areas.
In support of social and physical infrastructure investment and of SMEs, the programme should
undertake:
support to local private sector to respond to the needs of partnership-based programmes
Ausaid
USAID Support to SMEs in Alexandria

While micro-enterprises constitute a substantial sector of the Egyptian economy
representing at least 40 percent of total industrial employment, the paucity of credit
available to micro-entrepreneurs has significantly constricted their potential for growth.
In response to this situation, USAID sought to launch a Small and Medium Scale
Enterprises (SME) project that would provide credit and business management
assistance to SMEs. The Alexandria Small Business Association (ASBA), a private
non-profit NGO run by a Board of Directors from the local business community,
volunteered to act as the institution anchor for the programme. The ASBA was an ideal
vehicle to initiate the SME programme because, as an organisation that began as a
committee to promote business interests and then expanded to take on community
service projects, it combined business know-how with institutional commitment to
Since ASBA first began its SME programme, it has achieved a range of outreach
activities comparable to those of the most successful micro-finance ventures in the
world. In the last five years, the ASBA programme has served over 20,000 clients. It has
extended over 47,000 loans amounting to almost Egyptian LE 122,024,750. However,
although the foundation has reached a significant number of clients, the share of the
available market that it serves is less than 2 percent, and significant room for expansion
remains.
As a completely self-reliant project, the ASBA is an excellent model of a practice that

can be effectively sustained. The foundation covers the costs of its micro-finance and
TA services entirely through the revenue generated from loan recovery.
support to local financial institutions to respond to the needs of partnership-based

programmes
The Rau-Pithampur Tollroad and the ILFS

The Infrastructure Leasing and Financing Services is a joint venture between the IFC
(the private sector arm of the World Bank Group) and the well respected Housing
Development Finance Corporation of Bombay. Indias first private sector road project
(Rau-Pithampur, a 11.5 km two-lane road project connecting an industrial estate with
Indore city) is run by an SPV, the Madhya Pradesh Toll Ltd and is promoted jointly by
ILFS and the Madhya Pradesh State Industrial Development Corporation. It has floated
a Toll Revenue Bond issue of Rs.70 million. The bonds have been collaterised by cash
flows generated by the toll collection (Economic Times, 1996).
In the three year period of project development the cost increased from Rs.20 to 70
million. Nevertheless, ILFS was involved in the project to completion. Toll collection is
only one third of what had been expected. Consequently the three year concession
period given to the company to recover its investment has been extended to 15 years.
Again the ILFS was instrumental in re-negotiating the concession. Such efforts are
required to establish the mechanisms for private sector investment in many countries.
(Source: v. Dijk and Lindfield, 1997)
Ausaid
enhancement of financing channels for partnerships through the provision of limited

guarantees, discount windows, rediscount facilities, co-financing with multilaterals and the
like.
Pakistan: Fauji Kabirwala Power - ADB Credit Enhancement Role

The ADB has undertaken significant credit enhancement activity for this project. In
particular, its equity and debt contribution reduced the perceived project risk. The
project is a 151 MW gas-fired power plant project developed by Fauji Foundation and
US based Sceptre Power Company, on a 30-year BOO basis, and will be built on a site
near Kabirwala.
Cost Estimates: Foreign currency 146.00

(US$ million) Local currency 24.00
Total 170.00
Tentative Sources
of Funds: Equity: ADB 5.30
(US$ million) Sponsors 37.20 42.50
ADB Loan 32.00
Co-financing:
Complementary Financing
Scheme Loan 60.50
(Parallel Loan) Export Dev.
Corp. of Canada 35.00
Total 170.00
(Source: ADB, 1996c)
Recent Australian Initiatives and Potential Leveraging Measures

While not intended as models for direct application, some recent initiatives on the part of the
Australian private sector provide a basis for a more efficient method of leveraging the necessary
investment finance in the urban sector.
The A$20 million China Housing Investment Fund launched by Macquarie Bank will finance
mortgages in Tianjin. It has been well subscribed and disbursement is assured, as Macquarie is
also lending to finance the construction of the housing to be purchased with Housing
Investment Fund money. In order to attract funds to such a fund, given the unhedged foreign
exchange and country risks, Macquarie has had to project returns of up to 30 percent per annum
and restrict the term of the fund to three years. While Chinese capital markets are not unique in
requiring funds in excess of what can be provided by the national capital markets for urban
development, they are outstanding in that they can generate such returns. While international
funds will be combined with lower cost local funds, such returns mean that finance is expensive
(given current low inflation). They will not be easily accessible to middle and low-income earners.
In order to decrease the required returns and increase the term offered so as to make such
mechanisms more widely accessible (and increase the marketability of such a fund), there are
several enhancements to the financing package which could be made. Such enhancements are:
Ausaid
strengthening the capacity and systems of the Tianjin Housing Management Centre perhaps
in association with World Bank/IFC or ADB so as to lower counterpart risk (and, indirectly,
country risk through association with multilaterals);
full or limited foreign exchange hedging; and
full or limited country risk guarantee/insurance (perhaps utilising the World Banks
Multilateral Investment Guarantee Agency (MIGA) facility).
Lend Lease has established two funds (one Australia/New Zealand and one international)
focusing on infrastructure investment. The international fund is based in Singapore (but run by
the Lend Lease Capital Services and Project Finance Group based in Sydney) and focused on
water supply and sewerage infrastructure. The fund is a joint venture between Lend lease and
Lyonnaise des Eaux of France.
Disbursal of funds is restricted by the need to hedge political risk. The traditional method of
achieving this is to obtain a letter of support from the central government which does not
amount to an explicit government guarantee (but amounts to an implicit guarantee). A full or
limited country risk guarantee/insurance, perhaps utilising the World Banks MIGA facility,
would be welcome support to such projects, especially in the absence of DIFF funding.
The issue of how to quantify and manage risk for leveraged projects is an important one.
While the Export Finance and Insurance Corporation (EFIC) has the capacity to manage risk
management instruments once in place, the identification and design of such instruments would
be a specialist task.
8.5 Urban Sector Initiative Reviews

Since each of the three modes of programme partnerships are interrelated, the design of the
development assistance programme in the urban sector for a particular country is a matter of
balancing available AusAID resources with sector needs and other ODA activities. In order to
design programmes addressing investment sector needs, it is necessary to undertake a review of
urban poverty/alleviation needs and of required initiatives to foster sustainable development.
The practice of producing an urban sector review is followed by both the multilateral agencies
and key donors - the German, Swiss and Dutch governments, among others. Usually these
reviews assess demographic trends, project investment needs against implementation capacity
and design a TA and/or loan programme to provide for capacity building and investment
funding. They vary in the resources required, but the most effective are implementation-
focused, carried out by experienced, small teams on short missions, and do not require large
expenditures.
The Netherlands also carries out urban poverty reviews. These reviews specifically address the
needs of poverty groups and undertake an institutional analysis to determine better systems for
service delivery to these groups. Again a programme of TA and investment is identified. In
respect of sustainable development, country environment reports provide a context for
environmental programmes. However, there are no current examples of Agenda 21
(economic/social) issues being translated into a TA/investment programme at a country level.
At the city level MEIP and SCD provide models which could be scaled up.
The urban review process can also be an instrument for focusing support activity in the urban
sector. Some AusAID country programmes have identified a lack of focus as an issue and have
taken steps to consolidate programmes.
Ausaid
8.6 Recommendations
identifying focus areas of poverty alleviation support
environmental development


Structured by sector, with a focus on project (community,
government or private sector) organisation, this system should
document best practice (including best practice in avoiding common
problems). The system should not require more administrative
documentation for project officers, but should comprise regular
debriefing on project progress and analysis of project outcomes
based on evaluation reports and debriefings. Regular review of this
best practice should result in a review of AusAID guidelines.
the provision of support to NGOs/CBOs in community-based
projects; and
Additional research should be conducted in each of the case study

countries in order to more fully scope issues and problems in these
areas and identify specific assistance measures needed in the light
of the partnership paradigm recommended in this report. In
addition, networks for dissemination of best practice among actors
could be fostered in these areas. Such networks could be designed
along the lines of the Consultative Group to Assist the Poorest.
Ausaid
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Ausaid
In order to foster a long-term orientation and an orientation towards achieving real institutional
change it is proposed that the central element in all these programmes be a long-term
relationship (a partnership, in fact) between an Australian partner and an appropriate
organisation or organisations in the developing country. This approach will have the flexibility to
respond to changing circumstances and to unforeseen institutional constraints encountered.
Administratively, the programmes will look like normal tender for one or more specific projects
which can be monitored as normal. However, the explicit expectation would be that the first
project(s) would constitute the first phase of a longer relationship which would continue if
agreed project performance criteria were met. Flexibility could be achieved by increasing the
contingency amount and allowing more explicit flexibility in moving project funds among
budget items.
The following sections describe the three streams of support in more detail and give examples
where such programmes have been utilised.
8.2 Community Partnerships

Best practice in community-focused aid delivery depends on NGOs and CBOs. Their activity
must complement appropriate activity by government (see Section 8.3 below). There is a
growing awareness of both the advantages and constraints in utilising NGOs, both Australian
and local, in the delivery of aid. The current delivery mechanism involving NGOs is diverse in
design, funding either Northern NGOs, local apex NGOs or CBOs directly with a variety of
funding paths from these organisations to the recipients as shown in Figure 8.1.
Figure 8.1: Current Community - Focused Delivery System
Northern NGO
Local Apex NGO
Recipients
The length of the reporting chain and the complexity of the interactions involved indicates the
major difficulties encountered in respect of administration of aid channelled through this
mechanism in the urban sector - especially difficulties of unclear (even conflicting) objectives
and inadequate supervision. Management capacity of NGOs is also a concern.
The objective and structure of a proposed long-term programme of community-focused

development would be to provide local NGOs and CBOs with the capacity to be self-sustaining
without external assistance. In this regard the role of an international (Australian) NGO which
understands and overviews core community interests is central. In addition, this NGO will be
able to assist local NGOs in scale up if appropriate. Resources also need to be available to the
relevant NGO to hire expertise (consultants) in areas where it is not strong. An environmental
Ausaid
NGO may not be strong in micro-credit, but financing new avenues of income generation may be
crucial to achieve environmental improvement, for example.
The proposed delivery mechanism is shown in Figure 8.2.
Figure 8.2: Proposed Community Partnership Delivery System
Consultants Aust Local

Partner organisations
NGO Apex
Recipients
The delivery mechanism incorporates several principles (in addition to the AusAID code of
practice and such detailed operational guidelines as those for micro-credit programmes). These
are:

urban sector strategy.
programmes should be designed so that Australian NGOs are associated with and work
through apex southern NGOs where possible. Plan International constitutes Australian best
practice in this area with their policy of withdrawal after viable CBOs are established; of
working through the highest appropriate level of NGOs; and of linking to formal sector
organisations.
As discussed in Section 8.1 above, the contract with the Australian NGO should continue over
the duration of the design, funding, construction and initial period of operation of a major
project. The performance of the NGO managing the project will be assessed on the successful
completion to budget and time of the project, but also on other performance indicators in
respect of the organisational performance of the local associated NGO/CBOs. In general, the
objectives of such partnerships programmes will be to:
institution has responsibility; and
facilitate the NGO/CBO linkages to the private sector and to government.
Ausaid
This report has identified the need for community-based activity in poverty alleviation that
crosscut the investment sectors identified above. In particular, effective NGO activity has been
undertaken in:
development of local water and sanitation projects;
development of community health and education projects; and
micro-credit and enterprise development in the informal sector.
The partnership programme should be used by:
Australian NGOs in partnership with local apex NGOs; and
local NGOs of demonstrated capacity.
In support of local apex NGOs, the programme should undertake:
strengthening of management practice of both apex NGOs and community-based

NGOs/CBOs
Twinning in the Philippines

Training NGOs: the FICONG Programme
years as a counterpart apex organisation in South America. In Latin America there is a
strengthening and training of NGOs such as FICONG based in Buenos Aires. The
FICONG programme is implemented through a large network of NGOs and other
settlement institutions. It aims to enhance the capacity of NGOs and public agencies in
responding to the needs of poorer groups and to increase their effectiveness and the
scale of activities. FICONG also encourages NGOs and State organisations to develop
more effective partnerships with residents associations in low-income communities.
main supporters of the FICONG Programme are the Economic Development Institute
of the World Bank and the bilateral aid programmes of Sweden, the Netherlands and Japan.
strengthening links between the formal and informal sectors - for such purposes as
expanding the scale and profitability of micro-enterprises
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Micro-Credit Programme, Philippines

Tulay sa Pag-Unlad Inc (TSPI) was established in 1982 by a group of business and
professional leaders based in Manila, to make small loans and training available to
micro-entrepreneurs. With growing support from international NGOs from Australia
and US, and subsequently with official aid support from Australia, US and Europe,
TSPI soon became one of the leading micro-credit NGOs in the Philippines, with a
good track record in creating incomes, jobs and micro-enterprises for the poor.
Following the 1986 peoples power revolution, President Aquino called upon the
Philippine NGO community and overseas aid donors to develop an effective
programme to alleviate poverty, especially in the poorer provinces, and as far as
possible using NGOs, community and church-based organisations to increase incomes
for the poor. TSPI responded to this challenge by creating six new provincial partner
organisations (among them ASKI and Kabalikat Para sa Maunlad Na Buhay Inc -
KMBI), which initiated programmes of micro-credit for micro-enterprises based largely
upon the TSPI model.
KMBI, has started an ambitious programme to build Self-Help Groups (SHGs) for
banking with the poor living in squalid squatter areas on the northern fringe of Metro
Manila. In the past three years, it has already built 245 small groups of five members
each, which combine into 35 person centres. These manage and operate the credit and
savings programmes of the combined groups, and are now receiving bank lines of credit
channelled through the NGO. Calming earlier fears about the problems to be overcome
among the urban poor, these groups are now working well, with loan repayment rates of
over 95 percent. KMBI estimates the average cost of establishing a SHG centre, over one
year, to be about US$1,031 (similar to the annual cost in India).
(Source: The Foundation for Development Cooperation, 1994)
Issues for Community Partnership Programmes

The proposed delivery mechanism may be seen as adding a more restrictive structure and even
additional levels if the Australian NGO links directly with a CBO to current flexible
arrangements, but the advantages of longer-term financing, more flexibility in resource
sourcing and more clarity of expectations on the part of all organisations involved should make
for more efficient project implementation.
8.3 Government Partnerships

This report has identified four broad areas of activity necessary to promote sustainable
development and poverty alleviation. These are:
the strengthening of financial institutions servicing both the formal and informal sectors in
the above areas.
The government sector plays an important role in each of these focus areas.
In the context of the desirable characteristics of delivery systems set out in Section 6.2.2, the
current delivery mechanism (see Figure 8.3) is less-than-optimal if the focus is to shift to long-
Ausaid
term engagement of project implementation organisations. The fragmented nature of the inputs
and their short duration, combined with necessarily narrow terms of reference, can lead to a
project being ineffective in catalysing required institutional change. This picture is further
complicated if co-financing arrangements are involved, increasing the scope for dissipating
energies in the pursuit of multiple objectives.
Figure 8.3: Current Project Government Delivery System
Technical assistance funding
Capital funding
Consultants
Advice
Government agency/parastatal
- project implementation organisation
The proposed delivery mechanism (see Figure 8.4) is designed to answer the issues raised by
the ADB and addresses the organisational constraints of the current delivery mechanism.
Figure 8.4: Proposed Government Partnership Delivery System
Consultants Partner organisations
The delivery mechanism will involve the long-term association of an organisation, either:
Australian, State and Territory government central agencies (especially in the field of
regulatory reform);
Australian, State and Territory government sectoral agencies (especially in the fields of
implementation of regulatory reform and good practice in management and operations and
maintenance);
Australian local governments (fields as above); and
Australian commercialised or privatised service providers (fields as above).
Ausaid
There will also be an organisation undertaking similar activities in the recipient country. The
organisation will be resourced in two streams - one stream for its management and specific
tasks identified by the project, another stream to be used on approval of AusAID to address
project bottlenecks as they arise (in practice this will be constituted by a larger contingency
sum). These managing organisations would engage consultants either to serve in their
establishment, or to perform specific tasks just as they do in their Australian operations.
The contract should continue over the duration of the design, funding, construction, and initial
period of operation of a major project. The performance of the organisation managing the
project will be assessed on the successful completion to budget and time of the project, but also
on other performance indicators in respect of the organisational performance of the
implementing agency in the recipient country. The programme should encourage best practice
in governance and urban management techniques.
example, defining the regulatory framework, including issues important to poverty groups
support the relationship between the government organisation(s) and NGOs/CBOs

representing community groups.
In support of social and physical infrastructure investment and of Small and Medium Scale
Enterprises (SMEs), the programme should undertake:
strengthening of governance/regulatory practice

energy regulators in the Philippines and US is assisting the Philippines in improving
energy efficiency, whilst at the same time protecting the environment. With help from
the Oregons Public Utility Commission, the Philippines Energy Regulatory Board
(ERB) is developing a regulatory framework for the provision of energy efficient and
environmentally sound energy policies with a focus on Demand-Side Management

transfer and entrepreneurial development, as well as an enhanced quality of life for
(Source: World Bank, 1996b)
Ausaid
strengthening of government capacity for project formulation and structuring to facilitate

Private Sector Investment (PSI)
Buenos Aires Water and Sewerage

Joint Venture Structured by the World Bank
The urgent necessity for extensive rehabilitation works and new investment amounting
to some US$3.95 billion to provide adequate water and sewerage coverage for
Argentinas capital, coupled with the absolute lack of government funds, suggested the
need for external assistance. The World Bank, intended as the primary funding agency,
was not convinced the existing operator, Obras Sanitarias de la Nacion, possessed the
organisational capacity to implement the required works and to achieve the levels of
cost recovery required to make the project feasible. The Bank therefore promoted a
implementation of the required investment programme.
Local capital markets were not adequate to cope with the funding. The consortium
implementing the project formed a company which tapped the international capital
markets. Inter-American Development Bank and IFC private sector loans funded 40
percent of the capital costs. In terms of catalysing substantial private sector financing
(equity and commercial loans amounting to 25 percent of the capital costs), this seed
activity was successful. The presence of the World Bank/IFC in the financing structure
of the project reduced the perceived country/political risk and the information costs of
potential financiers. The use of a reputable foreign merchant bank to set up the tender
for the franchise ensured that state-of-the-art financial technology was available to the
tenderers and that approval costs would be minimised.
(Source: Idelovitch and Ringskog, 1995; Rivera, 1996)
support to agencies in their links to community organisations
The Local Government Engineering Department (LGED), Bangladesh

The LGED of the Ministry of Local Government, Rural Development and Cooperatives
has an establishment of 9,859 staff, of whom 540 are professionals (mainly engineers).
The organisation has offices in each Zila capital, engineers in each of the 460 thana and
seconds officers to municipalities where their capacity is limited in respect of project
implementation. Despite its name, the Department undertakes a wide variety of slum
upgrading, community development and micro-credit schemes.
The organisation supplies a broad range of support to local governments and

communities. It provides TA in the implementation of infrastructure and slum
improvement projects. It monitors the financial performance of local governments. It
undertakes training of municipal officers and community organisers. It coordinates and
funds the activities of NGOs in providing services to slum dwellers. This is in addition to
the direct implementation of a large rural roads programme and food aid programmes.
The organisation has successfully implemented a range of large internationally-financed

projects including projects sponsored by Germany, USAID, the ADB, the World Bank
and UNICEF.
(Source: Lindfield and Teerlink, 1995)
support to agencies in the implementation of sustainable development practice
Ausaid
Sustainable Cities Programme - Dares Salaam, Tanzania

In Tanzania, the Dar es Salaam Sustainable Development Project (SDP) was launched
in 1992. The SDP seeks to manage the sustainable growth and development of Dar es
Salaam through strengthening local capacity to plan, coordinate and manage
environment/development interactions, and preparing a long-term dynamic integrated
development plan and investment strategy. Included in the scope of the SDP are
improvements to solid waste management; upgrading under-serviced settlement;
servicing city expansion; coordinating city-centre sprawl; air quality management;
surface water management and quality control; open space management (e.g. recreation
zones, hazardous sites, green belts); managing coastal resources; and managing the
economy.
Partnerships have been made possible between the private sector, NGOs, CBOs and the
public sector via the establishment of cross-sectoral and multi-agency working groups.
These deal with each of the environment issues indicated in the SDP. There are a
number of project achievements thus far, including an improved living environment for
residents.
Prior to the project, less than 3 percent of the citys wastes were collected to be disposed
of in an hygienic environmentally friendly manner. There was no city dump site.
Collection has increased from 30 to 300 tons/day, benefiting directly 170,000 persons.
More regular and faster emptying of pit latrines has benefited 24,000 persons and
resulted in around 80 percent of roads drying out (previously sewage flowed onto
access lanes contributing to high rates of water-borne diseases). Some 1,115 metres of
stormwater drains and 690 metres of murram have been constructed in an unplanned
neighbourhood benefiting 5,000 persons. The coordination and reorganisation of bus
routes and city centre bus terminals has improved greatly the public transport system,
benefiting 40,000 passengers.
The strengths of the SDP are in increased services and with, improved delivery,
investment is attracted to the area; it is a replicable model at the area or town level; it
encourages capacity building; and it promotes institutional collaboration.
Issues in Partnerships
Two questions are central to the practical application of such programmes. They are:
Do the recipient agencies want it?
Will the arrangement meet the quality and quantum needs of efficient aid delivery?
In respect of the first question, the prospect of long-term support, provided that it carries with it
grant contributions to capital and TA programmes comparable with the existing aid effort, will be
welcome. The prospect of building long-term relationships with agencies will be seen as
valuable. Such a long-term relationship will take the pressure off recipient agencies to create
special units to process aid projects. Such units are often not sustainable and, in fact, their
isolation within the bureaucracy is one of the reasons institutional change does not occur. Less
welcome in some instances will be more stringent tests of real institutional change and fewer
opportunities to exploit fragmented implementation processes for personal gain. From the
governance viewpoint, however, such reactions should be seen as positive and a test of
institutional willingness to change.
Ausaid
In respect of the second question, provided that the objectives of the partnership are set out
explicitly in terms of needs for defined outputs of significant size, the issues of quality and
throughput should be addressed. It is envisaged that similar control procedures can be used as
with consultants (indeed, the World Bank does not distinguish the two approaches in its
operational guidelines). While the scale of output would not change, the management of such
outputs would change over the life of the partnership project. Initially, consultants would have a
bigger role, but the managing partner would have an incentive to minimise their use (in order to
simplify administration, even in the absence of incentives to do so) by replacing them with local
agency staff or local consultants managed by local agency staff. Intermediate outputs (projects)
would be monitored in the same way as projects are currently monitored.
Integrating the ownership of local agencies and established development assistance practice
would be the task of consultants and/or AusAID personnel carrying out an urban
poverty/sustainable development review (termed an Urban Sector Initiatives Review - USIR -
in this study). Such a review would identify projects in the normal way, but would formulate
partnership-based approaches to delivery. The agencies selected partners would have to
submit partnership project to their government coordinating agencies in conformity with
existing procedures.
8.4 Public-Private Partnerships

These investment needs of Asian countries, budgetary pressures and globalisation forces will
result in increased involvement of the local and international private sector, given the limitation
of ODA resources.
access).
obligations.
Ausaid
equity input on the part of AusAID is inappropriate and administratively difficult. An
example of such credit enhancement by the ADB in Pakistan is described below.

partnership groups (see Section 8.5 below).
Mechanisms of Public Private Partnerships

In the current economic and political context, private sector involvement in promoting
sustainable development catalysed through the aid programme invariably involves
partnerships with government. Government must be involved if only to structure institutions, so
that the private sector can become involved. However, the task of structuring a particular project
or programme in order to promote such activity is radically different from what might be called
the traditional model of aid delivery. In the traditional model, resources additional to any
raised internally by the service organisation were mobilised almost exclusively from
government taxation revenue and from ODA.
With public-private partnerships the picture is substantially more complicated, although this
complication reflects a multitude of opportunities. In order to gain the most leverage from aid
funds and minimising the funds used in these area, the programme should encourage investment
in these priority areas by:
the local private sector;
the Australian private sector; and
the Australian private sector in joint venture with an entity from another country, provided
the Australian partner contributes over 50 percent of project funds and has over 50 percent of
foreign equity, or is the lead manager (in the case of loans or portfolio investment from
funds).
The principal financing channels can be described diagramatically as in Figure 8.5.
Ausaid
Figure 8.5: Project Funding Opportunities
Multilateral and/or
bilateral agency*
Credit enhancement
Finance of principals
Banks
Financial
Funds Partner organisations
institutions Project finance:
- recourse &
etc non-recourse* equity (& loan)
Project
Finance of SPV3 implementation
organisation*
In this formulation:
the financial institutions involved may be local or foreign institutions or both;
the partners can be multilaterals, bilaterals, government agencies or parastatals,

local/foreign NGOs and local/foreign private sector companies or individuals - where one
of the principals is a foreign entity or person which/who contributes capital, the joint
venture becomes a recipient of FDI;
the project organisation may take many contractual forms - franchise, BOT, Build-Operate-
Lease, Build-Operate-Own (BOO) and the like,
financing can be:
- direct to the partners (principals),
- direct to a specific project managed by the partners, but predicated on the reputation of
one or more of the partners either on a non-recourse basis (meaning that if the project
fails the financing institution has no right to ask the principals to service the debt), on a
recourse basis (meaning that the principals are liable for debt service), or on a limited
recourse basis (meaning that the principals are liable in certain circumstances)
- direct to a Special Purpose Vehicle (SPV) - that is, an organisation established

specifically to implement one project.
financing can utilise several modes:

- equity (issue of shares)
- loans
- bonds.
governments, bilateral agencies and/or multilateral agencies may enhance any of these modes
by issue of guarantees, contribution of lower-cost funds, contribution of TA and the like.
Ausaid
The objective of these partnership-based delivery systems is to provide the required finance for
the least cost while fulfilling the social/allocative (Vickers and Yarrow, 1989) functions ascribed
to the project (e.g. in respect of guaranteeing access for poverty groups or protection of the
environment). The structuring of these projects therefore requires clear definition of community
service and other obligations.
Successful structuring for these obligations, and for efficient implementation through
competitive bidding processes, will maximise the economic benefits for a country from the
supply of the necessary urban services and infrastructure. Such structuring requires proactive
institutions in several areas of project-related activity. The key areas of activity may be deduced
from the structure of Figure 8.5:
the assembly of partnership groups competent to undertake the investment required and
utilisation of the most appropriate contractual forms among the participants, especially in
terms of building the capacity of the recipient governments ability to tender and manage
such projects; and
strengthening of financial institutions and the capital markets in which they operate so as to
provide the quantity of long-term finance required - in particular to promote the use of a
range of financial channels and instruments to enable the choice of the most appropriate
(that is the cheapest) combination for particular project circumstances.
This report identifies four broad areas of activity necessary to promote sustainable development
and poverty alleviation. These are:
strengthening of financial institutions servicing both the formal and informal sectors in the
above areas.
In support of social and physical infrastructure investment and of SMEs, the programme should
undertake:
support to local private sector to respond to the needs of partnership-based programmes
Ausaid
USAID Support to SMEs in Alexandria

While micro-enterprises constitute a substantial sector of the Egyptian economy
representing at least 40 percent of total industrial employment, the paucity of credit
available to micro-entrepreneurs has significantly constricted their potential for growth.
In response to this situation, USAID sought to launch a Small and Medium Scale
Enterprises (SME) project that would provide credit and business management
assistance to SMEs. The Alexandria Small Business Association (ASBA), a private
non-profit NGO run by a Board of Directors from the local business community,
volunteered to act as the institution anchor for the programme. The ASBA was an ideal
vehicle to initiate the SME programme because, as an organisation that began as a
committee to promote business interests and then expanded to take on community
service projects, it combined business know-how with institutional commitment to
Since ASBA first began its SME programme, it has achieved a range of outreach
activities comparable to those of the most successful micro-finance ventures in the
world. In the last five years, the ASBA programme has served over 20,000 clients. It has
extended over 47,000 loans amounting to almost Egyptian LE 122,024,750. However,
although the foundation has reached a significant number of clients, the share of the
available market that it serves is less than 2 percent, and significant room for expansion
remains.
As a completely self-reliant project, the ASBA is an excellent model of a practice that

can be effectively sustained. The foundation covers the costs of its micro-finance and
TA services entirely through the revenue generated from loan recovery.
support to local financial institutions to respond to the needs of partnership-based

programmes
The Rau-Pithampur Tollroad and the ILFS

The Infrastructure Leasing and Financing Services is a joint venture between the IFC
(the private sector arm of the World Bank Group) and the well respected Housing
Development Finance Corporation of Bombay. Indias first private sector road project
(Rau-Pithampur, a 11.5 km two-lane road project connecting an industrial estate with
Indore city) is run by an SPV, the Madhya Pradesh Toll Ltd and is promoted jointly by
ILFS and the Madhya Pradesh State Industrial Development Corporation. It has floated
a Toll Revenue Bond issue of Rs.70 million. The bonds have been collaterised by cash
flows generated by the toll collection (Economic Times, 1996).
In the three year period of project development the cost increased from Rs.20 to 70
million. Nevertheless, ILFS was involved in the project to completion. Toll collection is
only one third of what had been expected. Consequently the three year concession
period given to the company to recover its investment has been extended to 15 years.
Again the ILFS was instrumental in re-negotiating the concession. Such efforts are
required to establish the mechanisms for private sector investment in many countries.
(Source: v. Dijk and Lindfield, 1997)
Ausaid
enhancement of financing channels for partnerships through the provision of limited

guarantees, discount windows, rediscount facilities, co-financing with multilaterals and the
like.
Pakistan: Fauji Kabirwala Power - ADB Credit Enhancement Role

The ADB has undertaken significant credit enhancement activity for this project. In
particular, its equity and debt contribution reduced the perceived project risk. The
project is a 151 MW gas-fired power plant project developed by Fauji Foundation and
US based Sceptre Power Company, on a 30-year BOO basis, and will be built on a site
near Kabirwala.
Cost Estimates: Foreign currency 146.00

(US$ million) Local currency 24.00
Total 170.00
Tentative Sources
of Funds: Equity: ADB 5.30
(US$ million) Sponsors 37.20 42.50
ADB Loan 32.00
Co-financing:
Complementary Financing
Scheme Loan 60.50
(Parallel Loan) Export Dev.
Corp. of Canada 35.00
Total 170.00
(Source: ADB, 1996c)
Recent Australian Initiatives and Potential Leveraging Measures

While not intended as models for direct application, some recent initiatives on the part of the
Australian private sector provide a basis for a more efficient method of leveraging the necessary
investment finance in the urban sector.
The A$20 million China Housing Investment Fund launched by Macquarie Bank will finance
mortgages in Tianjin. It has been well subscribed and disbursement is assured, as Macquarie is
also lending to finance the construction of the housing to be purchased with Housing
Investment Fund money. In order to attract funds to such a fund, given the unhedged foreign
exchange and country risks, Macquarie has had to project returns of up to 30 percent per annum
and restrict the term of the fund to three years. While Chinese capital markets are not unique in
requiring funds in excess of what can be provided by the national capital markets for urban
development, they are outstanding in that they can generate such returns. While international
funds will be combined with lower cost local funds, such returns mean that finance is expensive
(given current low inflation). They will not be easily accessible to middle and low-income earners.
In order to decrease the required returns and increase the term offered so as to make such
mechanisms more widely accessible (and increase the marketability of such a fund), there are
several enhancements to the financing package which could be made. Such enhancements are:
Ausaid
strengthening the capacity and systems of the Tianjin Housing Management Centre perhaps
in association with World Bank/IFC or ADB so as to lower counterpart risk (and, indirectly,
country risk through association with multilaterals);
full or limited foreign exchange hedging; and
full or limited country risk guarantee/insurance (perhaps utilising the World Banks
Multilateral Investment Guarantee Agency (MIGA) facility).
Lend Lease has established two funds (one Australia/New Zealand and one international)
focusing on infrastructure investment. The international fund is based in Singapore (but run by
the Lend Lease Capital Services and Project Finance Group based in Sydney) and focused on
water supply and sewerage infrastructure. The fund is a joint venture between Lend lease and
Lyonnaise des Eaux of France.
Disbursal of funds is restricted by the need to hedge political risk. The traditional method of
achieving this is to obtain a letter of support from the central government which does not
amount to an explicit government guarantee (but amounts to an implicit guarantee). A full or
limited country risk guarantee/insurance, perhaps utilising the World Banks MIGA facility,
would be welcome support to such projects, especially in the absence of DIFF funding.
The issue of how to quantify and manage risk for leveraged projects is an important one.
While the Export Finance and Insurance Corporation (EFIC) has the capacity to manage risk
management instruments once in place, the identification and design of such instruments would
be a specialist task.
8.5 Urban Sector Initiative Reviews

Since each of the three modes of programme partnerships are interrelated, the design of the
development assistance programme in the urban sector for a particular country is a matter of
balancing available AusAID resources with sector needs and other ODA activities. In order to
design programmes addressing investment sector needs, it is necessary to undertake a review of
urban poverty/alleviation needs and of required initiatives to foster sustainable development.
The practice of producing an urban sector review is followed by both the multilateral agencies
and key donors - the German, Swiss and Dutch governments, among others. Usually these
reviews assess demographic trends, project investment needs against implementation capacity
and design a TA and/or loan programme to provide for capacity building and investment
funding. They vary in the resources required, but the most effective are implementation-
focused, carried out by experienced, small teams on short missions, and do not require large
expenditures.
The Netherlands also carries out urban poverty reviews. These reviews specifically address the
needs of poverty groups and undertake an institutional analysis to determine better systems for
service delivery to these groups. Again a programme of TA and investment is identified. In
respect of sustainable development, country environment reports provide a context for
environmental programmes. However, there are no current examples of Agenda 21
(economic/social) issues being translated into a TA/investment programme at a country level.
At the city level MEIP and SCD provide models which could be scaled up.
The urban review process can also be an instrument for focusing support activity in the urban
sector. Some AusAID country programmes have identified a lack of focus as an issue and have
taken steps to consolidate programmes.
Ausaid
8.6 Recommendations
identifying focus areas of poverty alleviation support
environmental development


Structured by sector, with a focus on project (community,
government or private sector) organisation, this system should
document best practice (including best practice in avoiding common
problems). The system should not require more administrative
documentation for project officers, but should comprise regular
debriefing on project progress and analysis of project outcomes
based on evaluation reports and debriefings. Regular review of this
best practice should result in a review of AusAID guidelines.
the provision of support to NGOs/CBOs in community-based
projects; and
Additional research should be conducted in each of the case study

countries in order to more fully scope issues and problems in these
areas and identify specific assistance measures needed in the light
of the partnership paradigm recommended in this report. In
addition, networks for dissemination of best practice among actors
could be fostered in these areas. Such networks could be designed
along the lines of the Consultative Group to Assist the Poorest.
Ausaid
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Urbanisation in Asia:

Lessons Learned and Innovative Responses

4.6 NON-GOVERNMENTAL ORGANISATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

8 MAJOR OUTCOMES OF THE RESEARCH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100

TABLE 4.3: THE PROPORTION OF AID AND NON-CONCESSIONAL LOAN COMMITMENTS TO

FDI Foreign Direct Investment

SDP Sustainable Development Project

LESSONS LEARNED FROM THE CASE STUDIES AND

Human Resource Development

Health and the Environment

The Informal Sector and Micro-Enterprise Development

remittances from urban workers;

employment for those within daily or short-term commute distance;

employment in satellites; and

markets for rural produce.

social costs of badly managed/inequitable land development.

In Respect of Processes for Poverty Alleviation and Sustainable Development

The Formal Private Sector and the Informal Private/Community Sector

support to micro-enterprise development; and

AUSTRALIAN EXPERTISE IN SUPPORT OF POVERTY ALLEVIATION

planning, regulatory and monitoring systems (especially in the context of competition

finance and management of housing and infrastructure provision;

education and training; and

certain products, especially extensively transformed manufacturers and specialist

PROPOSED INNOVATIVE RESPONSES

Urban Sector Initiatives Review (USIR)

Twinning in the Philippines Structured by the World Bank

In addition to these energy savings and realisation of environmental goals, staff

NGO-based community partnership projects should be formulated as part of an overall

As with government partnerships as above, standardised procedures should be used to select

In particular, the objectives of such projects will be to:

supporting the relationship between the organisation and NGOs/CBOs representing

NGO Partnerships in Buenos Aires: the FICONG Programme

support to micro-enterprise development; and

In a case where a government cannot provide for needed/required community service

identifying focus areas of poverty alleviation support;

designing interventions for sustainable economic, social and

preparing a programme of development assistance in support of

Such a review should be drafted by a small team headed by AusAID

Recommendation Two: Prototype community, government and public-private partnership

the provision of support to NGOs/ CBOs in community-based

the provision of support to the public sector in the management

However, sustainable development encompasses more than environmental sustainability.

1.2 Trends and Patterns

1.2.1 The Scale and Scope of Urbanisation

Table 1.1: Asias Urban Population, 1970 - 2000

World 1,352,449 36.6 1,757,265 39.5 2,390,170 45.2 3,197,679 51.1

Table 1.1: Asias Urban Population, 1970 - 2000, continued

Iraq 5,254 56.2 8,799 66.2 13,488 71.3 19,843 75.3

Figure 1.1: Urban Population as Percent of Total, 1970-2000

1970 1980 1990 2000

World 2.61 2.63 3.06 3.09 3.00 2.82 2.55

Lao PDR 5.52 4.50 5.58 6.03 6.00 5.55 5.12

Figure 1.2: Average Annual Growth Rates of Urban Population, 1970-2005

19701975 19801985 19901995 20002005

Table 1.3: Asias Million Cities, 1950 - 2000

(Source: Yeung, 1994:29)

Table 1.4: Urban Poverty in Selected Asian Countries

Asia (excluding China) 34.0 47.0 43.0 1985

(Source: Hamid and Fouad, 1993)

1.2.2 Problems and Issues

poverty alleviation and urban economic development;

the urban environment and the sustainability of urban development; and