Urbanisation in Asia:

Lessons Learned and Innovative Responses

Dean Forbes
Flinders University

Michael Lindfield
Australian Housing and Urban Research Institute May 1997

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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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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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iv Urbanisation in Asia 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
IN A SUSTAINABLE

5.1 METHODOLOGY AND CONCEPTS: POVERTY ALLEVIATION FOCUS 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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vi Urbanisation in Asia

ABBREVIATIONS
ADB ADF AFDB AHURI AIDAB APEC ASBA ASEAN ASKI AusAID BOO BOT CBO CDB CEMS CMDA CMP CSIRO CSO DAC DHARD DIFF DSM DTP EBRD EC ECOSOC EFIC EMR EPZ ERB ESCAP ETM Asian Development Bank Asian Development Fund African Development Bank Australian Housing and Urban Research Institute Australian International Development Assistance Bureau (now AusAID) Asia-Pacific Economic Cooperation Alexandria Small Business Association Association of South-East Asian Nations Alalay Sa Kaunlaran Sa Gitnang Luzon Inc. Australian Agency for International Development Build-Operate-Own Build-Operate-Transfer Community Based Organisation Caribbean Development Bank Community Environmental Management Strategy Calcutta Metropolitan Development Authority Community Mortgage Programme Commonwealth Scientific and Industrial Research Organisation Community Service Obligation Development Assistance Committee Department of Housing and Regional Development (also Commonwealth Department of Health, Housing, Local Government and Community Services) Development Import Finance Facility Demand-Side Management Decentralised Training Programme European Bank for Reconstruction and Development European Community Economic and Social Council Export Finance and Insurance Corporation Extended Metropolitan Region Export Processing Zone Energy Regulatory Board Economic and Social Commission for Asia and the Pacific Elaborately Transformed Manufactures

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Urbanisation in Asia vii

FDI GDP GNP HDFC HUDCO IADB IBRD IDA IFC IFI IIED ILFS IMF KIP KMBI LGED LRT MEIP MFP MIGA MRT NGO NHA NIEIR ODA OECD OECF OUD PACAP PRCUD PSD PSI Quango RoW SCD SCI

Foreign Direct Investment Gross Domestic Product Gross National Product Housing Development Finance Corporation Housing and Urban Development Corporation Inter-American Development Bank International Bank for Reconstruction and Development International Development Association International Finance Corporation International Financial Institution International Institute for the Environment and Development Infrastructure Leasing and Financing Services International Monetary Fund Kampung Improvement Programme Kabalikat Para sa Maunlad Na Buhay Inc. Local Government Engineering Department Light Rail Transit Metropolitan Environmental Improvement Programme Municipal Foreign Policy Multilateral Investment Guarantee Agency Mass Rapid Transit Non-Governmental Organisation National Housing Authority (Thailand and Philippines) National Institute of Economic and Industry Research Official Development Assistance Organisation for Economic Cooperation and Development Overseas Economic Cooperation Fund Office for Urban Development Philippine Australia Community Assistance Programme Pacific Rim Council for Urban Development Private Sector Development Private Sector Investment Quasi Non-Governmental Organisation Rights of Way Sustainable Cities Programme Sister Cities International

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viii Urbanisation in Asia SDP SEZ SHG SME SPV SUME SUWE TA TSP TSPI UBS UBSP UDA UDC UMP UMTP UN UNCED UNCHS UNDP UNFPA UNICEF UNIDO US USAID USIR WTO Sustainable Development Project Special Economic Zone Self-Help Group Small and Medium Scale Enterprises Special Purpose Vehicle Schemes for Urban Micro-Enterprises Schemes for Urban Wage Employment Technical Assistance Total Suspended Particulates Tulay sa Pag-Unlad Inc Urban Basic Services Urban Basic Services Programmes Urban Development Authority Urban Development Corporation Urban Management Programme Urban Management Training Programme United Nations United Nations Conference on Environment and Development United Nations Centre for Human Settlements United Nations Development Programme United Nations Population Fund United Nations International Childrens Fund United Nations Industrial Development Organisation United States United States Agency for International Development Urban Sector Initiatives Review 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 nonprofit 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 microfinance 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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4 Urbanisation in Asia 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 microenterprise 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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6 Urbanisation in Asia 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: impart best practice in sustainable development of the investments for which the partner institution has responsibility; 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 : support to micro-enterprise development; and support to the sustainable private provision of urban infrastructure (to which the poor have 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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8 Urbanisation in Asia

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. 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. 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.

Recommendation Three:

Recommendation Four:

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1
1.1

AN URBANISING WORLD
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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10 Urbanisation in Asia 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 Pop (000s) World Asia Eastern Asia China Hong Kong Japan Dem. P.R. of Korea Republic of Korea Macau Mongolia South-Eastern Asia Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam Southern Asia Afghanistan Bangladesh Bhutan India Iran (Islamic Rep. of) Maldives Nepal Pakistan Sri Lanka Western Asia Bahrain Cyprus Democratic Yemen Gaza Strip (Palestine) 1,352,449 481,104 243,952 144,357 3,534 74,294 7,789 12,995 238 556 57,894 80 812 20,534 261 2,929 6,190 12,380 2,075 4,750 7,820 147,441 1,503 5,074 32 109,616 11,661 16 450 16,354 2,736 31,817 173 251 481 287 % 36.6 22.9 24.7 17.4 89.7 71.2 53.3 40.7 97.0 45.1 20.2 61.7 11.7 17.1 9.6 27.0 22.8 33.0 100.0 13.3 18.3 19.5 11.0 7.6 3.1 19.8 41.0 13.5 3.9 24.9 21.9 43.2 78.7 40.8 32.1 82.1 1980 Pop (000s) 1,757,265 687,336 322,215 195,370 4,614 88,995 10,387 21,678 317 854 86,571 111 659 333,514 431 4,769 8,108 18,064 2,414 8,088 10,350 218,757 2,514 9,968 49 158,851 19,291 35 909 23,946 3,196 50,794 279 291 687 397 % 39.5 26.3 27.4 19.6 91.6 76.2 56.9 56.9 98.2 51.3 24.0 59.9 10.3 22.2 13.4 34.6 24.0 37.4 100.0 17.3 19.3 23.1 15.6 11.3 3.9 23.1 49.6 22.3 6.1 28.1 21.6 51.5 80.5 46.3 36.9 90.2 1990 Pop (000s) 2,390,170 1,070,375 526,784 380,803 5,507 95,040 13,023 30,794 473 1,145 132,824 153 959 56,293 770 7,701 10,316 26,602 2,723 12,609 14,600 328,157 3,021 19,005 81 230,269 30,953 63 1,837 39,250 3,679 82,609 428 370 1,078 554 % 45.2 34.4 39.4 33.4 94.1 77.0 59.8 72.0 98.7 52.3 29.9 57.7 11.6 30.5 18.6 43.0 24.8 42.6 100.0 22.6 21.9 27.3 18.2 16.4 5.3 27.0 56.7 29.4 9.6 32.0 21.4 62.7 83.0 52.8 43.3 93.6 2000 Pop (000s) 3,197,679 1,585,438 776,832 614,514 6,065 99,782 16,479 37,773 649 1,569 197,214 196 1,460 86,401 1,372 11,255 14,523 37,775 2,997 18,738 22,340 490,473 5,884 34,548 149 336,542 43,621 106 3,446 61,477 4,701 120,920 583 455 1,741 721 % 51.1 42.7 51.4 47.3 95.7 77.7 63.1 81.4 98.9 55.1 36.9 59.0 14.5 39.5 25.1 51.2 28.4 48.8 100.0 29.4 27.1 32.8 22.2 22.9 7.8 32.3 63.4 37.5 14.3 37.9 24.2 70.3 85.4 59.7 50.8 94.9

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

1970 Pop (000s) Iraq Israel Jordan Kuwait Lebanon Oman Qatar Saudi Arabia Syrian Arab Republic Turkey United Arab Emirates Yemen 5,254 2,504 1,162 579 1,466 33 89 2,796 2,713 13,571 94 364 % 56.2 84.2 50.5 77.8 59.4 5.1 80.3 48.7 43.3 38.4 42.3 7.5 1980 Pop (000s) 8,799 3,435 1,753 1,240 2,016 72 197 6,265 4,110 19,455 824 970 % 66.2 88.6 60.0 90.2 75.5 7.3 86.1 66.8 46.7 43.8 81.2 15.3 1990 Pop (000s) 13,488 4,214 2,725 1,949 2,261 159 329 10,928 6,321 34,274 1,236 2,295 % 71.3 91.6 68.0 95.6 83.7 10.6 89.5 77.3 50.4 61.3 77.8 25.0 2000 Pop (000s) 19,843 4,973 4,105 2,565 2,895 329 456 16,933 9,941 49,445 1,518 4,418 % 75.3 93.5 73.9 97.2 87.0 15.1 91.3 81.8 55.8 74.0 77.8 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 Asia 1980 SouthEastern Asia 1990 Southern Asia 2000 Western Asia

1970

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 World Asia Eastern Asia China Hong Kong Japan Dem. P.R. of Korea Republic of Korea Macau Mongolia South-Eastern Asia Brunei Darussalam Cambodia Indonesia 2.61 3.33 2.47 2.09 2.39 2.55 3.67 5.31 1.34 4.38 4.15 3.73 -2.09 4.92 1975 1980 2.63 3.54 3.09 3.94 2.94 1.06 2.09 4.92 4.39 3.85 3.90 2.72 -2.07 4.88 1980 1985 3.06 4.58 4.85 6.72 1.88 0.81 2.38 3.97 3.96 2.94 4.33 3.07 3.54 5.37 1985 1990 3.09 4.54 4.98 6.63 1.66 0.51 2.15 3.05 4.05 2.92 4.24 3.40 3.96 5.00 1990 1995 3.00 4.18 4.31 5.41 1.05 0.50 2.39 2.31 3.53 3.09 4.09 2.52 4.19 4.56 1995 2000 2.82 3.68 3.46 4.16 0.88 0.48 2.31 1.77 2.82 3.21 3.82 2.40 4.22 4.01 2000 2005 2.55 3.09 2.49 2.89 0.44 0.44 2.00 1.40 2.07 3.25 3.47 2.24 4.30 3.36

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14 Urbanisation in Asia

Table 1.2: Average Annual Growth Rates of Asias Urban Population, 1970 -2005, continued
Average annual growth rate (percent) 1970 1975 Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam Southern Asia Afghanistan Bangladesh Bhutan India Iran (Islamic Rep. of) Maldives Nepal Pakistan Sri Lanka Western Asia Bahrain Cyprus Democratic Yemen Gaza Strip (Palestine) Iraq Israel Jordan Kuwait Lebanon Oman Qatar Saudi Arabia Syrian Arab Republic Turkey United Arab Emirates Yemen 5.52 4.99 3.25 4.02 1.73 5.59 2.86 4.00 6.11 6.74 3.95 3.76 5.35 8.69 6.72 3.76 1.83 4.95 4.42 1.06 3.31 3.32 5.05 3.57 4.27 7.53 5.17 6.83 9.40 8.40 4.23 4.09 29.04 9.58 1975 1980 4.50 4.76 2.15 3.54 1.30 5.05 2.75 3.89 4.17 6.76 4.24 3.66 4.71 7.33 7.35 3.87 1.28 4.40 5.19 1.95 3.82 3.17 5.26 2.75 3.96 7.71 1.21 8.70 6.44 7.74 4.08 3.11 14.32 10.04 1980 1985 5.58 4.87 2.13 3.97 1.15 4.66 3.22 4.15 -0.47 6.57 4.72 3.80 5.43 6.17 7.21 5.01 1.23 5.14 4.56 2.43 4.32 3.66 4.48 2.13 4.43 5.24 1.25 8.36 5.73 6.02 4.15 6.11 4.84 9.08 1985 1990 6.03 4.71 2.69 3.77 1.25 4.22 3.66 3.96 4.15 6.33 5.43 3.63 4.02 5.91 6.86 4.87 1.58 4.59 3.97 2.35 4.68 3.00 4.06 1.96 4.39 3.80 1.05 7.45 4.49 5.11 4.46 5.21 3.26 8.15 1990 1995 6.00 4.11 3.23 3.61 1.07 4.02 4.16 4.03 8.51 6.14 5.90 3.82 3.20 5.43 6.48 4.48 2.19 4.09 3.37 2.16 4.85 2.74 3.95 1.73 4.26 3.04 2.69 7.35 3.65 4.56 4.56 4.17 2.24 7.08 1995 2000 5.55 3.47 3.62 3.40 0.84 3.91 4.35 4.01 4.83 5.81 6.25 3.77 3.66 4.91 6.11 4.50 2.71 3.53 2.82 1.96 4.74 2.51 3.77 1.59 3.93 2.46 2.25 7.17 2.87 4.20 4.49 3.16 1.87 6.01 2000 2005 5.12 2.88 3.84 3.17 0.63 3.70 4.39 3.87 4.50 5.37 6.13 3.66 3.49 4.38 5.51 4.28 3.16 3.11 2.38 1.78 4.42 2.36 3.56 1.42 3.44 1.98 1.93 6.95 2.60 4.04 4.35 2.34 1.81 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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Urbanisation in Asia 15

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 19851990, 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* SouthEastern Asia 19901995 Southern Asia* Western Asia*

19701975 19751980

19801985 19851990

20002005

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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16 Urbanisation in Asia 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 China Japan Republic of Korea Indonesia India Iran Pakistan Turkey All Asia (Source: Yeung, 1994:29) 1950 8 3 1 1 5 1 1 1 24 1960 13 5 2 1 7 1 2 1 38 1970 25 5 3 3 9 1 2 2 59 1980 33 6 4 4 10 1 3 3 77 1990 38 6 6 6 24 5 6 4 115 2000 38 6 6 6 24 5 6 4 115

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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Urbanisation in Asia 17

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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18 Urbanisation in Asia 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

Country or Region

Urban areas

Rural areas

Whole nation

Date

Separate rural/urban poverty lines

Asia (excluding China) Bangladesh China India Indonesia Korea, Republic of Malaysia Nepal Pakistan Philippines Sri Lanka

34.0 58.2 0.4 37.1 20.1 4.6 8.3 19.2 25.0 40.0 27.6

47.0 72.3 11.5 38.7 16.4 4.4 22.4 43.1 31.0 54.1 45.7

43.0 1985/86 8.6 1988 17.4 4.5 17.3 42.6 1984/85 49.5 39.4

1985 Yes 1990 Yes

1987 1984 1987 1984/85

Yes

1988 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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Urbanisation in Asia 19

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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20 Urbanisation in Asia 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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Urbanisation in Asia 21

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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22 Urbanisation in Asia 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 propoor. 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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Urbanisation in Asia 23

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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24 Urbanisation in Asia 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
2.1

URBAN INSTITUTIONS AND MANAGEMENT

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 nontransparent 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 urbanbased 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 subdivisions 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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28 Urbanisation in Asia 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 communitylevel 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 NonGovernmental 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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30 Urbanisation in Asia 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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32 Urbanisation in Asia 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 macroeconomic 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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34 Urbanisation in Asia 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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36 Urbanisation in Asia 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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38 Urbanisation in Asia 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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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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40 Urbanisation in Asia 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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42 Urbanisation in Asia 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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44 Urbanisation in Asia 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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46 Urbanisation in Asia 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 subregional 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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48 Urbanisation in Asia 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 armslength 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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Urbanisation in Asia 49

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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50 Urbanisation in Asia

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 $B % of % of $B GDP Total China Indonesia Korea Malaysia* Philippines Thailand* Others 200 82 101 17 19 49 25 2.0 2.9 2.1 1.7 2.7 2.4 3.1 2.2 41 17 20 3 4 10 5 100 141 23 32 6 7 29 18 256 Telecomm. % of % of GDP Total 1.4 0.8 0.7 0.6 1.0 1.4 2.2 1.2 55 9 13 2 3 11 7 100 $B Transport Water & Sanitation % of % of GDP Total 1.0 0.9 0.1 0.4 0.4 0.5 0.5 0.7 66 16 3 3 3 6 3 Total $B % of % of GDP Total 744 192 269 50 48 145 61 7.4 6.8 5.6 4.8 6.8 7.2 7.5 49 13 18 3 3 10 4

% of % of $B GDP Total 3.0 2.2 2.7 2.1 2.5 2.8 1.7 50 10 22 4 3 9 2 102 25 4 4 4 10 4 153

302 62 132 22 18 57 14 607

East Asia** 493

2.7 100

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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Urbanisation in Asia 51

In the past, Asian governments used ODA to build such projects or borrowed from exportimport 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 AsiaPacific 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, interregional 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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52 Urbanisation in Asia 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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Urbanisation in Asia 53

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 ShelterRelated Infrastructure and Basic Services, 1980-93
Total Proportion of total project commitments funding Water & Primary Basic Poverty (US$B) Sanitation Health Education Reduction Care & Jobs Percent of total commitments 1980 1990 1992 93 91 93

Agency

Aid (concess. loans/grants) World Bank IDA Africa Asia Latin Amer. & Caribbean AFDB Asian Development Fund (ADF) IADB Caribbean Development Bank (CDB) UNICEF 27.9 38.6 1.9 10.2 14.3 6.5 0.7 6.6 3.6 5.5 3.8 7.3 4.4 18.0 4.1 13.7 2.7 5.3 3.5 2.7 1.6 1.4 33.5 4.3 2.7 1.8 4.3 1.7 3.1 7.9 1.9 1.4 7.6 1.3 0.3 1.3 0.5 12.7 15.0 16.8 15.7 7.9 29.6 4.9 55.1 20.0 22.1 41.1 15.8 7.7 28.0 3.1 57.4 15.3 36.2 11.8 15.3 22.6 37.8 2.2 47.9

Overseas Economic Cooperation Fund (OECF), Japan (1987-91) 36.5 Non-concessional loans IBRD Africa Asia Latin Amer. & Caribbean AFDB ADB IADB CDB (Source: UNCHS, 1996) 29.6 90.6 68.7 17.6 30.9 41.7 0.5

3.8

0.4

4.5

3.7

8.0 3.3 5.1 9.0 4.5 6.3 6.7

1.2 0.9 1.6 0.4 1.0 0.3 0.0

0.9 0.9 2.1 1.6 0.3 0.0

0.1 0.04 0.0 0.4 0.6 0.0

10.4 5.1 8.9 11.5 5.6 7.5 6.7

12.3 7.9 12.2 13.5 1.3 13.0 8.5

12.9 6.6 11.1 14.5 0.7 17.3 0.0

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54 Urbanisation in Asia 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 shelterrelated 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 twofifths went to urban infrastructure (mainly ports and urban electrification), with just under twofifths 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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Urbanisation in Asia 55

Table 4.3: The Proportion of Aid and Non-Concessional Loan Commitments to Urban Infrastructure, Urban Services and Urban Management, 1980-93
Proportion of total project commitments Urban Mngt. Total Urban Colleges & Public & Integrated. (US$B) Infrastruct. Hospitals Transport Dev. Percent of total commitments 1980 93 1990 1992 91 93

Agency

Aid (concess. loan/ grants) World Bank IDA Africa Asia Latin Amer. & Caribbean AFDB ADF IADB CDB Arab Fund for Economic & Social Development OECF, Japan (1987-91) Non-concessional loans IBRD Africa Asia Latin America & Caribbean AFDB ADF IADB CDB (Source: UNCHS, 1996) 29.6 90.6 68.7 17.6 30.9 41.7 0.5 4.0 3.9 4.0 4.4 6.9 2.5 13.0 1.2 0.9 1.6 0.4 1.0 0.3 0.0 0.1 0.2 1.5 0.1 0.0 0.0 0.0 3.4 3.0 3.9 0.1 3.4 3.1 5.0 11.3 10.3 10.8 8.2 14.8 7.4 18.6 15.4 16.6 5.8 3.4 18.4 4.2 20.4 15.3 14.9 16.8 9.1 16.1 3.3 3.8 27.9 38.6 1.9 10.2 14.3 6.5 0.7 1.8 1.1 4.0 3.5 2.7 2.9 4.4 4.4 5.3 3.5 2.7 1.6 1.4 0.0 0.3 0.0 0.0 0.0 0.0 2.6 3.6 2.7 0.5 2.8 6.0 6.3 8.8 10.3 6.5 13.1 11.8 16.9 14.3 10.0 16.1 0.0 14.7 12.9 8.3 8.2 11.3 12.4 0.0 14.7 17.7 7.1 15.4

4.7 36.5

9.1 6.6

33.5 -

0.0 2.4

0.5 2.2

11.8 n.a.

7.6 20.1

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56 Urbanisation in Asia

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 & Population Planning/ Public Admin. Water Supply & Others Total social & administrative infrastructure 43.9 28.5 32.9 14.3 39.6 19.9 31.9 24.7 36.3 20.1 12.2 25.4 51.4 11.6 12.0 26.1 14.7 24.0 15.2 19.2

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Netherlands New Zealand Norway Spain Sweden Switzerland United Kingdom USA Total DAC (Source: OECD, 1994)

30.1 22.3 14.9 7.1 9.4 4.9 22.5 12.9 21.3 6.6 6.3 12.3 41.3 5.0 5.0 9.1 6.4 12.6 2.8 8.7

1.1 0.6 12.6 1.8 11.9 1.2 3.2 1.6 6.2 4.4 1.6 2.0 2.5 2.2 1.5 8.8 3.6 2.7 4.4 3.2

4.8 0.2 3.8 0.5 0.4 2.7 2.4 2.4 5.1 0.7 0.4 2.8 5.3 1.1 1.1 2.8 0.2 3.3 4.4 2.4

7.9 5.4 1.6 4.9 17.9 11.1 3.8 7.8 3.7 8.4 3.9 8.3 2.3 3.3 4.4 5.4 4.5 5.4 3.6 4.9

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 UrbanDevelopment by Purpose, 1986-1990 (US$ Million Constant1990 Value)
1986 Urban development Housing Water and waste mngt. Transport Gas distribution Electricity distribution Pollution control Harbour/docks/airports Health Cultural activities Total (Source: OECD, 1992) 93.9 52.7 617.2 72.1 38.9 175.2 0.0 478.6 95.0 35.5 1,659.1 1987 33.3 74.4 741.5 138.8 0.0 570.5 0.0 652.7 108.8 93.2 2,413.1 1988 66.6 73.0 1,195.4 120.3 576.7 522.0 0.0 629.4 165.4 68.7 3,417.5 1989 31.7 168.6 998.5 457.9 68.5 984.2 0.0 716.4 191.1 35.8 3,652.6 1990 26.0 62.0 917.0 540.0 1.0 397.0 5.0 334.0 100.0 21.0 2,403.0 Total 1986-90 251.5 430.7 4,469.5 1,329.0 685.1 2,648.9 5.0 2,811.1 660.3 254.3 13,545.3

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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58 Urbanisation in Asia 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 povertyfocused 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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Urbanisation in Asia 59

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 (nonproject 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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60 Urbanisation in Asia

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 underrepresentation 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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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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64 Urbanisation in Asia 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 microenterprises in 1989. In total some 125,000 persons in Vietnam earned their living from microenterprise 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 macroeconomic 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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66 Urbanisation in Asia 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 postsecondary (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 socioeconomic 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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74 Urbanisation in Asia 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 reestablishing 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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78 Urbanisation in Asia 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
6.1

BEST PRACTICE
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
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80 Urbanisation in Asia difficulties of monitoring NGO programmes are also well established in the literature (see, for example, Edwards and Hulme, 1995). Where NGO programmes have worked well (the AusAID Philippine Australia Community Assistance Programme (PACAP) in the Philippines is an example), they have been relatively intensive of supervisory resources on the part of the donor (the PACAP has 10 locally engaged staff monitoring a A$4 million programme, effectively constituting an apex NGO). Thus, community-level aid delivery programmes focus support for practical learning projects (often targetted primarily at women). These projects are incremental in that they feature stepby-step implementation in which problems are progressively identified through project experience and corrected over time. In expanding the scope of programmes and their geographical range, a number of impediments are routinely encountered. To this end, UNICEF have identified a three phase approach to guide future efforts which emphasises equity and capacity building: first, is the identification of a local project for social development; second, is transforming the project into a community-based Action Learning Centre; and third, is adopting a systematic process of facilitating community-to-community extension. The successful expansion of such programmes is found in communities participating in development planning and action (UNICEF, 1995). The review of best practice also shows that the relationships among international NGOs, local NGOs and CBOs must be handled sensitively. If the relationship is to be mutually reinforcing, paternalism needs to be avoided at each level. Thus, international NGOs provide a broader view and additional resources and new techniques/technology not available to local NGOs. Local NGOs provide the same to CBOs. The difficulty of these relationships is the timing and organisation of withdrawal from activities which more grass-roots organisations progressively acquire the capacity to undertake. Development assistance should thus focus on supporting NGO and CBO capacity building and facilitating the scaling up of local NGO activity (see Chapter 8 for recommendations as to practical formulations for projects which respond to such objectives). However, community-based projects are not a sufficient mechanism to ensure poverty alleviation. Wider systemic changes must facilitate and support community development.

6.1.2 The Importance of Efficient and Equitable Markets at the City-wide/ Regional Level
Considerable confusion, bordering on hysteria, surrounds the use of the word market. It connotes, for those in favour of the market, an almost mystical ability to allocate resources efficiently. For those against, the word market means an obsession with profits to the exclusion of human values. The word is used here in a technical sense meaning system for purchase of a good or service. Thus, regardless of whether an urban service is provided by a public or private organisation, a market is involved. Markets are structured by institutions (North, 1990) and the organisations operating within those markets are efficient only in terms of the incentives set by those institutions. European farmers are efficient in the context of the EC Common Agricultural Policy - a hugely inefficient complex of economically and environmentally perverse institutional incentives. In terms of the debate over public or private provision, the public sector may be more equitable in its orientation (experience of actual delivery is not encouraging on this point) but is often inefficient. Private sector provision may be more efficient in terms of reducing operating costs, but is indifferent to equity issues which do not impact on profits. Practical programme design in the context of the circumstances of a particular country takes into account these realities. Development best practice thus consists of supporting government in implementing the above measures and, in the context of the examples found, longer-term support utilising such mechanisms as twinning was most effective in this regard.
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The lessons of best practice identified at the systemic level can be generalised in this realistic context. In particular, efficiencies in service delivery are possible if organisations involved adopt practices of transparent accounting for use of assets and staff and through the introduction of competition in service provision where possible (not always possible as some components of urban services are natural monopolies). Desirable equity outcomes can be promoted by explicit community service obligations and by using pro-poor (NGO/CBO based) delivery systems and targeted subsidies. Government best practice consists of: - getting the macro-economic context right; - strategic planning to provide a comprehensive investment context as in the cases of environmental planning in Madras, transport planning in Tanzania and health planning in Ghana - regulation for efficient provision on the part of supply organisations (public or private) and of financial institutions funding these organisations, as in the cases of the energy sector in the Philippines and the water sector in Swaziland and the housing finance sector in India; and - facilitating community-level provision which provide targeted support to the poor through NGOs and CBOs, as in the cases of Sulaban in India and mobile clinics in Venezuela.

6.1.3 Urban Investment and the Community, Public and Private Sectors
As we have seen from the case studies and best practice examples, to provide any urban investments, government, private enterprise and the community have to interact effectively. The review of best practice has shown that this interaction is most effective when it is two way - not a top down or bottom up approach but a partnership. In order to implement new investment, financing arrangements are central as shown in Figure 6.1. In particular, the financial interaction will determine the structure of investment in the sector concerned and viability of those investments. The case studies and best practice examples have demonstrated also that effective financing of projects with sustainable institutional structures relating community, government and, where appropriate, the private sector has, in general, taken a prolonged period of sustained activity typically several years - to establish. The maintenance of political commitment is usually necessary throughout this period. This is difficult as there are great pressures on virtually all development assistance agencies to minimise the amount of staff time per unit of expenditure. Such pressures will mean that agencies tend to favour large, easily supervised projects. There is often a poor match between the project orientation of most development assistance agencies and the capacity building and funding needs of local institutions. Urban authorities need a continuous capacity to invest in and maintain infrastructure and services, or to oversee other bodies (private enterprises, community organisations, cooperatives, etc) which provide some services. Funds available on an irregular basis for specific projects are not an effective substitute. This suggests that development assistance should be provided within a long-term strategy to develop the capacity of national and local governments to plan, invest in and manage infrastructure and service provision, and to involve other key local actors in this process (including private sector institutions, NGOs and community organisations) (Smith et al, 1991).
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Figure 6.1: Partnerships in the Urban Economy

URBAN ECONOMY Enterprise*
NGOs

financial flows

Government
National State Local

rural
Firms

rural/urban balance in investment support

inputs

Financial Institutions

NGOs/CBOs Households

Community rural remittances

The sections below set out the major issues to be addressed in the design of delivery systems which focus, respectively, on the community, government and private sector.

6.2

Design of Delivery Systems

In designing delivery systems, the characteristic strengths and weaknesses of each of the three partners need to be taken into account in the context of the country concerned. Although there are many issues which are relevant across partner groups, experience of best practice within each group needs to be outlined in more detail than is possible through a review of best practice projects.

6.2.1 Community-Focused Assistance

Certain characteristics of effective assistance at the community-level have been identified over the years and may be summarised (UNCHS, 1996:396) as: small-scale and multi-sectoral addressing multiple needs of poorer groups; implementation over many years - less of a project and more of a longer-term continuous process to improve housing, living conditions and income; substantial involvement of local people (and usually their own community organisations) in project design and implementations - this necessitates long-term involvement as building the institutions for community cooperation in what is often a fragmented, even mis-trustful, community takes time;

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project implemented collaboratively with beneficiaries, their local government and certain national agencies; high ratio of staff costs to total project cost; difficult to appraise and evaluate using conventional cost-benefit analysis; and use of locally available and appropriate inputs of goods or services.

In working with NGOs and CBOs at the community-level additional lessons have been learned. The World Bank (1996d) has undertaken a review of their (mixed) experience with NGO involvement and recommended that, when working with NGOs in projects, the following seven points should be given special attention: Ensure that NGOs fully understand the practical implications of working with the government and the donor. Define the purpose of NGO involvement, especially its complementarity in the governments project, as clearly as possible. Evaluate the capacity of the NGOs early in the design stage before the selection of suitable collaborative mechanisms. Design the procurement plan to meet the specific needs of the NGOs, and make sure that the procurement and disbursement procedures work smoothly even where government officials are hostile to NGOs. Ensure consistency of supervision through the succession of task managers and, ideally, continuity. Encourage NGOs to promote the participation of the target population by providing flexible and responsible mechanisms during the supervision. Ensure that the adequate administrative capacity exists in the relevant government agencies to efficiently and effectively deal with NGOs/CBOs.

The value of the catalytic role donor agencies can play between the government and NGOs is emphasised by the World Bank. Working with governments had both pros and cons for NGOs involved in the case study projects. While it is true than many problems arose from bureaucratic delays and formalities, many NGOs also reported that these projects offered them a chance to show governments what NGOs can do, as well as for them to better understand what governments are trying to do.

6.2.2 Government-Focused Assistance

Other characteristics of effective practice in respect of strengthening government capacity to efficiently and equitably manage the provision of needed shelter and infrastructure have been identified (ADB, 1996a). Centralisation does not work and the public sector provision of urban services, financed out of taxation, has generally not provided a satisfactory level of service. The project by project approach to infrastructure and services investment has not worked. Single sector plans are inadequate in a city situation where sectoral interrelationships are complex and important.

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84 Urbanisation in Asia Technocratic solutions to urban management problems often fail because there are few, if any, lines of communication through the electoral system, or other participatory approaches by which beneficiaries can express their views and choices. Decentralisation of responsibilities from central to local levels without decentralisation of resources does not work. Market-oriented public agencies can deliver services effectively, for example where user charges can be introduced, as in water supply (e.g. Indonesia, Thailand). Conversely, private sector delivery of services may not always be efficient. NGOs and CBOs can be effective in the delivery of some services, for example sanitation in Karachi, public health in Calcutta and environmental protection in Manila, particularly where formal distribution mechanisms do not work.

Two important principles stand out: The first principle is to focus assistance activity at the lowest government level capable of implementing and operating the project on a sustainable basis. From this level capacity building activity should be undertaken designed to facilitate efficient and equitable operation and to ease bottlenecks. The second principle is that, within the enabling paradigm, government should focus on a facilitating/regulatory role and avoid an operational role where possible.

6.2.3 Private-Sector Focused Assistance

Two types of activity are important in respect of private sector involvement in urban sector programmes. The first is activity undertaken with the aim of increasing formal or informal private sector business and, hence, employment. The second is activity undertaken with the aim of increasing the efficiency of urban service provision by involving the private sector, either in an operating or operating/finance role. The first type of activity is usually focused on the informal sector. The characteristics of successful projects in this area are (United Nations Industrial Development Organisation (UNIDO), 1991): ensuring competitive supply of inputs; providing basic infrastructure; providing access to marketing, design and packaging expertise; training of purchasing agents; training of staff in business relevant skills (e.g. book keeping); setting up of entrepreneurs club to facilitate deals between enterprises; provision of business advisory services; providing access to credit lines; giving support for ongoing enterprises, especially in sustaining sales and general selling techniques and for the control of finance and cash flows, especially accounting support; providing low cost market research and market planning advisory services;

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providing appropriate repair and maintenance services, especially on-site; establishing trading agencies; and providing technology advice and telecommunication services.

The characteristics of the second type of activities have also been distilled from practice. The rapid growth of cities in the region, requiring unprecedented mobilisation of capital to meet the demand for infrastructure and services and coinciding with an overall scarcity of public funds, is forcing governments to search for alternative financing mechanisms and more efficient management of services from the private sector. However, concerns have been expressed about private sector involvement, partly arising from the public sectors unfamiliarity with the subject. The preoccupation with funding tends to obscure other benefits involving the private sector that flow from operating in a market environment; for example, new technologies and methods of operation in providing a service and better human resource management procedures. To generate trust and confidence between the two sectors, training and capacity building is needed in public/private partnerships for public administrators. The main choices of private sector involvement are contractual (e.g. concessions, leasing, or BOT) or full ownership (ADB, 1996a). The former is usually more appropriate for most services having a monopoly or quasi-monopoly nature. In some cases, the private sector will start its involvement through bulk supply contracts, while in others it will offer a total service with direct customer contact. Good management of private sector involvement requires: creating strong and clear political support for private sector involvement; establishing trust and confidence between the public and private sectors; giving high visibility to success stories; providing institutional training and capacity building in the setting up and regulating of public/private partnerships for public administrators; establishing, in each country, specialist cells with expertise in aspects of public/private partnerships - this will help to promote and establish such partnerships in the cities and in the provision of services in the most appropriate manner; encouraging established international specialist companies to be prepared to transfer technology and expertise to local or regional-based companies; avoiding using companies that have no proven expertise in the particular service under consideration; adopting a legal framework conducive to the creation and implementation of contracts; establishing simple, but effective, regulatory bodies to oversee the creation and operation of partnership arrangements; increasing the public perception of the benefits that derive from good services provided on an economic basis; establishing and defending economic pricing regimes conducive to attracting the private sector;

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86 Urbanisation in Asia strengthening and formalising the processes of planning and coordination to ensure clear and well conceived strategies; and encouraging both the public and private sectors to identify, share, and underwrite risks.

There is legitimate concern that the introduction of a central regulatory framework may create too many restrictions and red tape. However, some central supervision is needed to protect both contracting parties from abuses.

6.3

Delivery Systems Versus Projects

It may be seen that characteristics of a successful project discussed above usually describe processes of development or selection of actors. Projects, being time bound and with specific objectives, are important in the efficiency of an aid delivery system. But it is the effectiveness of the process of aid delivery - poverty alleviation, institutions changed to increase the efficiency and equity of service delivery - which must be the focus of efforts in the urban sector. Projects are important tools used within this process, but should not be its focus. The above sections described characteristics of best practice involving the community, government and the private sector. These characteristics point to ways of assessing projects and programmes as to their sustainability and to ways of measuring performance of delivery. Building on this base, and in order to place these recommendations in the context of Australian expertise in the sector, Chapter Seven will review the current expertise before recommending areas of concentration in the light of the needs established in Chapters One to Six. Chapter Eight will recommend new systems of development assistance delivery which have, as their organising principle, effective institutional and community change in support of poverty alleviation and sustainable development.

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7
7.1

AUSTRALIAN EXPERIENCE AND EXPERTISE IN THE URBAN SECTOR

The Needs of the Asian Urban Sector

7.1.1 Introduction
This chapter commences with a categorisation of the needs of the urban sector in Asia. The second part of the chapter assesses the skills the Australian urban sector has to offer. The discussion below is based on analysis done in terms of export assessment. Given that development assistance should offer the best possible products and services, whether in poverty alleviation activities or in support of systemic improvements, such market testing is reasonable. But, the primary objective of the analysis will be to identify how these skills and products can best be integrated into urban sector aid programmes in support of poverty alleviation and sustainable development.

7.1.2 The Needs of the Urban Sector in Asia and Australian Expertise
The scope and scale of the need for investment in the urban sector was set out in Section 4.2. As a framework for discussing the multiple and varied needs of the urban sector identified in the preceding chapters in relation to established Australian expertise, the McKinsey and Company (1994) study of service sector export potential for AusTrade categorised market opportunities for goods and services under four main headings. These categories serve to summarise the areas of focus for utilising Australian expertise in the urban sector for countries of differing levels of economic development (see Figure 7.1).

Figure 7.1: Framework for Expertise in the Urban Sector

Australia Country income level:

Low Income

Middle Income

High Income

Infrastructure

'Adaptive'

'Advanced'

Tourism

Income group share of world GDP:

4%

17%

79%

(Source: McKinsey and Company, 1994) Ausaid

88 Urbanisation in Asia In relation to Figure 7.1, the expertise categories relevant to support for sustainable development are defined as follows: Infrastructure includes roads, basic telecommunications, water supply, sewerage and power. The preceding review of urbanisation needs has shown that demand for infrastructure is high in low and middle income nations. Involvement in these large projects often requires considerable investment in plant and equipment to deliver the service. Australia has had considerable success in providing services in this area in which construction companies such as Leighton Construction and Lend Lease have been active. Elaborately Transformed Manufactures (ETMs) products also have potential to increase efficiency in this sector. Adaptive Services include services to manufacturing and education. The extensive needs for capacity building in urban service delivery require such services, especially in the context of globalisation pressures and/or processes. Nations with a large and expanding middle class (e.g. Indonesia and India) are developing needs for services which are readily available in more developed countries. Australian domestic services and institutions with capacity in providing these services can readily be adapted to meet such needs. At least partly as a result of the existing aid programme, Australian consultants have a good reputation in Asia, and Australian educational institutions have been successful in exporting educational services in the urban sector. The challenge is to ensure Australian products in these markets move up market in line with the needs and capacities of local organisations. Advanced Services include advanced technology, entertainment, information-based finance and recreation-associated activities. The above review has identified the centrality of financial services for efficient and equitable development of Asian urban areas. In this market, there is a particular premium for excellence and innovation and there is usually considerable competition. While such services cater to urban-based demands, they are not usually specifically urban. Their application, especially in such areas as software and in the sale of ETMs, may be urban, as with traffic management technology for example. Although included as a part of Figure 7.1, the Australian tourism industry is not relevant to our discussion of development assistance focused on sustainable development and poverty alleviation. As one moves along the spectrum of income, there is, of course, less justification for a poverty alleviation-focused development assistance programme. There may be, however, opportunities for cooperating with a higher-income Asian country to assist other countries (so-called third party engagement). Although specific pockets of poverty may persist, any assistance offered to upper-middle-income countries should focus on leveraging community and private sector resources as poverty alleviation activity can only be progressed, in such situations, through improving safety nets and community service obligations of infrastructure providers. The following section explores the scope for such activity.

7.1.3 Partnerships and Investment Needs

According to the ADB president, Mitsuo Sato, in his opening address at the Megacities Management Seminar held in Manila (ADB, 1996a), the growth of Asias cities is associated with enormous infrastructure investment needs which must be met through a combination of cost recovery from consumers and tax-payers as well as funds mobilised in capital markets and the private sector. Sato observed that governments in Asia have almost universally recognised the need to make their cities more productive, efficient and sustainable, and are doing this through various measures. Among these measures, the most significant to private businesses are the development of public-private partnerships and access to the resources of private investors, financial institutions and capital markets. These partnerships directly address issues of sustainable development.

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While the following discussion focuses on private partnerships at a systemic-level, communitylevel partnerships are the other side of the coin in terms of being essential to ensure the poor have access to improved infrastructure and shelter. While Chapter Six reviewed best practice in the area of catalysing community-level partnerships, Chapter Eight will discuss models of delivery using such partnerships. Australian organisations have considerable expertise in this area. However, the focus of community-level partnerships must be activity by national CBOs and NGOs in projects which cut across several sectors. These projects take place in the context of wider sectoral systems which must be efficient and equitable in their operation. Thus it is important to review current issues in respect of sectoral investment in order to provide a context for the use of Australian expertise at this level. Based largely on the analysis of von Einsiedel (1996), some examples of urban investment facilitated by public-private partnerships are set out below.

Land Development, Housing and Urban Renewal

Typically, 80 percent of housing in Asias cities is provided by the private sector, and the majority of this is by individuals rather than corporations. Realising the urgent need to re-focus their housing policies, many Asian countries are adopting enabling policies to support individual households in providing for their own shelter. Of particular interest to private housing developers are measures such as deregulation, changes in credit mechanisms and lowering of housing and sub-division standards to make them more affordable. Implicit in these enabling policies is the encouragement being given by governments to private companies in opening new lands for urban uses, both in the fringes of cities as well as idle or under-utilised sections of downtown areas. In Indonesia, for example, an entire new town is being developed by the Lippo Group in Bekasi, a formerly agricultural town that is now part of the Jakarta EMR or JABOTABEK. This new town, known as Lippo Cikarang, boasts a thriving industrial complex of mostly Japanese and Korean manufacturing companies, housing for its executives and employees, and a huge shopping centre. Although it is not yet fully developed, the town already has a hotel. In the Philippines, 117 hectares of Fort Bonifacio, a military camp next to Manilas Makati financial district, was recently tendered for development by private investors. Such developments require infrastructure, adaptive and advanced services in which Australia has significant expertise (see Section 7.2). In India, people by the tens of millions are moving to the cities to find work and a share in the countrys new-found economic dynamism, resulting in a shortage of nearly 31 million homes in urban areas. In Bombay, the countrys business capital, property values have reached Tokyo levels (Asiaweek, 1995a). The government is trying to relieve the pressure on the commercial property market by developing the International and Business Financial Centre (also called the Bandra-Kurla Complex) on about 200 hectares near the airport. To be finished by the year 2000, it will be a commercial office centre. More offices are also opening up in New Bombay, a burgeoning manufacturing area further inland. While public-private partnerships in this sector, except in the higher-income countries such as Malaysia, will usually not directly address the provision of housing to the lowest income groups, such development is essential to take pressure off general housing costs and limit middle-income groups from coopting lower income accommodation.

Water Supply Development

For Asias cities, one of the most important infrastructure requirements is water supply. Rapid population growth and industrialisation are both exhausting and spoiling Asias water resources. In many cities public utilities cannot treat enough drinking water for residents, and they lose

Ausaid

90 Urbanisation in Asia more than a third of output to inefficiency or theft. With rapidly growing populations, these cities must first improve the treatment and distribution of existing supplies, and then efficiently augment these supplies. With renewed emphasis on managing demand, private sector knowhow from countries such as Australia is often required and sought. For example, the Macao Water Supply Company has been operated by a French-led private sector consortium since 1985 (Far Eastern Economic Review, 1995b). Von Einsiedel (1996) estimates that it will cost at least US$128 billion over the next decade to meet the drinking water and sanitation needs of East Asia. The lack of water in several Asian countries, including Indonesia and the Philippines, is restricting options for economic growth. Particularly for poor city residents, a safe water supply is more critical than electricity, roads or telephones. Within the city of Jakarta itself only 35 percent of total households are served by piped water. Wells and water vendors account for the rest of the supply in the Jakarta EMR or JABOTABEK, where the population of 16 million is projected to grow to 30 million by the year 2015. An estimated 700,000 pumps are depleting the citys aquifers and causing saltwater contamination of the aquifers. Salinisation has now penetrated as far as central Jakartas National Monument, about 3 kilometres inland, rendering wells unusable in the northern suburbs of the city. Expanding the network of water pipes to cover Jakartas municipal area alone would cost US$2 billion at a conservative estimate. Cash-poor government agencies are keen to involve the private sector in new water schemes, but Indonesias cabinet still has to approve a proper framework for their participation. While there are attractive opportunities in the construction of dams, canals and reservoirs, an emerging opportunity for private business is in demand-side solutions which aim to conserve existing water supplies through efficiency, pricing and revised tariffs. In Tianjin, China, authorities devised a new tariff scale for industrial water in which the price escalates with consumption. China is taking steps to bring in foreign water companies to invest in its urban waterworks. Municipalities around the country are discussing ventures with private companies for 20 to 30 year BOT concessions. Similar initiatives are underway in Ho Chi Minh City, Bangkok and Manila.

Differentials in the Cost of Water ( Ratio of Price Charged by Water Vendors to Prices Charged by the Public Utility)
City Abidjan Dhaka Istanbul Kampala Karachi Lagos Lima Lom Nairobi Port-au-Prince Surabaya Tegucigalpa (Source: World Bank, 1988) Price ratio of water from private vendors: public utility 5:1 12:1 to 25:1 10:1 4:1 to 9:1 28:1 to 83:1 4:1 to 10:1 17:1 7:1 to 10:1 7:1 to 11:1 17:1 to 100:1 20:1 to 60:1 16:1 to 34:1

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The danger in such policies is that inequitable outcomes of poorly managed processes will block private investment. The urban poor also need efficient water supplies. The box above indicates the premium they currently pay for water, but defined community service obligations and effective regulation are necessary to ensure they are not disadvantaged under private sector provision.

Transport Systems
Asian cities are creating or extending their mass transit systems as the backbone of transportation through the city. These are being undertaken largely through new forms of public-private partnerships such as BOT schemes mentioned earlier. In Bangkok, for example, three mass transit lines are currently under construction: 1) the 21 kilometre underground system of the Metropolitan Rapid Transit Authority; 2) the 23.7 kilometre elevated train of the Bangkok Metropolitan Administration; and 3) the 60 kilometre elevated road and rail system of the State Railways of Thailand. Foreign investors involved in these projects include those from Hong Kong, Germany and Italy. In Manila, the Light Rail Transit line 3 (LRT 3) has been approved after several years delay. The elevated system is being built by a consortium of Filipino and European companies within the framework of the Philippines BOT law. It will augment the existing 15 kilometre LRT 1 and the still-pending LRT 2. In Manilas Makati financial district, and also in Quezon City, (Metro Manilas largest city in terms of land area), the municipal governments are planning their own mass transit systems which will connect to the LRT 3. In 1995, Jakarta administrators signed a memorandum of understanding with a consortium of European, Japanese and Indonesian companies for a US$1.3 billion subway system. The contract covers the first 14.5 kilometre stage of what Jakarta planners say will eventually be an enormous network spanning 250 kilometres (Asiaweek, 1995b). Expected to be finished in 2001, the subway is one of several massive transport projects destined to change forever the face of Jakarta. Among them is a two-tier overhead railway and toll road, running north-south through the city, with the toll road on top and the light rail system suspended on tracks below. In Hanoi, the Transportation Ministry plans to start building a US$839 million network of elevated trains to help ease the capitals chronic traffic problems. The first section of tracks in a planned 35 kilometre system will cost US$464 million, with much of the money expected to come from the German Government. The elevated train system, to be completed by the end of the decade, will transport as many as 60,000 passengers an hour (New Straits Times, 1995). At the same time, Vietnam is slowly modernising its colonial era railroads, replacing steam locomotives with diesel engines and adding new rolling stock and tracks. Again, the issue of access to public transport is an important one for the poor. Involving the private sector requires effective institutional arrangements for regulation and particularly monitoring of community service obligations. In addition, large scale compulsory purchase for Rights of Way (RoW) and subsequent relocations must be managed sensitively and equitably.

Environmental Management
Large cities concentrate air, water and ground pollution resulting from high densities of people, vehicles and businesses. This pollution constitutes serious threats to health. Risks of epidemics originating from slums may spread throughout the city, affecting all income groups. Urban expansion across administrative areas makes effective regulation difficult. The characteristics of large cities, however, also present environmental management opportunities. High residential densities allow the cost-effective installation of environmental infrastructure. The relatively higher levels of income among residents mean that some pollution control measures and environmental services can be afforded. Environmental education and public awareness campaigns are more effective because of higher levels of literacy and easier communications.

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92 Urbanisation in Asia In Asias cities the most significant environmental concerns are urban waste pollution, water pollution, and urban and household air pollution - collectively referred to as the brown agenda. The need for major investments to address this agenda is taking place against a backdrop of policy trends towards local capacity building and privatisation. With widespread public concern over the environment manifest in many Asian countries, governments are being pressured to enforce existing laws, as well as allowing local communities to manage their own environmental problems. In Indonesia new regulations that set standards for storage, collection and transport of hazardous waste coincided with the May 1994 opening of the countrys first hazardous and toxic waste disposal facility in West Java (Far Eastern Economic Review, 1994). The plant is owned by US-based Waste Management Inc. and an Indonesian company. At least three more toxic waste facilities are slated for construction elsewhere in the archipelago. Indonesia has been pressing ahead for the past four years with the cleansing of 24 of the countrys most polluted rivers. The government is making funds available for small to medium-sized industries to purchase pollution-abatement equipment. To help administer the fund, the government has enlisted the help of the American consulting firm Labat-Anderson Inc. In the case of Malaysia, privatisation of environmental services is also occurring. Early in 1994, a US$245 billion project was awarded to a consortium of companies to build, operate and maintain a national sewerage system. A private company will also be operating the nations first toxic waste treatment plant in central Negeri Sembilan state, just outside Kuala Lumpur. The company, Kualiti Alam, is using Danish technology and includes among its shareholders United Engineers Malaysia with a 50 percent stake, the Arab-Malaysian Development Bank with 20 percent and three Danish firms, Kruger Engineering, Chemcontrol and Enviroplan, which collectively hold 30 percent (Far Eastern Economic Review, 1995a). In the field of solid waste management, many Asian city governments have been contracting out collection services to private companies. Disposal facilities, which are often open dumps, are still largely government managed. There is, however, increasing interest in privatising these, as many Asian cities are becoming aware of successful privately operated disposal facilities in other cities. A popular example being visited by government waste managers is Hong Kongs network of sanitary landfills. In February this year, the South East New Territories landfill was opened, at a cost of US$453 million. The project was designed, built and operated by Green Valley Landfill, a joint venture of London-based Waste Management International (50 percent share), Citic Pacific (30 percent) and Sun Hung Kai Properties (20 percent). Asian city managers are beginning to learn more about proper solid waste disposal, both in terms of technology and of the mechanics of private sector financing and operations. Given that the poor are the most vulnerable to health and safety risks resulting from poor environmental management, such initiatives are welcome. This is especially the case as costs are usually recovered from formal sector organisations. However, careful management of such programmes is required. Large scale private investment can displace informal employment (albeit dangerous and low status employment such as waste pickers). It is the role of government to alleviate the impact of such transitions.

The Service Sector

Increasingly, Asians are realising that manufacturing strength alone will not be sufficient to sustain their next generation of economic growth. In Asias urban centres, low-paying low-skill jobs are usually found in manufacturing. Over the past decade, as Asian countries became richer, the proportion of their economies devoted to services has risen. The richest Asian countries are now those with the biggest service sectors as indicated in Figure 7.2.

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Figure 7.2: Service Sector Output as a Percentage of GDP

Hong Kong Singapore Thailand Taiwan. South Korea Malaysia Philippines Indonesia India China 0 10 20 30 40 50 60 70 80

percentage of GDP 1992 (1991 for Taiwan & Malaysia) (Source: Lynch, 1995) 1980

Many manufacturing jobs have moved from the richer Asian countries to their poorer neighbours. For example, in 1980 there were 1.5 million manufacturing workers in the Kowloon area of Hong Kong. Today there are only 615,000 in the whole colony, although Hong Kong firms employ 6 million people in China. Hong Kong is now a city devoted to service industries such as finance, marketing and design. The lesson for development assistance is that poverty alleviation activity need not focus exclusively on manufacturing skills. Services to service industries - witness the photocopy shops serving Yogyakarta students - can be viable enterprises. In this process, the formal foreign and local private sector, open to out sourcing, may be an effective partner of community-based informal enterprises.

7.1.4 The Major Risks Involved

The opportunities for public-private partnerships in Asia are obviously not without risks. There are existing constraints to pursuing these partnerships across all the areas of opportunities mentioned earlier. There are also constraints that are sector-specific. Among the constraints that impact across all sectors, the two major ones are: changes in government policy; and weak public administration and management capacities (including red tape).

Government policies on private sector involvement are evolving in many Asian countries. Hong Kong investors in China, for example, caution against Chinas unsophisticated and frequently

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94 Urbanisation in Asia changing rules. The recent experience of Enron in India is a cautionary example of what may happen when government changes. A World Bank (1995) report presented at the APEC meeting in Osaka cites several instances when project costs trebled because authorities changed their minds about what they wanted. Often, these changes are triggered by serious political issues, such as loss of jobs and higher utility charges under privatisation. Public support for new private sector involvement is still fragile. Most of Asian developing countries capacity to deal with urban issues is being outstripped by the rate and complexity of their urban growth. Addressing these challenges requires policy change and upgrading of capacity and practices, especially in administering private sector and community involvement. The existing weaknesses are not limited to just individual competencies and skills in management, finance and technology, they also include organisational effectiveness and inter-agency relationships. Many Asian countries have started to recognise these deficiencies and some have recently launched capacity building programmes, often with the assistance of external organisations such as the UNDP/UNCHS/World Bank UMP. The Philippines has established the Local Government Academy to train local government officials in modern public administration and management, including how to deal with private sector involvement in municipal development. Indonesia recently launched an Urban Management Training Programme (UMTP) designed to modernise management practices in its cities. India is about to embark on a Decentralised Training Programme (DTP) for urban local authorities. Its National Institute of Urban Affairs, with the support of USAID, is currently developing guidelines for private sector involvement in financing urban infrastructure.

7.2

Australian Strengths and Opportunities in the Urban Sector

7.2.1 Sector and Product

Thus, the pursuit of sustainable development by Asian governments (differing though the interpretation of this concept will be) will require private sector expertise and finance. The above discussion also argues that, in order to encourage such private sector participation, government enabling and regulatory institutions need to be strengthened. Given the high quality and competitive pricing of manufactured goods from other Asian countries and the fact that urban sector investment is mostly private sector, inputs required from Australia will be predominantly services or ETMs. The discussion below sets out the areas of expertise relevant to the opportunities identified above. The following analysis was compiled substantially from three reports by Commonwealth Department of Health, Housing, Local Government and Community Services (DHARD) completed in 1993 focusing on the potential for export in the urban sector. The sections of the reports relevant to support to sustainable development and poverty alleviation are discussed, with a view to identifying these Australian skills and products which could be integrated into the aid programme. Australia has some of the worlds best housing, one of the worlds more efficient urban development sectors, as well as some of the best developed housing policies, institutions and codes of practice. The nations research, design, consultancy and planning skills are world class, as are our skills in training tradespeople and in information technology. All of the services and products associated with the urban sector will, in the context of the above discussion, be required in the pursuit of sustainable development in Asian cities. The urban development sector brings together enterprises that provide: urban development services such as planning, design, building codes, environmental planning and management, real estate and related legal services;
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integrated housing and urban development and infrastructure provision and management; building materials and pre-fabricated components; education and training; and financing and management of housing and infrastructure, particularly public-private partnerships. The organisations in the Australian urban development sector are diverse in their size, structures and skills. This sector has an annual turnover of around A$45 billion. Together, the residential and non-residential sectors account for 8.4 percent of GDP at factor cost, a figure larger than the mining and agricultural industries combined. The residential building industry alone consists of about 15,700 house-building firms, supported by about 70,000 special trade firms undertaking contractor/subcontract work. There are some 15,400 proprietors and partners and about 90,000 subcontractors. In contrast, the building materials and products industry, for example, is dominated by six companies which account for 80 percent of the Australian market and have extensive export experience. In addition, however, there are many small enterprises providing a variety of products with export potential. A further element of the sector is the range of government and semi-government bodies involved in urban development across the fields of planning, regulation and infrastructure provision. The products and skills of these organisations can provide essential support to developing countries in pursuit of sustainable development, although the private sector needs to be able to work together with Commonwealth and State Government agencies to provide a variety of linked products and services. These range from land titling and building code expertise, through to sector-specific training and real estate marketing. Due to Australias relative isolation, spread of population, climatic range and diversity, a number of innovative, integrated and flexible solutions have been devised to address Australian urban development problems. Some of these solutions are readily adaptable to overseas conditions and the following section describes some such goods and services.

7.2.2 Competitive Goods and Services in the Urban Sector

A National Institute of Economic and Industry Research (NIEIR, 1994) study, Product and Service Potential: Australian Urban Exports, selected 10 products and services for detailed examination. The products selected were plaster board, sawn timber, clay bricks, modular systems, solar systems, architectural services, residential building contractors, land title systems, rental management systems and building trade training. Both the capacity and the ability of these industries to expand was examined. The NIEIR report concluded that each product category has some potential to contribute to Australias export performance, although markets varied greatly between countries and the method of market penetration varied greatly among products (bricks, for example, are rarely exported as such, but brick-making technology and skills can be). The potential net export gain is in the order of more than A$1 billion a year. By the turn of the century, this can add A$1.7 billion to GDP and create an additional 22,000 jobs each year. Given that this assessment was based on commercial potential, it may be assumed that use of such skills and products in the aid programme will provide effective assistance to recipient countries if such inputs are well managed.

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96 Urbanisation in Asia However, the characteristics which make the sector so efficient within Australia (e.g. the large number of small firms competing against one another, and the relatively low level of capital required to enter the industry) can, however, impede the sector in participating in such programmes. Low profit margins mean there are few resources available for developing and refining products tailored to relevant markets, and linkages important in Australia can be difficult to maintain overseas. For example, linkages between architects and construction firms; between construction firms and other service and product supplies; and between urban planners and designers, could result in the more effective use of Australian technology and innovation. The Commonwealth Scientific and Industrial Research Organisation report (CSIRO, 1994) The Current Situation: Australian Urban Exports assesses the situation with regard to exports of products and services, and provides a valuable source of information on the export of urban development products from Australia. It documents the main companies involved in exporting, their characteristics and the main export markets. CSIRO compared Australias export performance with that of other countries and examined government assistance to exporters in the sector. The report takes a variety of urban development products and services and makes an assessment of the relative attractiveness of various markets for the product. Markets assessed included Vietnam, China, Indonesia, Thailand, Malaysia, Korea, Taiwan, Singapore, Hong Kong and Japan. Detailed market profiles for each country are provided, with a focus on likely market opportunities for exports from the Australian urban development sector. The report assesses products and services in which Australia has a competitive advantage and identifies where Australian legal, regulatory, planning, financial and social service systems could be applied, and the implications of this for export from the urban development sector. The report focuses on the physical/building product and consultancy areas and outlines the competitive advantages for these areas as: the leading building products manufacturing industry in design and quality in the AsiaPacific region, with under-utilised and technologically advanced plants; high skills in design and consulting, engineering and construction, and in some building technology areas, including fire research, facade engineering, building codes and information systems; and a world-leading record of public-private cooperation in innovative housing and infrastructure programmes backed by quality social, financial and technical capacity.

However several challenges for the sector were identified: a lack of international expertise on the part of managers and a low level of appreciation of international opportunities; as discussed above, non-uniformity of building standards and poorly developed codes in Asia requiring modification of products and methods; and lack of cooperation among Australian firms leading to limited integrated materials, technology and management packages supported by governments.

Any aid programme utilising quality expertise or technology also needs to be designed to allow for such organisational limitations. Another study by Maxwell and Druce International (DHARD, 1993), assessed the relative attractiveness of different markets for various Australian products and services. Key opportunities in developing countries were found in the following areas.

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Regulatory and finance: Project management: Environment management: Maintenance: Design, research and development: Ownership and land title: Policy and institutional:

Indonesia Thailand and Indonesia Malaysia and Korea Malaysia Indonesia Vietnam Vietnam

A particular opportunity identified throughout the Asia-Pacific region, especially in the less developed and emerging economies, is the requirement for training. This study reached similar conclusions as the CSIRO (1994) research about the strengths and weaknesses of Australian companies. Australia has 18 known groups which coordinate export activity in particular industries including, the Construction Export Group, the Accountancy Market Access Committee and the Airport Services Group. Experience indicates that, as well as government involvement, there needs to be strong private sector participation for such groups to succeed. Strategies for the most effective use of Australian expertise in the urban sector need to be formulated for specific countries in consultation with such coordinating groups and with companies in the sector, both overseas (standing alone, joint venturing or in a strategic alliance) and in Australia. However, some generalisations can be made in the context of the discussions on best practice in Chapter Six. Australian expertise can deliver the NGO expertise at the community-level. Australian consultants, NGOs and government agencies are practiced at involving communities while delivering quality technical input. The Australian private sector developers and service companies are capable of advising on, operating and financing the range of urban sector services. The same range of institutions are practiced in public-private partnership projects.

7.2.3 Experience in Support to Private Sector Participation in Development Assistance

The urban sector has been a large user of DIFF facilities. In 1993, for example, the two largest users of these facilities were construction companies (AIDAB, 1994b) administered by Austrade. These companies, together with consultants, are also large users of Export Market Development Grants. Of interest in this document are arguments concerning DIFF, as this programme was a specific component of the aid programme and thus justified, in the first instance, in terms of the developmental impact. The following is taken from a discussion on the benefits and drawbacks of the DIFF scheme reviewed (AIDAB, 1992). From AusAIDs point of view, arrangements which help promote the supply of capital goods to developing countries are potentially a useful form of development assistance, because such goods are used for investment rather than for consumption purposes. There is a good deal to be said for supporting forms of assistance which are likely to be self-targeting on investment activities. Another advantage of the system from AusAIDs point of view is that development assistance funds are stretched (that is, effectively increased in volume) in several ways. First, financial stretching takes place when aid funds are combined with loan funds to provide a loan substantially larger (typically around three times larger) than the development assistance grant alone. Second, budget stretching may take place because the credits are tied to procurement in Australia which may, in turn, bolster public support for the development assistance budget. The recent report of the Committee to Review the Australian Overseas Program (Simons et al, 1997) does not accept either of these justifications however.

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98 Urbanisation in Asia Export interests in both the public and private sectors see a promising market for Australian exports in developing countries, particularly in Asia. Furthermore, DIFF-financed exports often have certain characteristics which make them of particular interest to officials in both industrialised countries (in export finance and aid agencies) and developing countries (in many operational government departments). The capital goods purchased using DIFF are frequently characterised by large and intermittent orders, the requirement for a substantial degree of subcontracting, significant bidding costs and the importance of reputation and goodwill in winning orders. Government-sponsored subsidised credits reduce the cost of project identification and bidding, enhance the reputation of the seller and increase the goodwill of buyers. For these reasons, a coalition of people who may be loosely termed export interests in Australia argue in favour of such schemes. Furthermore, they can usually point to senior government officials in recipient countries who are eager to purchase Australian capital goods, provided mixed credits are available to support the purchase. Economic advisers in such bodies as the Treasury and the Industry Commission, as well as other economic commentators (e.g. academics), are inclined to take the view that mixed credits (e.g. DIFFs) are an inequitable form of industry subsidy which favours the capital goods sector. In this they are correct, but this does not mean that government policy may not choose to foster success in industries which are seen to be strategically important. NGOs have been negative about the use of mixed credits by Australia. However, the stance of some NGOs has softened given AusAIDs more targeted use of such credits, particularly in environmental infrastructure projects - projects which, if implemented by the governments concerned with their own resources, would have been unlikely to have incorporated the environmental components if mixed credit was not used. Traditionally, NGOs are in favour of smaller scale, grass-roots forms of development assistance. Their representatives have frequently criticised large scale projects. Many members of NGOs are also extremely wary of the consequences of a commercialisation of development assistance programmes, and indeed do not accept that policy shifts towards pro-market policies in developing countries are necessarily a good thing at all. In short, NGOs incline towards the view that a greater reliance on such channels as mixed credits will be at the cost of aid quality - in particular, in respect of poverty alleviation. In terms of the above review of the situation in Asia, it is apparent that both camps are misguided. DIFF was an appropriate instrument to procure large scale capital projects awarded by governments. Such projects, especially in the urban sector, are increasingly rare. Large scale infrastructure provision is being privatised and to address such markets new institutional mechanisms both for management of this activity and for aid delivery are needed. Examples of such mechanisms will be discussed in the following chapter. In respect of the criticism regarding commercialisation of aid leading to poor quality aid, the above analysis shows this to be incorrect providing such aid is focused on leveraging efficient investment or inputs to productive activity from the local or international private sector. Poverty-focused projects must go hand-in-hand with systemic-level projects which provide efficient and accessible social and physical infrastructure to support economic development generally.

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7.2.4 Lessons Learned in Applying Australian Skills

The relationship among Australian public and private agencies (including NGOs) and their Asian counterparts varies along a spectrum between direct fully aid-funded project (public to public) and fully commercial activity (private to private). The above discussion 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 for sustainable development; finance and management of housing and infrastructure provision; education and training; and certain products, especially ETMs and specialist information technology products,

have been identified as having great potential. The key characteristic of such services and products is that they are developed within a framework of public-private relationships (typically government regulatory agencies, government or private operating company and consultants) which enable complementary services, products and systems to be developed. These are precisely the types of services and products needed in the new partnerships discussed in Section 7.1.3. Traditional support to the commercially-oriented private sector in development assistance, such as DIFF, has not enabled such frameworks to be established or to be built on existing frameworks by Australian companies. This limits the effectiveness of utilisation of Australian skills and expertise both at the community-level and in the larger investments required to deliver city-wide/regional (systemic) services. The following chapter proposes new models for delivery systems which will increase that effectiveness. Such systems must recognise one of the key lessons of the above analysis - that the skills and products, which may be appropriate for use in one country, will not necessarily be appropriate for use in another. Flexibility is therefore required in the design of delivery systems for Australian aid, taking into account the strengths and limitations of Australian organisations where they are involved in the delivery system, specially facilitating knowledge about, and access to, participation in the aid programme and resulting commercial opportunities.

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8
8.1

MAJOR OUTCOMES OF THE RESEARCH

Central Issues of the Analysis
In the pursuit of lessons to guide the design of more effective delivery systems for development assistance, there are three central themes which have emerged through the analysis of the city case studies and best practice. These are: the complexity of urban issues in the context of global economic changes requires that, for effective and sustainable service delivery, capacity must be built in government, community and the private sectors; poverty alleviation activity is focused at the community-level with NGOs and CBOs being effective agents for community capacity building if projects and programmes are designed to maximise this effectiveness; and poverty alleviation activity at community-level must be supported by sustainable, efficient and equitable investments at city-wide/regional (systemic) level, requiring building of both government capacity for coordination and market regulation (in such areas as community service obligations) and private sector capacity for management and finance.

In the rapidly evolving economic and social context of Asian urban areas, neither top-down nor bottom up approaches are appropriate for planning and implementation of service delivery. Partnerships among NGOs/CBOs, local and higher levels of government, and the formal and informal private sector need to be constituted as appropriate to meet community or city-wide/regional needs. It has been demonstrated that, given a base of world-class expertise, Australian organisations were experienced in, and able to facilitate such partnerships. Many detailed lessons of best practice have been discussed, but one key element, which recurs in many instances of best practice at both community and systemic levels, is the need for a longterm orientation in the design of project delivery mechanisms, given the difficulty in changing institutional and community behaviour. So in this context, the central question for the analysis is: How to foster best practice in service delivery? It is proposed that three major types of support are appropriate given the variety of circumstances met in Asian urban areas. These are: long-term programmes focused on building the capacity of local NGOs/CBOs at community-level and assisting local NGOs in the scaling up process; long-term programmes focused on assisting governments to manage the urban system and to link more effectively with NGOs/CBOs on the one hand and to structure markets for efficient and equitable public and/or private sector investment in service delivery on the other; and short or long-term programmes focused on service delivery at the city-wide/regional level in circumstances where the private-public partnerships are the most appropriate method of delivery.

The mix of these programmes utilised in a particular country should be determined by an explicit review of country circumstances in the urban sector, focusing on the need for urban poverty alleviation and sustainable development.

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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

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102 Urbanisation in Asia 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

Multilateral or bilateral agency

Technical assistance and capital funding

Consultants

Aust NGO

Local Apex

Partner organisations

Community-based NGO(s) or CBO(s)

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: NGO-based community partnership projects should be formulated as part of an overall urban sector strategy. 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 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: impart best practice in sustainable development of the investments for which the partner institution has responsibility; and facilitate the NGO/CBO linkages to the private sector and to government.

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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

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 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. 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.
(Source: UNCHS, 1996)

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: 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 longAusaid

Urbanisation in Asia 105

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

Multilateral or bilateral agency

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

Multilateral or bilateral agency

Technical assistance and capital funding

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).

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106 Urbanisation in Asia 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. In particular, the objectives of such projects 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 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

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 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 (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.
(Source: World Bank, 1996b)

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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 process of competitive bidding for a concession agreement which would involve 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

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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.

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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. From analysis of the lessons learnt, there are two key streams of potential activities in support of the private sector : support to micro-enterprise development; and support to the sustainable private provision of urban infrastructure (to which the poor have 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:

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110 Urbanisation in Asia 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. An example of such credit enhancement by the ADB in Pakistan is described below. 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 (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.

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Figure 8.5: Project Funding Opportunities

Multilateral and/or bilateral agency*

Credit enhancement

Finance of principals Banks Funds etc Financial institutions Project finance: - recourse & non-recourse* Partner organisations

equity (& loan) Project implementation organisation*

Finance of SPV3

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-OperateLease, 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.

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112 Urbanisation in Asia 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: 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 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

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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 community development. 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.
(Source: Together Foundation and UNCHS, 1996)

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)

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114 Urbanisation in Asia 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: (US$ million) Foreign currency Local currency Total Tentative Sources of Funds: (US$ million) Equity: ADB 5.30 Sponsors ADB Loan Co-financing: Complementary Financing Scheme Loan (Parallel Loan) Export Dev. Corp. of Canada Total
(Source: ADB, 1996c)

146.00 24.00 170.00

37.20 32.00

42.50

60.50 35.00 170.00

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:

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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 implementationfocused, 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.

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8.6

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 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. Based on the Lessons Learnt Database, a learning system for best practice in the urban sector in AusAID should be established. 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 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.

Recommendation Three:

Recommendation Four:

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.
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