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Urban Development

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Background

With an average growth rate of 2.1% per annum from 1990-2003, the Middle East North Africa (MENA) Region has one of the world’s most rapidly expanding populations.  Urban areas have been the primary locus of this growth, as urban share of total population grew from 48% in 1980 to close to 60% in 2000, and it is expected to exceed 70% by 2015 (against an average of 54% for all developing countries).  Indeed, the region’s average annual urban growth rate of 4% in the past two decades is exceeded only by Sub-Saharan Africa, which is far less urbanized.

There is an increased trend towards decentralization in MENA – Yemen, Morocco, Jordan, Lebanon are some of the more recent examples.  Generally, however, MENA is behind other regions where MICs are prominently represented, and reforms have been confined mainly to administrative and some political decentralization.  As one example, Yemen held its first election of local councils in 2000, and expanded this to include Governors who oversee development programs in the Republic’s 21 Provinces.  However, most devolution of authority has been in the form of deconcentration of central agencies at the local level.  This has resulted in a modest increase in the autonomy of local government in planning and decision-making as well as in urban management and service delivery.   City development strategies have been successfully formulated with City Alliance funding and Bank technical assistance assistance and are now under implementation in Jordan, Egypt, Yemen, and Lebanon, and cities in Tunisia and Morocco are planning to launch participatory strategic planning efforts shortly.  There is also growing demand for enhanced accountability and transparency, and accelerated fiscal decentralization.  This is critical to help meet the growing pressures for improved urban infrastructure and services, which requires increased financing and improved delivery mechanisms closer to the end-user.

The demographic and labor force challenges in the region also represent an opportunity.  Enabling the creation of productive employment for the working-age population — building on the large share of the region’s population that is young and relatively well educated, and the potential for much increased female labor force participation — could potentially boost gross domestic product (GDP) growth. Such potential for growth puts an increased onus on the region’s cities and towns.

The region is also endowed with an extraordinary cultural heritage of great significance for the countries and humanity at large, including 76 sites on the United Nations Educational, Scientific and Cultural Organization (UNESCO’s) World Heritage List (19 of which are cities or urban districts).   Cultural heritage initiatives seek to promote the cultural identity of cities and places, while at the same time maximizing the potential high value cultural tourism to generate economic growth and job creation.  Building on such unique assets to enhance city competitiveness would significantly contribute to economic growth and job creation. Two such projects are under implementation in Jordan and Lebanon, and the prospects for expanding to Morocco are encouraging.

Key Issues in the Sector

Poor economic performance in the region: Rapid population growth and urbanization are occurring in a context of poor economic performance in the region (average growth per capita was 0.9% in 1985-2000).  Although growth recovered since 2000 – largely due to exogenous factors such as the sharp rise in oil prices – MENA economies on the whole are highly non-diversified (non-oil exports account for a mere 6% of total exports), subject to a sensitive geo-political context (Israeli-Palestinian conflict, Lebanon War, political tensions with Iran, the Iraq War), and characterized by increasing regional political instability and insecurity.  High unemployment (conservatively estimated at 15%) is one of the region’s most critical problems, especially among youth.  As many as five million jobs per year are needed to absorb new entrants to the job market, and this figure would need to be increased to accommodate any growth in female labor force participation (currently the lowest of all regions at 29%).  Most of these new jobs will need to be created in cities where the bulk of economic productivity is already taking place.

Slow implementation of economic policy and governance reforms: MENA countries are overall lagging behind in implementing needed economic policy and governance reforms, which are critical to improve the investment climate and address the inefficiencies caused by a large and inefficient public sector, and an embryonic and relatively non-dynamic private sector.   Progress in decentralization has overall been limited.   In Tunisia and Jordan, local government expenditures as a share of total government expenditures are 3.1% and 5.5%, respectively. The limited fiscal transfers and human resources at hand, and the limited financial and political autonomy severely impede local government capacity to finance, deliver and manage urban services.

Growing urbanization of poverty:  Although largely a middle-income region, poverty and vulnerability are affecting a large and growing proportion of MENA’s population.  In 2001, 23.2% of the population lived on less than $2 per day.  The 1990s witnessed 20 million more persons living on less than $2 per day despite higher growth than the previous decade, which saw a reduction in poverty.  Such increasing vulnerability of the population is alarming in a region that is witnessing frequent conflicts and natural disasters, and which suffers from major natural resource constraints, especially water supply.  The “urbanization of poverty” accompanying the region’s rapid urbanization is also adding enormous pressures on cities to deliver infrastructure, services, housing and jobs to meet the growing demands and needs of the urban poor.

Lack of secure property rights:  The overall lack of secure property rights, particularly concerning land and real estate, and difficulties in accessing land have been identified by firms in most MENA countries as a constraint to investment (Egypt, Morocco, Yemen, and Syria).   The lack of secure property rights severely hinders the ability to use land and real estate as collateral to access finance, which in large part explains why housing mortgage finance markets in the region remain undeveloped (Jordan and Tunisia are exceptions).

Proliferation of slums and informal settlements:  The high cost of land and poor public land management, coupled with the high price of housing available in the formal sector, has contributed to the proliferation of slums and informal/squatter settlements in cities throughout the region.  Over 50% of Egypt’s urban population lives in such conditions of limited, if any, tenure security and poor access to basic infrastructure services.  Amman stands out as one example of a city that is taking a proactive approach and recently received a World Leadership Award (2007) in the planning division for its visionary master plan.

World Bank Recommendations

MENA’s regional urban strategy focuses on creating livable cities that are able to fully tap their productive potential and deliver on their promise of development for all residents.   This requires that cities be efficiently managed, economically competitive and financially viable.  And while cities are in an increasingly important position to maintain social cohesion and drive productivity within countries, most still need to catch up with infrastructure and housing deficiencies and take needed steps toward sustainable urban management. To bring better quality of life, social equity, and in particular services to the poor, it is crucial to improve the overall regulatory environment for urban and housing development (infrastructure and housing delivery, preservation of key heritage sites), management of cities (capacity building of municipal governments and strengthening their fiscal base), and access to capital markets (housing and municipal finance).

The four strategic areas of focus for urban development in the MENA region are:

Improving decentralization and service delivery:  Providing policy guidance and building local government management capacity to further decentralization, strengthening municipal financing of basic urban service delivery, improving asset management and maintenance, expanding the involvement of the private sector in public-private partnership (PPP) arrangements, and responding to population pressures by financing needed infrastructure and urban services, are all central to this area of focus.  With the recent addition of the solid waste portfolio to the region’s urban and unit, the Urban Team is now positioned to respond to one of the most important functional areas of local governments.  A new $25 million loan to the city of Amman with sovereign guarantee for a Solid Waste Project is expected to be delivered this year.  The global carbon finance facility is making loans directly to cities more attractive given the potential to reduce carbon emissions and secure carbon credits, as in the case of the Amman Project.  Complementary solid waste project components are also envisaged in Yemen and Syria, and the first sector Development Policy Loan in the Solid Waste sector is now under preparation in Morocco and likely to be delivered this fiscal year. 

Strengthening local economic development: Assisting cities to respond to competitiveness pressures by enabling the participatory formulation of city development strategies (CDS), helping to improve strategic, physical and investment planning capacity, streamlining administrative procedures and creating an attractive local business environment are all critical measures needed to attract private investment, create jobs and contribute to growth and poverty reduction.  Such upfront strategy and local economic development work is being carried out in Yemen (through the Port Cities Development Program), and in Lebanon, with likely expansion to Tunisia, Morocco, and Jordan.  Cities that are well endowed with Cultural Heritage assets are also positioning themselves to take advantage of the Bank’s technical assistance and financial support, including Morocco (based on recent AAA work – Investment Strategies in Historic Cities), with second generation Cultural Heritage & Tourism Development Projects under implementation in Jordan and Lebanon.

Development of efficient housing and land markets:  This strategic area provides assistance to national and local governments in formulating sound housing policies and programs intended to provide adequate shelter for all, based on stronger property rights, improving access to mortgage finance, rationalizing housing subsidies, and providing infrastructure for residential land development.  In addition, policy guidance is provided for the development of efficient urban land markets through enhancing registration of land and property rights, reducing transaction costs and regulatory obstacles to access and develop land, putting in place transparent and efficient public land management and disposition procedures, as well as efficient property taxation systems.  A recently completed Housing Sector Review (FY08 AAA) has had important effect in reforming housing policies and programs in Egypt.

Providing effective emergency assistance: Developing rapid and responsive interventions in post-conflict (West Bank and Gaza, Iraq) and natural disaster situations (earthquakes in Iran, floods in Algeria and Djibouti) is critical to enable cities and countries to rebuild destroyed economic and social infrastructure assets, and resume the path of growth and poverty reduction.  More recently, MENA’s urban unit has launched a disaster mitigation program that is gaining increasing interest from client countries interested in preparing and reducing vulnerability to natural disasters.

World Bank Lending/AAA Activities

Lending: After a period of modest activity between 1998 and 2002, International Development Association/International Bank for Reconstruction and Development (IDA/IBRD) lending activities rapidly grew both in volume and in number of projects.  Currently, the portfolio is comprised of 16 projects (about 14 projects closed between FY02 and FY06) with a total portfolio value of about US$950 million. Strong potential exists in the countries where the needs and potential impacts are large, e.g. Egypt, Iraq (reconstruction); and where there is some progress on sectoral reforms such as in decentralization, local economic development, and housing (e.g. Jordan, Morocco, Yemen).  Looking ahead, a total of at least 4 new projects are expected to be delivered in FY09.  Average loan size, however, remains low, and efforts in the coming years will be to focus on scaling up both lending and project impacts.  In FY09 for example, the Urban Unit expects to deliver the first Development Policy Loan (DPL) in the solid waste sector.  DPLs represent a growing trend in the region and are attractive when sound policy dialogue has been established with the client upstream.  Other FY09-10 investments include a second phase of the Yemen Port Cities Adaptable Program Loan (APL), scaling up from a Land Administration Learning and Innovation Lending (LIL) in West Bank and Gaza to a full-scale investment project, and a Solid Waste Management Project in the Southern West Bank.

 

FY07

FY08

FY09

Number of New Operations

3

4

4

Amount of New Operations

$88.0 Million

$148.0 Million

$120.0 Million

Number of ESW / AAA

6

4

 

Analytical and Advisory Activities (AAA): Updating and renewing the knowledge base with quality sector work and targeted support will continue to drive the urban policy guidance and reform agenda relating to (i) land management and housing finance; (ii) municipal development, local finance and asset management; and (iii) local economic development.  A further aim is to sustain policy dialogue through strategic economic and sector work (ESW) and establishing an analytical basis for action with support from Cities Alliance funding in countries or cities with no actual lending engagement, but where future operations are envisaged.

All dollar figures are in US dollar equivalents. September 2008

For more information, please contact:
In Washington: Najat Yamouri, nyamouri@worldbank.org 




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