Urbanization, Opportunity, and Development

Urban centers now account for more than half of the human population, marking the first time in history that rural population is in the minority. The absolute figures are astonishing: 3.7 billion people now live in cities, and this will double by 2050. Even more dramatic is the extent to which this urbanization is centered in the developing world, where nearly 99 percent of urbanization between now and 2050 will take place. This accelerated shift towards urban life has profound implications for energy consumption, food security, politics, and human progress. While some of this change will be positive, the conditions in a number of fast growing cities highlight the potential for destabilization and dislocation.

The urbanization phenomenon demands forward leaning and integrated engagement from a cross section of stakeholders—including donors, national and municipal governments, citizen groups and the private sector—as both a policy and business priority. Mismanaged or unaddressed, massive urban growth in the developing world can serve to create hotbeds of extreme poverty, disease, and radical violence. Conversely, coordinated urban development and policy can capture population growth to drive economic and social dynamism, market creation, human development and climate change adaptation.

Growing urban centers, especially in the developing world, will require visionary leadership with the ability to adapt to change, skilled management, new sources of funding and financing for infrastructure and services, strong governance, and long term investment in basic services such as healthcare and education. Given its potential to either drive or disrupt progress on economic development and security, policy makers and business leaders need to understand and engage in this urbanization phenomenon. Donor agencies have a significant role supporting these improvements in urban management, governance, rule of law, investment climates, and basic infrastructure.

A New Form of Urbanization

The urban movement occurring now and through 2050 is radically different from previous urbanization eras. What is new is the rapid acceleration of urbanization, especially in developing countries or regions. Rapid change of these complex systems generates challenges for urban leaders and managers as well as for infrastructure that is quickly becoming obsolete. In addition, cities are increasingly competing with each other on a global basis for investment and business.

Sub-Saharan Africa and Asia in particular are experiencing an incredible pace of urbanization, generating significant pressure on delivery of services, overwhelming transport and housing systems, increasing issues around urban pollution, health and natural disasters and ever expanding informal settlements driven by rural migrants and the expanding number of urban poor. Inhabitants of informal settlements have limited exposure to the benefits of rule of law, basic infrastructure, and other public goods. This type of environment can incubate threats ranging from endemic disease, to enhanced risk of exposure to risks of natural disasters, to gang violence and radicalization. Given the increasing global competition between cities for investment, addressing these urban issues is more critical than ever to generate sustainable, competitive cities.

How Can Donors Support Urbanization?

Rapid urbanization requires change in how development assistance is delivered. Bilateral and multilateral development institutions need to recognize rapid urbanization as a policy priority, dedicating greater funding to urban needs and drawing on their emerging frameworks for generating sustainable local systems.

Donors can inject critical advice and investment to assist in the urbanization process, drawing on development experience in areas such as institutional capacity development, health systems strengthening, improvement of education, public financial management, climate change adaptation and natural disaster mitigation, engagement of the private sector, as well as frameworks for understanding local systems and addressing the needs of those in extreme poverty. New areas for donors to engage include developing common metrics for analyzing and comparing complex urban issues, exploring digital technologies for better engaging citizens, fostering innovation challenge funds focused on urban areas, supporting new forms of urban financing, as well as more actively engaging business and civil society to become key players in developing these complex urban systems.

One major challenge in coping with urbanization is that multilateral development banks (MDBs) and other donor organizations are not currently structured to lend to sub-national governments. In order to better respond to the city level challenges of urbanization, MDBs and other donors need instruments and mechanisms that will allow them to work more directly with municipal and provincial governments, while encouraging accompanying private investment.

City governments also need to be granted greater authority to implement their own development strategies. This requires visionary leaders able to develop and implement long-term strategies with short-term wins. With city leaders elected for 3 to 5 year terms, investing in long-term infrastructure and services to generate sustainable urban environments requires a unique leader that can see beyond the duration of their term, a capable urban management team, clear performance metrics and accountabilities as well as alliances with civil society and business stakeholders. Providing both decision-makers and their constituents with empirical evidence that demonstrates the benefits of a project in a tangible and immediate way can contribute to enabling urban leaders to overcome the tendency towards thinking in terms of electoral cycles. A panelist at a recent CSIS event termed this syndrome “NIMTO”- Not In My Term of Office. Foreign assistance, financial or technical, and the promise of private investment can help overcome this hesitancy.

Despite all the activity and potential, the donor world has yet to fully embrace urbanization as a development issue. There are limited exceptions. UN-Habitat has a $600 million portfolio focused exclusively on urbanization issues, and the World Bank Group often advises on urban development issues through a sustainability and risk management lens. The African Development Bank recently adopted a three-pillared urban development strategy in anticipation of huge urban migrations over the coming decades. USAID’s urban policy, titled Sustainable Service Delivery in an Increasingly Urbanized World, offers principles for effective urban development, but has no funding behind it.

Urbanization as an Opportunity

Cities expand because of their capacity to attract business and create jobs to drive that growth. They are currently evolving as the drivers of economic competitiveness. Given the stakes, the United States and others should engage on this issue– USAID in particular can demonstrate leadership by identifying resources to better implement its Urban Policy.

Despite many challenges, rapid urbanization is also expected to generate new business opportunities. In addition to the significant investment in urban infrastructure, urbanization will also generate a range of new services. These services span traditional services such as maintenance, repair, upgrading or outsourcing, but also professional services focused on improving processes, managing change and building workforce skills related to the expected increase in technology enabled urban management such as energy management, transport, security, healthcare, water and education. Various studies estimate these technology enhanced services alone are likely to grow globally to between approximately $400 billion to over $1 trillion by around 2020. This new emerging urban market offers the opportunity for new forms of development, aligning donor, citizen and business interests in a new and more concrete manner around common interests.

Addressing urban challenges is therefore an ever more urgent priority. Cities need to initiate the foundations of good urban policy now to enable them to address rapidly emerging issues and generate the foundations that will enable them to become sustainable, competitive environments in the near future. Complex, sustainable, competitive cities require leaders who recognize the importance of implementing long-term strategies for needed infrastructure and development to integrate more citizens into the formal economy, make their cities more attractive for investment, and govern in ways that make their cities livable. Cities that manage their resources effectively and create a business-friendly policy environment will see greater private-sector investment and prosperity.

Urban population growth is a demographic fact, but its ultimate impact—either to spur development or contribute to economic disorder and social unrest—is yet to be determined. With capable leaders at the helm of well-governed cities, urbanization can be harnessed to raise productivity, efficiency, and the global standard of living. The choice to achieve sustainable, competitive urban environments is not in the distant future. Addressing these needs now is an urgent priority to shape this future.

Daniel F. Runde is director of the Project on Prosperity and Development and holds the Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2015 by the Center for Strategic and International Studies. All rights reserved.

Daniel F. Runde
Senior Vice President; William A. Schreyer Chair; Director, Project on Prosperity and Development