Enabling Urbanization: How is Asia Building Effective Megacities?

Distinguished guests and participants, ladies and gentlemen:

I am honored to address this important summit, and I am delighted to have the opportunity to tell you about the work of the ADB in helping Asia to meet the challenges of rapid urbanization.

First, allow me to introduce ADB. Founded in 1966, with headquarters in Manila, Philippines, the Asian Development Bank is a multilateral finance institution established, as its Charter says, "to promote the social and economic progress of the Asian and Pacific region." Over the years, the Bank's membership has grown to 58 countries, 42 from within the region and 16 from outside. Every year, the ADB finances roughly $5 billion worth of projects and provides approximately $200 million in technical assistance grants.

A significant recent development has been the adoption by ADB of an overarching goal, that of reducing poverty in Asia. Reducing poverty has of course always been a goal of the Bank, but it was only in October last year, under the direction of ADB President Tadao Chino, that our Board of Directors formally adopted a poverty reduction strategy. This policy shift is affecting every aspect of our operations, and it entails a commitment that at least 40 percent of our public sector lending will be devoted to poverty interventions.

II.  The Importance of Cities to Asia's Economic Development

The region's future economic growth and prosperity and the fight against poverty are directly linked to our ability to address the complex pressures and problems facing cities across Asia. Cities are, in many ways, engines of economic growth and social progress. Relative to population, cities generate higher-than-average proportions of each country's output of goods and services; the ADB estimates that some 80 percent of new growth in the region has been generated in its urban economies. However, without adequate public and private sector investments in urban infrastructure, municipal services and housing, the productivity and competitiveness of Asia's cities in the world economy may be over time be seriously impeded.

Equally essential is the need to strengthen existing institutional and human resource capabilities in urban management and planning. Upgrading the skills of urban managers and policymakers is closely linked to the long-term sustainability of urban investments and interventions. Ultimately, the economic development potential of cities is not only a function of location and production circumstances. It is a function too of the quality of governance, efficiency of public services, and support for entrepreneurial enterprise.

III.  The Challenges of Rapid Urbanization in Asia

The rapid urbanization of Asia presents some very significant challenges. The sheer scale of urban growth, the massive infrastructure needs, the plight of the urban poor, and pollution of the environment all present massive challenges.

Ladies and gentlemen, the rate of urban growth in Asia is unprecedented in human history. When the ADB was founded in 1966, only one in five Asians lived in cities. Today, Asia's urban population is 1.2 billion, and one in three Asians lives in cities. By 2020, Asia's urban population may reach 2.5 billion people, and every other person in Asia will be living in a city. Most of this growth will be in Bangladesh, the People's Republic of China, India, Indonesia and Pakistan. The urban population of Asia is growing by some 40 million a year - a truly staggering number.

At the same time, we have the phenomenon of megacities, massive urban centers each home to 10 million or more people. In 1995, Asia had nine of the world's megacities. By 2025, it will have 11 more. Without proper planning and management, these massive conurbations could become desperate, unmanageable, sprawling slums.

Related to this, Asia's urban infrastructure investment requirements are massive, and impose enormous demands on fiscal resources. ADB estimates that the Asian region requires finance of almost $40 billion a year to meet the needs for municipal infrastructure. Over the next 25 years, the total urban investment requirement will exceed $3 trillion. Any shortfall will have significant economic, social and environmental ramifications.

Whatever the success or failure in financing urban investment, soon Asia will have the world's highest concentration of urban poor. Urban poverty and inequality threaten to undermine the promise of sustainable urban development. Two-thirds of the world's poor live in Asia, surviving on less than one dollar per day. Most still live in the country, but an ever-increasing proportion live in cities. Urban poverty results from cumulative deprivation brought on by lack of livelihood opportunities, poor education, inadequate shelter, unsafe drinking water, poor sanitation, air pollution and crime. The global fight against poverty may soon have Asia's teeming slums as its main battlefields.

Related to this is the fact that Asia's rapid urbanization has significant environmental impacts. Air pollution is a serious problem, with Beijing, Calcutta, New Delhi, and Shanghai being among the most polluted cities in the world. So too is Manila. We at ADB know what we are talking about! Inadequate solid waste collection and disposal, poor or non-existent sanitation facilities, toxic and hazardous wastes, groundwater contamination - these are the sad norm for major cities in developing Asia.

ADB has long recognized the challenges of urbanization. The urban sector is an important sector for us, and our activities have expanded steadily over the years. In total, ADB has provided about 200 loans valued at over $8.5 billion for urban infrastructure projects, and it has supported more than 400 technical assistance related activities for project preparation, capacity building, and institutional strengthening.

We have sought to take a logical, incremental and integrated approach. In 1999, we reviewed our work to date, and developed an Urban Sector Strategy. We examined the causes and effects of urbanization in the region, identified the demands for improved management and servicing of urban infrastructure, and reworked our strategy for our work in the urban sector. Let me mention some of the key themes of ADB's urban sector strategy. First, note the positive: efficient urbanization is strongly linked to economic growth. Second, note the negative: the environmental impacts of rapid urban growth are felt most by the poor, especially women and children. Third, improved urban governance is a prerequisite for improved urban management. And fourth, sustainable urban development means meeting the needs of urban residents without compromising the ability of future urban generations to meet their needs.

The ADB's urban sector lending program follows from these principles. It includes priority investments in basic urban infrastructure and essential municipal services, in particular, water supply and wastewater, solid waste management, and housing and housing finance.

Let me first mention water supply and sanitation. Some 830 million people in developing Asia and the Pacific do not have access to safe drinking water, and more than 2 billion lack sanitation facilities. The result is extremely high rates of water-borne diseases and death, but many cities are ill equipped to provide growing populations with the safe water and sanitation they need. Inevitably, it is the poor who are the most prone to diseases in these circumstances. And it is the poor who can least afford it, who have to spend the highest proportion of their income on potable water.

ADB projects aim to provide universal access to adequate, reliable and affordable supplies of clean water with commensurate sanitation facilities for wastewater management. From the larger urban centers down to the smaller rural towns, we strive through our projects to directly enhance social welfare, environmental integrity and economic productivity. Here I would like to stress that the financial viability and long-term sustainability of such projects require the participation and support of all stakeholders, particularly women, NGOs and the private sector. This the ADB tries to ensure at all project stages from design through implementation, to ongoing operation and maintenance.

Solid waste management is the next key area of ADB interest. In most of developing Asia, we estimate that less than half of all solid waste is transported to a disposal location. In low-income cities, such as Karachi and Calcutta, a waste generation rate of 0.5 kilograms per capita per day is typical, whereas it is nearly six times greater in higher-income cities such as Seoul. As incomes increase throughout Asia so does the amount of solid waste. Inadequate management of this waste gives rise to groundwater contamination, air pollution from open burning, and disease from insects and rodents. We have in Manila recently experienced the terrible tragedy of the landslide of the Payatas garbage dump where so many scavengers and their families lost their lives in the torrent of mud and debris.

The ADB's experience tells us that sustainable solutions require the participation of all stakeholders, the adoption of appropriate technologies, and the establishment of partnerships with the private sector. The key challenges in urban areas are (i) integrating informal waste collection into the formal urban economy to extend collection services to the poor; (ii) improving efficiencies through partnerships with the private sector; (iii) incorporating cost recovery measures in the provision of services; (iv) promoting reduced domestic, commercial, and industrial waste generation; and (v) supporting local cooperation in finding solutions to waste management problems.

Another area of great interest to ADB is housing and housing finance. Affordable housing is a growing concern everywhere as urban populations and land prices continue to increase. The housing market in virtually every major city across developing Asia is characterized by more and more sharing of dwellings by two or more families, more squatting on public and private land, greater occupation of infrastructure easements and hazardous or ecologically sensitive areas, and burgeoning homelessness. The limited availability of credit from formal sources is a severe constraint for low-income households wanting to purchase new housing or simply improve existing living conditions.

Fortunately, many community-based finance institutions have been successful in responding to this tremendous demand for housing finance by offering small, market-based loans that are guaranteed or co-signed by family or friends in the community. ADB's lending for housing during the past five years has been aimed generally at supporting slum improvement schemes and channeling market-based housing finance to low-income households through such community-based financial intermediaries. Successful slum improvement subprojects require the creation of partnerships among slum residents, NGOs, local government and the private sector. Typical improvements financed through a mix of loans and grants include water supply, sanitation, roads and footpaths, drainage, street lighting and solid waste management.

ADB's support for microfinance institutions in the housing sector is largely based on our experience in India. There ADB lends to public and private sector housing finance institutions which, in turn, on-lend funds to community-based housing finance institutions such as the Self-Employed Women's Association. These microfinance institutions then make small, market-rate loans to low-income households for the purchase, construction or improvement of housing.

Some examples of urban sector loans to be financed by the ADB this year may help you appreciate the range of our work. Our loan program includes the Second Housing Finance Project in India for $300 million; the Small Towns Water and Sanitation Project in Nepal for $35 million; the Pasig River Environmental Management Project in the Philippines for $175 million; the Community-Based Infrastructure Services Project in Kyrgyz Republic for $36 million; and the Tianjin Wastewater Treatment Project in the People's Republic of China for $130 million.

B. Urban Sector Technical Assistance and Policy Reform

That is our story on the loan side, but our technical assistance work and policy reform initiatives represent equally important, essential components of ADB's involvement in the urban sector. All of our TA work is aimed at the broad objective of sustainable urban management. Our TA projects encompass a wide range of activities. Let me list some:

Improving municipal finance practices and procedures, including the adoption of accrual based accounting systems, the preparation of capital investment plans, the development of standard budgeting procedures and so on.

Strengthening financial management to recover capital investment costs through service charges and user fees as well as to identify additional sources of revenues such as property taxes, land conversion charges and leasing municipal properties.

Promoting public-private partnerships for land and housing development as well as for the provision of municipal infrastructure and the delivery of urban services.

Improving service delivery in order to increase economic efficiencies as well as to demonstrate to citizens the rationale and benefits of paying for improved services.

Promoting decentralization through the empowerment of local governments with greater decision-making authority and making them more transparent and accountable to their citizenry.

Strengthening urban planning and land management to minimize the negative economic and environmental externalities associated with unregulated and unplanned urban expansion.

Increasing community participation to take full advantage of available resources and different perspectives, to achieve consensus and ownership, and to work toward good governance and stewardship.

Some specific examples of advisory TA projects this year are: Reducing Poverty in Urban India; Accounting Review of the National Water Supply and Drainage Board in Sri Lanka; Strengthening Urban Solidwaste Management in the People's Republic of China; Institutional Strengthening of the Department of Housing and Urban Development in the Philippines. In all these ways, ADB is seeking to improve the management of Asia's cities.

Ladies and gentlemen, the challenges of urbanization across Asia are profound, numerous and complex. To meet them, we have to be innovative and imaginative. Most important of all, we all have to recognize the importance of forging and sustaining partnerships. We need partnerships among multilateral finance institutions such as the ADB, bilateral donor agencies, government authorities, the private sector, and of course - and most important - urban residents themselves.

Forging strong ties between agencies, governments and the private sector is paramount, if we are to attract the financial resources needed for investments of Asia's cities. The ADB's Urban Sector Strategy emphasizes three key ingredients for attracting private sector participation. First, market-based approaches must be applied to the delivery of urban services. Second, government officials must be trained in how to work with the private sector. And third, the underlying regulatory framework must be supportive and protective of private initiatives.

The ADB will continue to work toward the creation of lasting partnerships to respond to the challenges of an urbanizing Asia. We shall do all we can to help our member countries seize the tremendous opportunities associated with urbanization, while mitigating the risks and dangers inherent in it.