Supporting The Urban Dimension Of Development Cooperation: Enhancing Financial Positions Of Cities In Developing Countries To Achieve Sustainable Urban Development

The years 2015-2016 were a strategic milestone for global governance, poverty eradication and sustainable development. It saw a series of landmark international summits and conferences over the course of the year (the Sendai Framework for Disaster Risk Reduction 2015-2030, the Addis Ababa Action Agenda, the 2030 Agenda for Sustainable Development and the COP 21 Paris Agreement under the UN Framework Convention on Climate Change) which have collectively re-cast the way the international community, including the EU, will work to achieve sustainable development and poverty eradication for many years.The Third United Nations Conference on Housing and Sustainable Urban Development (known as Habitat III, held in Quito, Ecuador, in October 2016) has been amongst the first UN Conferences to take place following the adoption of the 2030 Agenda. It adopted a global "New Urban Agenda", intended to guide sustainable urban development for the next 20 years, and thus gives an important impetus to the implementation of the urban dimensions of the Agenda 2030, in particular SDG 11 but also a number of other goals and associated targets with a preeminent urban dimension, and the COP 21 decisions.As highlighted by the Council Conclusions 8824/16 of the 12/05/2016 on "HABITAT III: The European Union and its Member States' objectives and priorities for the 3rd UN Conference on Housing and Sustainable Urban Development", the New Urban Agenda should make concrete suggestions on how to address the challenges raised by urbanisation and urban demography and turn them into opportunities that will support sustainable development in its economic, social and environmental dimensions.Financing urban developmentOne of the biggest expenditure challenge facing governments at all levels is certainly the growing gap in infrastructure financing. Over the next 15 years, it is estimated that $93 trillion of infrastructure will need to be built globally, 70 percent of it in cities. This will require annual investments exceeding five percent of global GDP, consuming most of, or significantly exceeding, the tax revenues of subnational governments. New revenue sources will need to be found to take on this challenge.Public resources, including Official Development Assistance (ODA) will not be sufficient to implement the ambitious urban agenda. Private investment will be vital to augment the efforts of development finance and philanthropic funders. A key challenge for the SDG era is how to channel more of these private resources to the sectors and countries that are critical for the SDGs and wider development efforts.Access by municipalities to debt finance can be an important element of a broader strategy to plan and invest in urban infrastructure. Debt finance is not an additional source of revenue for municipalities; it simply converts future revenues into capital that is immediately available for investment by encumbering future revenues for debt service payments. Debt financing is therefore feasible only where municipalities have the ability to service their debt from revenues in a sustainable manner and where a robust regulatory framework for municipal borrowing is in place.Across the world, municipal finance systems rest on legislative frameworks that govern the following four key components: (1) expenditures; (2) revenues; (3) financial management; and (4) borrowing. The relative strength or weakness of these components determines whether a local government is able to deliver public goods and services to meet the basic needs and preferences of its population. It should be stressed that country circumstances, and the concrete characteristics of municipal finance systems within these five components, vary widely. In some countries, municipal finance systems function fairly effectively across all five dimensions. At the other extreme are countries in which systems and capacities are weak in all areas. There are various ways national governments can advance fiscal systems such as (1) increasing local government autonomy over taxes, revenues, and expenditures; (2) enabling an intergovernmental relations framework where project execution is shared through arrangements with private and public sector stakeholders; (3) supporting intergovernmental transfers from higher levels of government for the general or specific use of localities; (4) authorizing local governments to leverage fiscal tools like municipal borrowing and land value capture to raise funds to support economic development and infrastructure; and (5) enabling localities to marshal resources that facilitate access to credit markets when they seek funds to support operations, maintenance, infrastructure financing, or service delivery to citizens. In municipalities where there is coordination among spatial and economic development planning and public finance, thoughtful and strategic investments can generate positive results for economic performance. Extending infrastructure and providing services to additional residents can expand the tax base and generate additional future revenues that support future expenditures and economic growth.  When a community invests in public infrastructure such as road improvements, improved water systems, better sewage treatment facilities or the like, the community or neighborhood becomes more attractive, and land becomes more valuable. Sometimes the increase in value is the result of land use decisions taken by the local government, such as granting development rights on land that was previously farm land. As this increased value does not result from any investment made by the land owners or occupants, but from public investment or by a public decision, its (partial) capture can be considered a matter of social and spatial justice.However, ensuring that public investment or public decision will effectively result in increased collective urban value requires specific technical and political capacities that aren’t so common in many cities of the developing world.  Weak institutional framework and insufficient accountability can easily result in the confiscation of urban added-value by dominant individuals or social groups, not to mention the opportunities for land-based corruption.     It is also crucial that public investment be made in a thoughtful manner. Since urban development is determined by interaction of a complex array of issues requiring investment, often provided by individual “projects” in infrastructure or services, opportunities, risks and assumptions tend to spread into a wide number of mutually interdependent fields and can be difficult to address.  Promoting such approach in the context for developing countries will require both the UN and EU to develop a better understanding of this complexity and identify critical elements that can be shared and applied in a variety of contexts.International financing framework and blendingAchieving sustainable urban development will necessarily rests on integrated national and international financing frameworks, since without adequate financial resources and capacities at all levels, none of the challenges and opportunities of urbanization can be addressed and none of the objectives laid out in this agenda could be achieved.Both the EU and the UN have some experience with blended finance mechanisms. While UN tried to pool its own financial mechanisms, the EU has extensive experience both in implementing a form of blended finance internally (through its Cohesion policy instruments) and in development cooperation through so-called “EU Blending”.  It is important to assess how blended finance can work on a sub-sovereign level implementing an integrated framework of sustainable development goals. This issue has been conclusively investigated neither by WEF/OECD, nor by EU, nor by the United Nations. Based on the pilots and lessons from exchanges, a set of findings will be elaborated, both providing insights for other cities facing similar challenges as well as informing donors/international community supporting financing of urban development in their efforts.It is expected that the findings and recommendations will serve as guidance for rapprochement of the cities and national governments in the developing countries, the international financial institutions, and the private sector investors on what each of the stakeholder groups need to do individually and in groups to create better access to funding sustainable urban development programmes in the cities of the developing countries. Such better understanding – while requiring further coordinated effort – will eventually open this access to more cities of the South.