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Urban Development

Encouraging investment policy and promotion reform in times of uncertainty

Amira Karim's picture

Foreign direct investment (FDI) is often considered by economists and policymakers as integral to economic growth – a cornerstone of modernization, income growth and employment.

Yet for many countries, FDI can be elusive, and chasing it can lead policymakers to frustration.

Even economies built by FDI – for example, Singapore – are on this continuous chase, aware that attracting and retaining FDI is not an easy task. They also know that the benefits of FDI do not accrue automatically and evenly across all countries, sectors and local communities.

But first, there must be a realization of the importance of FDI. Singapore – a country once called a “political, economic and geographic absurdity” by its first Prime Minister, Lee Kuan Yew – never doubted the centrality of FDI, promoting it from the outset of its independence. Singapore saw in FDI an opportunity to develop a substantial industrial base, to create new jobs for its then-poor and low-skilled workforce, and to generate crucial tax revenues for its nascent government to spend on education and infrastructure.

Two decades after that initial strategic acceptance of FDI, Singapore emerged as a newly industrialized economy.

It is little surprise, then, that Singapore’s experience was highlighted at a recent World Bank Group peer-to-peer learning event here in the city-state. Responding to strong demand from client countries, two teams from the Trade & Competitiveness Global Practice – the Investment Policy and Promotion (IPP) team and the Singapore Hub team – co-hosted the learning forum entitled "Promoting Investment Policy and Promotion Reform in Times of Uncertainty."

Supported by SPIRA – the Support Program on Investment Policy and Related Areas – the forum enabled some 80 government officials from East Asia, South Asia and Africa to share their experiences in economic and export diversification; to discuss the role of international trade and investment agreements as leverage toward domestic reforms; and to discuss how to translate investment policy and promotion strategies into measurable results. SPIRA, implemented by the IPP team, supports client countries across all regions in attracting, facilitating and retaining different types of FDI.

Jobs in Africa: Designing better policies tailored to countries’ circumstances

Klaus Tilmes's picture

Dar es Salaam, Tanzania – one of the many cities in Africa that is expected to see sharp population increases – will need rapid job creation to keep pace with its swift population growth. The city’s new bus transit system – completed in 2015, with a $290 million credit from the International Development Association, the World Bank’s fund for the poorest countries – is now reducing transportation costs, easing traffic and promoting private sector development.
Photo: Hendri Lombard / World Bank


Africa’s working-age population is expected to grow by close to 70 percent, or by approximately 450 million people, between 2015 and 2035. Countries that are able to enact policies conducive to job creation are likely to reap significant benefits from this rapid population growth, according to the Africa Competitiveness Report 2017, co-produced by the World Bank Group, the African Development Bank, and the World Economic Forum. The report also warns that countries which fail to implement such policies are likely to suffer demographic vulnerabilities resulting from large numbers of unemployed and underemployed youth.

How urban start-up ecosystems help cities adapt to economic transformations

Victor Mulas's picture

Entrepreneurs at mLab East Africa, Nairobi, Kenya. Supported by the World Bank’s infoDev program, this business incubation center provides knowledge and networking opportunities to local digital start-ups. © infoDev / World Bank 



Start-up ecosystems are emerging in urban areas across the world. Today, a technology-based start-up develops a functioning prototype with as little as $3,000, six weeks of work, and a working Internet connection.
 
Entrepreneurs are not seeking large investments in hardware or office space. Rather, they look for access to professional networks, mentors, interdisciplinary learning, and diverse talent. Cities are best suited to meet their needs, as they provide diversity and allow for constant interaction and collaboration. Thus, the shift caused by the so-called “fourth industrial revolution” makes cities the new ground for organic innovation.
 
The urban innovation model can be applied in cities in both developed and developing countries. The same trends are driving the urbanization of organic innovation ecosystems in New York City, London, Stockholm, Mumbai, Buenos Aires and Nairobi. This presents a great opportunity for developing countries to build innovation ecosystems in cities and create communities of entrepreneurs to support the creation of new sectors and businesses.
 
But while some cities have organically developed urban innovation ecosystems, nurturing a sustainable and scalable ecosystem usually requires determined action. Moreover, not all cities are building their innovation ecosystems at the same pace.
 
To support a local innovation ecosystem and accelerate its growth cities can promote collaboration through creative spaces and support networks, while also hosting competitions to solve local problems. 

How can Hong Kong stay smart and competitive? By driving change through a 'Public-Private-People Partnership' approach

Dr. Winnie Tang's picture

According to the World Economic Forum’s “Global Competitiveness Report 2016-2017,” Hong Kong dropped two notches to rank as No. 9 in its Global Competitiveness Index. The decline occurred mainly because the city faces challenges to “evolve from one of the world’s foremost financial hubs to become an innovative powerhouse.”

One might argue this is an unfounded worry: After all, as a developed economy with a GDP per capita of US $42,000, Hong Kong has recorded an impressive GDP growth rate, over the last five years, of about 3 percent annually. This growth rate is higher than many developed economy.

However, if we look at the economic figures more closely, some worrisome early warning signs are already emerging – especially in terms of the factors that will drive Hong Kong’s future economic growth.

Apart from finance and insurance, the majority of Hong Kong’s GDP growth nowadays is contributed by “non-tradable” sectors that have less knowledge and innovation content, such as the construction and public-administration sectors.

According to the World Bank’s latest research on “Competitive Cities for Jobs and Growth,” long-term economic success and job growth in cities are usually driven by “tradable” sectors – economic sectors whose output could be traded and competed internationally. Firms in tradable sectors are exposed to fierce competition which, in turn, exerts pressure on them to invest in research and knowledge-intensive sectors so that they become more productive and innovative in order to remain competitive internationally. Hong Kong is now lagging behind its Asian and world peers in the critical features of knowledge and innovation.

Although the urgency to act to increase the knowledge-driven content of the economy is obvious, there seems to be a limited number of actions taking place here on the ground in Hong Kong.  How can Hong Kong forge ahead and start making changes?



Staying competitive in today’s global economy is like sailing against the current: Either you keep forging ahead, or you will fall behind.


The World Bank’s Smart Cities Conference – held in Yokohama, Japan last month – presented some good examples from around the world on how to use a bottom-up approach with active citizen engagement to increase the chance of success in implementing changes. The audience was interested in learning about the successful transformation of Yokohama through the cities many initiatives, such as the development of the Minato Mirai 21 central business district.

Taking a tour of a ‘Competitive City’

Megha Mukim's picture

Do you want to take a walk through a competitive city? Since today, October 31, has been designated as World Cities Day by the United Nations, today is an especially good day to explore that idea. 

Have you ever noticed how mayors and city leaders experience life alongside their citizens? It forces them to be more focused on the local manifestations of their policy decisions. They connect with what their citizens see and experience on a day-to-day basis. Numbers are crucial, because policies need to be supported by evidence – but what if the numbers and experiences could be brought to life? What does a 5 percent annual GDP growth rate look like? For that matter, what does a “competitive city” look like?

Members of the Competitive Cities team at the World Bank Group traveled to Bucaramanga, Colombia to find out. Here, amid the city’s famously rugged topography – with no ports or railroads nearby, and almost 10 hours away from the nation’s capital, Bogota – economic development seemed to be a tough proposal. Bucaramanga, however, managed to reinvent itself and become a globally competitive city – with the fastest rates of GDP growth and job growth in Colombia, and one of the fastest growth rates in the Western Hemisphere. As part of the Competitive Cities for Jobs and Growth initiative, we had already looked at Bucaramanga’s success in numbers and had analyzed qualitatively how they managed to get things done. Now we wanted others to experience how it felt to walk through a secondary city that blossomed into a dynamic economic center.

Thanks to a donated helicopter, the use of hobbyist drone technology, a motorcycle and a hugely enthusiastic local chamber of commerce, the team captured images and videos of the places that were central to Bucaramanga’s growth story. Bucaramanga’s transformation began with the creation of a regional competitiveness commission, a public- private alliance spearheaded by the private sector. As you’ll see in the accompanying video, one single block within the city hosts the chamber, an industrial university, the enterprise center, the commerce association and important regional banks.



In Bucaramanga, Colombia, Erick Ramos Murillo (left) and Rómulo Cabeza (right) prepare to fly a 3-D camera rigged to a drone. 

The challenge of affordable housing for low-income city-dwellers

Zaigham M. Rizvi's picture



Housing is a numbers game: The more people there are in any city or town, the greater the need is for housing. The number of people living on the planet is rising every second, as the
World Population Clock shows, while the amount of habitable land (what housing specialists call “serviced land”) remains limited.

It is critical that additional affordable, decent dwellings be developed, as today’s world population of about 7.38 billion (increasing by more than 80 million per year, at the current population growth rate of about 1.13 percent per annum) approaches about 9 billion by 2030 and a projected 11 billion by 2050.

Urbanization intensifies the need for city-focused housing: By 2030, nearly two-thirds of the world’s population will be urban – and, even more daunting, nearly half of that urban population will be living in poverty, in substandard housing or in slums. The challenge of providing affordable housing for low-income city-dwellers is universal, with intensifying urban congestion making it an urgent priority in Asia and Africa.

‘Smartest Places’ via smarter strategies: Sharpening competitiveness requires ingenuity, not inertia

Christopher Colford's picture

Defeatist demagoguery marred the 2016 election season, and it continues to resonate with many beleaguered voters in advanced Western economies, who dread the gloom-and-doom scenarios sketched by narrow-minded nationalists. For reassurance about positive strategies for economic renewal, try a dose of optimism about urban “hotspot hustle and cutting-edge cool” – thanks to a book that champions smart public policies, delivered through an activist approach to Competitiveness Strategy.

Gazing into the rear-view mirror is a mighty reckless way to try to drive an economy forward. Yet backward-looking nostalgia for a supposedly safer economic past – with voters' anxiety being stoked by snide sloganeering about “taking back our sovereignty” and “making the country great again” – infected the policy debate throughout the dispiriting 2016 election year, and its defeatist aftermath, in many of the world’s advanced economies.

Scapegoating globalization and inflaming fears of job losses and wage stagnation, populists have harangued all too many voters into a state of paralysis or passivity. Lamenting the loss of a long-ago era (if ever it actually existed) of economic simplicity, nativists and nationalists have been conjuring up illusions about an era when inward-looking economies were (allegedly) somehow insulated from global competition.

Optimism has been in short supply lately, but an energetic new book – co-authored by a prominent World Bank Group alumnus – offers a hopeful perspective on how imaginative economies can become pacesetters in the fast-forward Knowledge Economy. Advanced industries are thriving and productivity is strengthening, argue Antoine Van Agtmael and Fred Bakker, now that many once-declining manufacturing regions have reinvented their industries and reawakened their entrepreneurial energies.

Welcome to the brainbelt,” declares “The Smartest Places On Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation” (published by Public Affairs books). Now that brainpower has replaced muscle-power as the basis of prosperity in an ever-more-competitive global economy, the key factor for success is "the sharing of knowledge." Longlisted for the Financial Times/McKinsey Business Book of the Year Award, “Smartest Places” is receiving well-deserved attention among corporate leaders and financial strategists – and it ought to be required reading for every would-be policymaker.

The era of “making things smart” has replaced the era of “making things cheap” – meaning that industries no longer face a “race to the bottom” of competing on costs but a “race to the top” of competing on creativity. Knowledge-intensive industries, and the innovation ecosystems that generate them, create the “Smartest Places” that combine hotspot hustle and cutting-edge cool.





Those optimistic themes may sound unusual to election-year audiences in struggling regions, which are easy prey for demagogues manipulating populist fears. Yet those ideas are certainly familiar to readers at the World Bank Group, where teams working on innovation, entrepreneurship and competitiveness have long helped their clients shape innovation ecosystems through well-targeted policy interventions that strengthen growth and job creation.

“Smartest Places,” it strikes me, reads like an evidence-filled validation of the Bank Group’s recent research on “Competitive Cities for Jobs and Growth.” That report, published last year, offers policymakers (especially at the city and metropolitan levels) an array of practical and proven steps that can help jump-start job creation by spurring productivity growth.
 

Olympic-sized ambition: Halt the Games' economic excess by building a permanent site for the Olympics — in Greece, their historic home

Christopher Colford's picture

Build it well, build it wisely, and build it only once — How investing to create a permanent site for the Olympic Games, ideally in their historic home of Greece, could reduce waste, deliver economic stimulus, and avoid "white elephant" monuments to extravagance.


The jeering of angry taxpayers and frustrated favela-dwellers may drown out some of the cheering of sports enthusiasts this weekend, as the 2016 Olympic Games begin in Rio de Janeiro. The government of Brazil and local officials in Rio have certainly done their best to stage the Games successfully, addressing a range of challenges that include the Zika virus outbreak, the doping scandal among athletes and the country’s prolonged economic slump and political traumas. Yet an enduring scandal in international finance — the chronic design flaw in the way that the Games are planned for and paid for — has again imposed an enormous economic burden on the Olympic host city. Struggling economies can ill afford the extravagance of repeatedly building use-once-throw-away sports facilities.

It was surely startling to see the deep degree of scorn and sarcasm with which many workaday Brazilians, who are now enduring a deep economic downturn, hurled derision at the arrival of the Olympic torch in Rio this week. They evidently saw that Olympic arrival ceremony as a symbol, not just of athletic ambition, but of financial folly.

The anxieties that Brazil has endured on the road to Rio 2016 should underscore a longer-term, Olympic-sized concern: Mismanagement by the Games' promoters has now been thoroughly documented, underscoring the abusive way that the International Olympic Committee (IOC) and the global sports-industrial complex have habitually foisted reckless costs on the taxpayers of hapless host cities.

By goading Olympic-wannabe cities to make ever-more-extravagant financial commitments – stoking their dreams of a media moment of purchased publicity – the mega-event industry has helped shatter the finances of one host city after another. No wonder that so many cities are now shunning the IOC’s bidding process, dreading the deadweight losses that are almost certain to burden any Olympic host.

Welcome as the IOC’s recent “Olympic Agenda 2020” reform proposals may be, it’s long past time to rein in the financial excesses of mega-event promoters. With a claque of financiers and flacks who are ready to manipulate the gullibility of the would-be hosts, the Olympic spirit has fallen victim to the self-interest of construction firms, property developers and publicists who seek to profit from host cities’ overspending.

An invaluable book documenting this Olympic-scale threat – discussed in detail at a World Bank’s InfoShop book-and-author seminar in June 2015 – should be top-of-mind for Olympics-watchers this week, as Rio de Janeiro enjoys its moment in the spotlight. “Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup” — by Andrew Zimbalist, a professor of economics at Smith College — can help other cities avoid an impulsive rush for momentary Olympic notoriety. A video of Zimbalist’s InfoShop presentation is archived at http://web.worldbank.org/WBSITE/EXTERNAL/PUBLICATION/INFOSHOP1/0,,contentMDK:20289125~pagePK:162350~piPK:165575~theSitePK:225714,00.html 

Housing is at the center of the sustainable development agenda

Aisa Kirabo Kacyira's picture
UN Habitat - Cover image from Housing at the Centre report

Clearly, a lot of what has gone wrong with cities is related in one way or another to housing. The future of urbanization will therefore depend on how countries and cities position housing as a priority in the public debate around sustainable development.

From slums to gated communities, from overcrowding to sprawl, from homelessness to the vacant houses, there is much evidence that housing is shaping cities worldwide, regretfully, in many cases, by producing fragmentation and inequalities. The resulting models are leading to social, environmental and financial costs far beyond what the majority of cities can afford.

UN-HABITAT: Housing at the Centre of the New Urban AgendaWhile the most common problem is the shortage of adequate and affordable housing and the unprecedented proliferation of slums, other important challenges lay in the poor quality and location of the stock usually far from job and livelihood opportunities, lack of accessibility and services. The housing challenge the world is facing today is likely to persist with six out of every ten people expected to reside in urban areas by 2030. Over 90 per cent of this growth will take place in Africa, Asia, Latin America and the Caribbean. It is estimated that the struggle to obtain adequate and affordable housing could affect at least 1.6 billion people globally within a decade.

We cannot overlook this reality. This is why, towards Habitat III, UN-Habitat has increased efforts to re-establish housing as a priority in the debate around sustainable urbanization. We are proposing the 'Housing at the Centre' approach to shift the focus from simply building houses to a holistic framework where housing is orchestrated with national and urban development in a way that benefits all people.

Competitive Cities: Changsha, China – coordination, competition, construction and cars

Z. Joe Kulenovic's picture

Cites are the heartbeat of the global economy. More than half the world’s population now resides in metropolitan areas, making a disproportionate contribution to their respective countries’ prosperity. The opportunities and challenges associated with urbanization are quite evident in the world’s most populous country, whose cities are among the largest and most dynamic on Earth. To better understand what a thriving metropolitan economy looks like in the Chinese context, our Competitive Cities team selected Changsha, the capital of Hunan Province, for inclusion among our six case studies of economically successful cities, as the representative of the East Asia Pacific Region.  
 
As recently as the turn of the millennium, Changsha’s economy was still dominated by low-value-added, non-tradable services (e.g. restaurants and hair salons) – an economic structure commonly seen today in many low- to lower-middle-income cities. Since then, Changsha has achieved consistently high, double-digit annual growth in output and employment, despite its landlocked location and few natural or inherited advantages, such as proximity to trade routes or mineral wealth. With per capita GDP surging from US $3,500 in 2000 to more than US $15,000 in 2012, Changsha has accomplished a feat so many other World Bank clients can only dream of: leapfrogging from lower-middle-income to high-income status in barely a decade, and an economy now comprised of much more sophisticated, capital-intensive industries. 

  

Photos via Google Maps

We took a closer look at the success factors behind this city’s dramatic growth story, and what lessons its experience may hold for cities elsewhere, especially in terms of (1) how to overcome coordination failures and bureaucrats working in silos and (2) how to ensure a level playing field for all firms in the city (that is to say, competition neutrality), even in industries with a strong SOE presence – something still not commonly seen in China these days.
 
Changsha’s (and Hunan’s) growth has clearly benefitted from a highly conducive national macroeconomic and policy framework, including a plan entitled The Rise of Central China, aimed at spurring development in areas beyond the country’s booming coastal regions. This and other initiatives provided for the removal of investment restrictions, more favorable tax treatment, and enhanced infrastructure and connectivity to coastal commercial gateways. China’s massive stimulus plan in 2009 (in response to the global financial crisis and recession) jump-started construction activity in the country, providing further impetus to one of Changsha’s principal industries, construction machinery and equipment manufacturing. And national government interventions in earlier decades – especially the establishment of dedicated research institutes – provided a critical contribution to Changsha’s accumulation of expertise in such disciplines as machinery or metallurgy.
 
Notwithstanding these national initiatives, responsibility for local economic development in China is highly decentralized, with municipal government leaders directly tasked with achieving GDP growth and tax revenue targets. Municipal governments also have rights over almost all land in cities, which can be leased or used as collateral to fund local infrastructure. In Changsha, municipal authorities used these prerogatives to improve their city’s economic competitiveness.

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