Developing countries need to harness urbanization to achieve the MDGs: IMF-World Bank report

WASHINGTON, April 17, 2013 – Urbanization helps pull people out of poverty and advances progress towards the Millennium Development Goals (MDGs), but, if not managed well, can also lead to burgeoning growth of slums, pollution, and crime, says the Global Monitoring Report (GMR) 2013, released today by the World Bank and International Monetary Fund (IMF).

Urbanization has been a major force behind poverty reduction and progress towards other MDGs. With over 80 percent of global goods and services produced in cities, countries with relatively higher levels of urbanization, such as China, and many others in East Asia and Latin America, have played a major role in lowering extreme poverty[1] worldwide. In contrast, the two least urbanized regions, South Asia and Sub-Saharan Africa, have significantly higher rates of poverty and continue to lag behind on most MDGs.

GMR 2013: Rural-Urban Dynamics and the Millennium Development Goals starkly compares the well-being in the countryside versus the city. Urban infant mortality rates range from 8-9 percentage points lower than the rural rates in Latin America and Central Asia; to 10-16 percentage points in the Middle East and North Africa, South Asia, and Sub-Saharan Africa and highest in East Asia (21 percentage points).

In South Asia, 60 percent of urban dwellers have access to sanitation facilities, compared with 28 percent in rural areas. In Sub-Saharan Africa, 42 percent of the urban population has access, compared with 23 percent of rural residents. Access to safe water in urban areas in developing countries was almost complete in 2010, with 96 percent coverage, compared with 81 percent of the rural population having access.

“The rural-urban divide is quite evident. Megacities and large cities are the richest and have far better access to basic public services; smaller towns, secondary cities, and areas on the perimeter of urban centers are less rich; and rural areas are the poorest,” said Kaushik Basu, the World Bank’s Chief Economist and Senior Vice President for Development Economics. “But this does not mean unfettered urbanization is a cure-all – the urban poor in many places urgently need better services as well as infrastructure that will keep them connected to schools, jobs and decent health care.”

The GMR, which is also an annual report card on MDG attainment, finds that progress continues to lag on reducing maternal and child mortality and providing sanitation facilities, targets which will not be met by the MDGs 2015 deadline. However, progress has been stellar on reducing extreme poverty, providing access to safe drinking water and eliminating gender disparity in primary education, with these targets already achieved several years ahead of the MDGs deadline.

Though extreme poverty has declined rapidly in many countries, the World Bank estimates that by 2015 there will be 970 million people living on $1.25 a day. Therefore, continued concerted efforts to get extreme poverty as close to zero as possible are needed.

“Emerging market and developing countries are growing robustly notwithstanding slow growth in advanced economies. Sustaining this growth – by continuing to maintain prudent macro policies and strengthening the capacity to manage risks, including through a rebuilding of depleted policy buffers – is key to continued progress in poverty reduction as we approach 2015,” said Hugh Bredenkamp, Deputy Director of the IMF’s Strategy, Policy and Review Department.

As the report points out, the challenge of fighting poverty and improving the living conditions of the poor, lies in both urban and rural areas.

Large cities and smaller towns are fast becoming home to the world’s largest slums[2], with Asia home to 61 percent of the world’s 828 million slum dwellers, Africa 25.5 percent and Latin America 13.4 percent. The developing world’s urban centers are expected to burgeon, drawing 96 percent of the additional 1.4 billion people by 2030. To cope with urban growth, a coordinated package of essential infrastructure and services is needed. Only by meeting essential needs related to transportation, housing, water and sanitation as well as education and healthcare can cities avoid becoming hubs of poverty and squalor, the report says.

“Agglomeration, or the clustering of people and economic activity, is an important driver of development and evidence suggests that it can have high pay offs, particularly for countries on the lower rungs of development,” said Lynge Nielsen, Senior Economist in IMF’s Strategy, Policy and Review Department and co-author of the GMR.

At the same time, stepped up efforts are also needed to improve development in rural areas, where 76 percent of the developing world’s 1.2 billion poor live, with inadequate access to the basic amenities defined by the MDGs.

Rural poverty rates far exceed those of urban areas across all regions of the world. The report further finds that rural women are hurt the most by poor infrastructure, because they perform most of the domestic chores and often walk long distances to have access to clean water, and lower levels of education attainment.

Although tackling rural development challenges will not be easy, it can be done with complementary rural-urban development policies and actions by governments to facilitate a healthy move toward cities without short-changing rural areas, says the report.

“Urbanization does matter. However, in order to harness the economic and social benefits of urbanization, policy-makers must plan for efficient land-use, match population densities with the required needs for transport, housing and other infrastructure, and arrange the financing needed for such urban development programs,” said Jos Verbeek, Lead Economist at the World Bank and lead author of the GMR.

The full report, progress charts, and country information are available at www.worldbank.org/gmr2013

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[1] People living on less than US$1.25 a day (2005 purchasing power parity)

[2] A slum is a deprived area within a city, lacking adequate access to water, sanitation and proper housing, and often characterized by high levels of poverty and overcrowding.

The MDGs Report Card

·         In 1990, with poverty rates of about 55 percent, Sub-Saharan Africa and East Asia were at the same starting position for MDG 1a – to halve the number of people in extreme poverty. By 2010, East Asia made spectacular progress and reduced extreme poverty rate to 12 percent compared to Sub-Saharan Africa which still had a poverty rate of 48percent. According to projections, in 2015, Sub-Saharan Africa’s rate for extreme poverty will be 42 percent, or 408 million of the world’s 970 million people living in extreme poverty. 

·         As a region, Sub-Saharan Africa will miss all 9 MDGs by a significant margin (Figure 1). It is lagging most on the MDGs related with halving extreme poverty and access to sanitation.

·         In a set of 46 countries, the poverty profiles of individual countries indicate varied progress. Between 9-18 countries have met or have made sufficient progress to reach the MDG targets related with halving extreme poverty, primary completion and gender parity in primary and secondary education (Table 1). With accelerated implementation, 5 more countries can reach the poverty reduction and gender parity targets, and 12 more countries can achieve the primary completion target by 2015.

·         Sub-Saharan Africa has made least progress in achieving the MDGs related with reducing infant and maternal mortality, and access to sanitation. Acceleration can help at most 4-5 countries to achieve the health targets, but can only help Botswana to reach the sanitation target by 2015.

Rural-Urban Disparities

In Sub-Saharan Africa, poverty is concentrated in rural areas where 75 percent of the poor reside. Unlike other regions where the urban poor are concentrated in smaller towns, in Sub-Saharan Africa, the urban poor and poverty are concentrated in the capital and large cities. Compared to rural areas, urban areas have lower poverty and better access to basic amenities. Rural-urban disparities are large.

·         In 2008, the region had the highest poverty rates of all regions – 46 percent of rural compared to 34 percent of the urban population lived in extreme poverty. For each poor person in an urban area, there were 2.5 as many in rural areas.

·         Primary education and its quality are equally important for reducing poverty. In 2007, only 57 percent of rural compared to 75 percent of urban grade 6 students achieved competency in reading. Only 18 percent of rural relative to 24 percent of the urban children achieved competency in mathematics. Urban-rural literacy differentials were as high as 40 percent.

·         The infant mortality rate is 65 (per 1,000 live births) in urban relative to 80 in rural areas. The urban-rural child mortality differentials range between 2.5 – 40 percent. 

·         In 2010, 49 percent of rural compared to 83 percent of urban residents had access to safe water. Only 23 percent of rural and 42 percent of urban residents have access to sanitation services.

Rural-Urban Dynamics and Policy implications

Several factors exacerbate the challenge of narrowing rural-urban disparities in poverty and access to basic services. The rural poor migrate to cities in search of better paying jobs and basic amenities. Migrants with basic education and good health usually find better paying jobs. In rural Kagera in Tanzania, consumption increased more than 120 percent for migrants but only 40 percent for non-migrants.

1.      Since Sub-Saharan Africa’s poor are disproportionately concentrated in rural areas and cannot migrate at once to urban areas to enjoy the benefits of urbanization, the challenge of delivering MDG-related services is to bridge rural-urban differentials.  Any strategy to attain the MDGs should include increasing rural productivity through the introduction of new farm technologies and investment in the human capital development of rural residents; removal of land market distortions; improved connectivity with urban markets; and a fostering of nonfarm activity and rural-urban migration. Facilitating rural to urban migration can also help the rural poor to escape poverty.

2.      The first best policy solution attain the MDGs is to equalize services across rural and urban areas. But this first best solution may not be financially feasible and it may be necessary for Sub-Saharan Africa to set priorities taking into account country-specific circumstances when allocating resources.

3.      In countries where migration is significant, and population density in rural areas is low, boosting urbanization through better service delivery in large cities would make them more attractive, and speed up rural to urban migration. Delivering piped services (water and sanitation) in densely populated areas is more cost effective. According to a global study, on average, the cost of a cubic meter of piped water is $0.70—0.80 in dense populated areas compared with $2 in sparsely populated areas. To find better paying urban jobs, rural migrants would need to have basic education and be healthy. Public investment in primary education and health care should be directed to the poor in urban and rural areas. This seems relevant for sparsely populated countries with low urbanization rates as in Sub-Saharan Africa.

4.      In countries where migration is limited but population density is high, differentials in poverty and availability of basic services between poorly served rural areas and better served large cities are unlikely to shrink sufficiently. Progress toward the MDGs would be accelerated by delivering services – primary education, primary health care, and piped services (access to safe drinking water and sanitation) – wherever the poor are concentrated.

5.      In situations where people are concentrated in small towns with little prospect of moving, policies should focus on improving connectivity with other urban centers. Measures to better connect the activities in small towns with the economies of large cities become paramount for the creation of nonfarm jobs.

6.      In all three cases, investment in portable services (education and health care) would optimally be provided wherever the poor are. But in countries with high migration and low population density in rural areas, delivery of non-portable infrastructure services in larger cities would be more cost-effective and more supportive of urbanization and industrialization, and could be prioritized as such.

7.      Governments can leverage the suite of macroeconomic policy instruments to spur urbanization through a coordinated approach that includes planning, connecting, and financing.

a.       Planning – charting a course for cities by setting the terms of urbanization, especially policies for using urban land use and expanding basic infrastructure and public services. Strengthening the institutions for land management is key. A successful model is Bogotá (Colombia).

b.      Connecting – making a city’s markets (labor, goods, and services) accessible to other neighborhoods in the city, to other cities, and to outside export markets. Connecting firms and people with markets can only be successful if public transport is affordable. An example of a successful model of affordable public transport is Curitiba (Brazil).

c.       Financing – finding sources for large capital outlays needed to provide infrastructure and services as cities grow and urbanization picks up speed.

8.      To reduce the number of slum dwellers needs a dedicated approach. Land tenure, land pricing and connectivity of residential and commercial areas’ policies for slums should be consistent with corresponding policies for cities. Government should take advantage of slum dwellers’ willingness to pay for services and low unit costs of service delivery in cities to provide basic health, education services and access to piped services in slums (public toilets and water to slum dwellers in creative ways such as putting water fountains in public places).

Figure 1. Sub-Saharan Africa (developing countries weighted by population)