In 2015, for the first time, UN member countries adopted an international development agenda which focuses as much on results as on actors and processes. SDG 11 about cities is an example of this: for the first time, it establishes sustainable development as a goal in itself. To achieve these SDGs of processes we need to focus on the major transitions which everyone has to undertake: energy, social, demographic, digital and political transitions.
Partnerships will be essential in addressing the challenges of these five transitions – this is the purpose of SDG 17 on the global partnership. For development banks, it means more partnerships with cities, which constitute the relevant level to implement the balanced, inclusive and resilient urban development which the international community has pledged to build by adopting a New Urban Agenda in Quito (Habitat III, 17-20 October 2016). Furthermore, developing and emerging countries have not got it wrong: in recent years, many of them have launched processes to empower local authorities. Today, it is all about developing this empowerment into transformative capacities. To be sustainable, the urban development engine needs to be lubricated with local resources. The role of States is essential in this, with developing banks playing a complementary role. Developing banks must be able to finance cities directly, as AFD and CAF already do.
For sustainable urban development, strengthening local finances is key
There needs to be real local financial autonomy: States need to give their cities the resources to function, by providing them with sufficient and predictable financial transfers. But cities also need to acquire greater fiscal autonomy: States need to allow them to leverage more own resources in order to prepare better for the future. In addition to financial transfers, they need to have all the possible budgetary leverage: tax revenues (base and rate), public service revenues, and borrowing (banking or bonds for the most advanced cities).
Building the capacities of territorial public functions is one component of the project which development banks need to launch in order to implement the New Urban Agenda. An other component is about the exterior financing of sustainable urbanization.
It is essential to reconsider the range of financing of development banks
There are huge gaps between the current financing capacities of local authorities and local investment needs (for example, in the region of 1 to 25 in Africa). Consequently, development banks will need to expand their range of financial tools in order to reach a greater number of local authorities. They will need to be less cautious and more innovative in their financing: this is what the New Urban Agenda adopted in Quito asks them to do.
They will, amongst other things, need to pursue five objectives. The first is donor coordination.
Secondly, it will be necessary to seek leverage effects, which are crucial in maximizing the impact of aid in these times of budget constraints, in particular by making greater use of loan-grant blending facilities (in the European Union, development banks now have a powerful tool thanks to the EUR 8bn of grants which the Commission has decided to allocate to the EU’s blending facilities between 2015 and 2020).
Thirdly, an increasing number of developing banks will need to be able to lend directly to cities, with or without a State guarantee, in addition to the reallocated sovereign loans. Direct loans to cities, as well as being in strong demand from our partners in the South, can establish the credibility and legitimacy of cities towards markets. This can be seen with the example of the City of Dakar: following a direct AFD loan in 2009 (EUR 10m), in 2011 and 2012, for the first time, it attracted two direct loans from a commercial bank.
Fourthly, the financing of urban projects with climate co-benefits must be a priority. A number of cities in developing countries are vulnerable to the damaging effects of climate change. Development banks must assist them in defining their climate strategies and help them transform these strategies into concrete investments. We need to stand alongside cities during the preparation phase for investment projects, which is still too often a blocking factor from a financial point of view.
Fifthly, it is necessary to develop decentralized cooperation. Development banks must promote dialogue between the cities in their countries and the cities in the countries they finance. For example, in Porto-Novo (Benin), a sustainable urban development project combined with a technical cooperation program for municipality services has involved AFD, Greater Lyon and the Urban Community of Cergy-Pontoise.
The SDGs commit us to build inclusive societies that leave no one behind. As donors, we need to apply this principle to cities, and not leave secondary cities behind in our financing. These cities with less than a million inhabitants are, so to speak, “the new frontier” of development finance: they are growing at a very fast rate in Sub-Saharan Africa and Asia, yet they desperately lack own financial resources and capacities, including institutional capacities. To meet the needs of these cities (loans with longer maturities, etc.), it is necessary to develop incentive tools to mitigate risk (guarantees), in order to promote the development of a range of products for local authorities in the private banking sector. Finally, we need to consider solutions to promote access for cities to disintermediated financing, including creating alliances between secondary cities which would not be able to go on the bond market alone.
Strengthening local actors: an engine for good governance that benefits all
There will be no sustainable urban development without the participation of local communities: it is an issue of citizenship, it is an issue of governance. In this respect, the Addis Ababa Action Agenda (AAAA), adopted in 2015 to finance sustainable development, calls on us donors to adopt a modest position, and to undertake a paradigm shift. We need to be more agile, and go beyond declarations of intent in order to give local communities the rightful place that the AAAA recognizes for them in processes for making decisions which mainly concern them (paragraph 34 of the AAAA). To put it simply, our priorities are those of our partners. We need to move from project financing to the financing of actors, who become the contracting authorities for projects designed to meet the needs of communities as closely as possible.
The only way to create the conditions for the achievement of the SDGs is to place local actors at the center of development. The ball is now in the court of States, and their political will. Processes for local autonomy do not aim to undermine the legitimacy and resources of States, which are already fragile. They aim to strengthen territorial and social cohesion. They ultimately have the potential to strengthen the loyalty of communities towards a national territory, a State which meets the needs of its citizens by committing to the future of a common home: the planet.