South Asia Not Taking Full Economic Advantage of Urbanization

Although they have made progress, South Asian countries have struggled to make the most of the opportunity urbanization provides them to transform their economies to join the ranks of richer nations, a World Bank report released today said.

Difficulty in dealing with the pressures that increased urban populations put on infrastructure, basic services, land, housing and the environment have fostered what the report calls “messy and hidden” urbanization. This, in turn, has helped to constrain the region’s full realization of the prosperity and livability benefits of urbanization.

“If managed well, urbanization can lead to sustainable growth by increasing productivity, allowing innovation and new ideas to emerge,” said World Bank Managing Director and Chief Operating Officer Sri Mulyani Indrawati.

“Better cities can help reduce poverty, improve living conditions and create the environment for more and better paying jobs,” she added in releasing the report titled Leveraging Urbanization in South Asia: Managing Spatial Transformation for Prosperity and Livability.

Annette Dixon, Vice President for the South Asia Region of the World Bank, said policymakers in the region face a choice: Continue with the same policies or undertake reforms to tap into the unrealized potential of South Asia’s cities, where the urban population increased by 130 million from 2000 to 2011 and is poised to grow by almost 250 million in the next 15 years.

“It is essential to move forward,” Dixon said. “It won’t be easy, but with the right policies and investments, South Asia’s cities can be much more livable and prosperous.”

Since 2000, the report found, South Asia has made good strides in achieving greater prosperity with the increase in productivity linked with the growing number of people living in the region’s towns and cities.

Still, South Asia’s share of the global economy remains strikingly low relative to its share of the world’s urban population, and, in general, urbanization in the region remains underleveraged. The share of the region’s population officially classified as living in urban settlements increased only marginally from 27.4 percent in 2000 to 30.9 percent in 2011, an annual growth rate of 1.1 percent.

“A big reason South Asia is not fully realizing the potential of its cities for prosperity and livability is that its urbanization has been messy and hidden,” said Peter Ellis, a lead urban economist with the World Bank’s Social, Urban, Rural and Resilience Global Practice who helped lead the team that prepared the report.

Messy urbanization is reflected in the estimated 130 million people living in slums and the increasing sprawl associated with faster population growth on the peripheries of major cities, often in areas beyond municipal boundaries. Hidden urbanization, the report said, stems from official national statistics understating the share of the region’s population living in areas with urban traits.

To better tap into the economic potential that urbanization offers, South Asia’s policymakers should consider actions at two levels – the institutional level and the policy level. At the institutional level, the region would benefit from improvements in the ways in which towns and cities are governed and financed. Specifically, the report said that reform is required to address three fundamental deficits – in empowerment, resources and accountability:

Intergovernmental fiscal relations must be improved to address empowerment.
Practical ways must be identified to increase the resources available to local governments to allow them to perform their mandated functions.
Mechanisms must be strengthened to hold local governments accountable for their actions.
While a necessary pre-condition for meaningful progress, however, these reforms by themselves will not, according to the report, suffice. To tackle messy urbanization and bring about lasting improvements in both prosperity and livability, policies are also required to improve the ways in which cities are connected and planned, the working of land and housing markets, and cities’ resilience to natural disasters and the effects of climate change.

For more information on the report go to: www.worldbank.org/southasiacities