The urban age is upon us. For the first time in history, more people now live in cities than in the countryside. Virtually all world population growth for at least the next fifty years will be in cities, and the cities of the developing world will absorb most of this increase. This phenomenon should be viewed positively because there is general agreement that urbanization is fundamental to sustained national economic growth — indeed no country has achieved higher income status without greater urbanization. However, rapid urbanization is often an overwhelming management and financial challenge for developing country governments.
The increasingly concentrated poverty in urban slums is a consequence of urbanization. One billion people now live in slums in the developing world and that number is sure to increase. The promise and challenges of 21st century urbanization combine to offer an unprecedented opportunity to leverage U.S. foreign assistance in order to alleviate poverty and generate economic growth. To do so adequately, the U.S. will need a better foreign assistance structure with an increased urban development focus. Urban programs are a proven, effective, and efficient use of limited foreign assistance resources.

Ever increasing urbanization is a defining characteristic of the 21st century. Inexorable rapid urban growth will shape the future of countries in the developing world, particularly in Africa and Asia. Greater population density and economies of scale give cities and towns enormous efficiency advantages that can attract businesses and provide markets, with the informal sector making important contributions to urban economic vitality. Numerous micro- and small enterprises hold the potential to become larger businesses. And the urban poor are a resourceful and energetic source of productive labor and potential purchasing power.

In 2008, for the first time, a majority of the world’s people lived in cities. This ongoing broad demographic transformation is nowhere more dramatic than in the developing world. And the urbanization drumbeat is projected to continue until at least mid-century. UN HABITAT estimates that the urban population in developing countries will increase from 1.9 billion in 2000 to more than 3.9 billion in 2030, equivalent to 70 million people per year.
Globally, the largest 100 cities produce nearly 25 percent of the world’s GDP

To unleash the full capacity of the developing world’s urban areas for growth, a multitude of challenges now inhibiting their economic potential and their capacity to provide a healthy living environment for their inhabitants must be realistically faced and tackled. These include a significant shortage of decent affordable housing, especially for the poor; the abysmal housing conditions and the horrific physical environment in which many of the urban poor live, work, and raise their children; lack of a clean and adequate water supply; underinvestment in transportation; deteriorating natural environments; negative impacts of global climate change; and social instability — all of which reduce the efficiency with which developing cities function. This section briefly reviews each of these areas of need. We start, however, with a review of the characteristics of the urban poor population in developing countries, defined as those who live in what the UN identifies as slums (i.e., areas with the following five shelter deficits: lack of access to improved water, lack of access to sanitation, nondurable housing, insufficient living area, and insecurity of tenure).

In many metropolises the problems are so great and growing so rapidly that the task of achieving significant improvement in the urban fabric is truly daunting. Is there sufficient accumulated experience with successful programs that one can be confident that more resources can be effectively used? The answer is an emphatic “yes,” as the following cases illustrate. Unfortunately, only a modest share of urban development projects has been properly evaluated. We selected these particular examples because they illustrate success and they are comparatively well-documented.

The examples just reviewed give confidence that discrete projects and programs across a range of sectors can be successfully executed in municipalities. The reality, however, is that such projects and programs often succeed in spite of the broad policy environment in which they are implemented, rather than being facilitated by it. Donors often circumvent these problems as best they can by demanding special operational arrangements for specific projects. For its slum upgrading projects, for example, the Inter- American Development Bank (IDB) requires that (a) the national government transfer project funds to the municipality; (b) procurements be done by the municipality following IDB regulations; (c) a qualified technical staff be in place for the project; and, (d) a single decision point be established for all project aspects (water, land, etc.), which is usually the municipal planning department. Not surprisingly, given the difficult policy environment, a continuing challenge for municipalities is in “scaling up” demonstration projects to activity levels that significantly mitigate the problems addressed.

Of the 500,000 people who migrate to Delhi, India each year, it is estimated that fully 400,000 end up in slums. By 2015 Delhi will have a slum population of 10 million.