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Aid dependence and urban management

Rapidly growing urban populations place increasing demands on land, housing, services, and infrastructure, but weak revenue bases, lack of technological and administrative capacity amongst the agencies responsible for urban development, and vulnerability to evasion or exploitation by those with political and economic power prevent provision keeping pace with need. The result is environmental damage, deteriorating living conditions, especially for the urban poor, and lack of the political legitimacy needed to improve revenue collection and regulatory processes. Recognition of urban bias in spatial investment and non-spatial policies by the 1970s led to an overreaction. Aid flows switched almost entirely to rural development, with the partial exception of those from the World Bank and USAID. Governments, despite the political power of urban populations, had declining volumes of resources and often misdirected them into ineffective or prestige investment. The result was that local administration and services deteriorated. In this chapter, the particular role of external agencies is the focus of attention and, as a result, the analysis applies predominantly to the most aid-dependent countries. Urban management more broadly will be considered both in the course of the city case-studies and also in part III.

Africa's aid dependency has brought with it policy conditionality not merely for economic policies but also for spatial investment. The World Bank's first attempt to tackle urban problems started in the early 1970s (World Bank, 1972). Although it had previously funded some macro-infrastructure projects, its new interest in urban problems coincided with its president's attempts to reorient its lending towards poverty-focused priorities, in particular the needs of the bottom 40 per cent of the income distribution. Its search for appropriate locations for pilot projects based on the principles of affordability, cost recovery, and replicability coincided with the dawning realization in low-income countries that traditional methods of catering for newly formed urban households by the construction of complete conventional housing units for rent or sale were unrealistic in situations of rapid population growth and strained resources. In Senegal and Zambia, the World Bank identified promising locations for its first two projects, both based on sites and services, with the latter also incorporating upgrading of unauthorized areas. Although the Bank envisaged the first projects as both pilot and demonstration projects, and located them in the capital cities of the respective countries in the hope that they would later be replicated throughout the urban system, their large scale, the conditions of World Bank lending, and other problems slowed their implementation and prevented modifications being made as design problems emerged. For various reasons, neither project was replicated, although some of the lessons were fed into later projects of the same type in other African countries. Other early projects were located in Botswana and Tanzania, and between 1972 and 1978 there were 12 altogether in SSA (Okpala, 1990) and by 1984 a further 13 (World Bank, 1986). Few, however, were 100 per cent successful with respect to the principles on which they were based: most sites and services projects were not affordable by the poorest, hidden subsidies were common, cost recovery problems were widespread, and replication rare. Other funders, especially USAID, which was funding 14 projects in 1984, adopted similar approaches (World Bank, 1986). Thus in 1985, out of the 72 projects identified for the International Year of Shelter for the Homeless in 28 African countries, 60 per cent were externally funded (Okpala, 1990).

By the later 1970s it was clear to many observers that there were problems associated with project-based lending, some of which resulted from the external funding and some from the process of project planning and implementation. The requirement for most of the significant decisions with respect to project design, implementation, and cost recovery to be agreed at the appraisal stage, prior to loan approval, and for agreed schedules of implementation to be adhered to, firstly deterred participation in project planning even in unauthorized areas and where local political and official forces were sympathetic and, secondly, made it difficult to modify project components that proved inappropriate or unworkable in practice. The establishment of separate project units to implement externally funded projects was a mixed blessing: they permitted external agencies to keep track of funds and insist on their correct use, and local implementors were able to avoid red tape and recruit appropriate staff, but they also led to problems of integrating newly serviced areas into ongoing systems of administration and service operation and maintenance. In addition, few of the projects resulted in an improved capacity with respect to land delivery, infrastructure provision, operation and maintenance, building materials production and supply, or housing finance (Rakodi, 1991; see also Rakodi, 1992b).

By 1983 the World Bank had also begun to recognize some of these problems (World Bank, 1983; Cohen, 1983, 1990) and the emphasis of its lending programmes and those of USAID shifted. Inadequate local revenue generation and the limited volume of mortgage funding that the public sector was able to make available were perceived to be major constraints on the larger-scale provision of serviced plots. Attention was paid to local revenue generation from the mid-1980s, when, for example, a USAID study in Burkina Faso was carried out (Mabogunje, 1990). A desire to tap into private sector funds for low-income housing, an ideological belief that private sector institutions would be more efficient in disbursing and recovering loans than public sector institutions, and an underlying desire to extend the reach of international and domestic large-scale capital led to a major focus on housing finance. USAID had established a Housing Guarantee programme in the early 1970s, which mobilizes private bank funding in the United States through a Congressionally sanctioned government loan guarantee. Attempts were made to create self-supporting financial intermediaries capable of making loans to low- and moderate-income households and to reduce and restructure housing subsidies (especially to eliminate subsidized interest rates) (World Bank, 1993). This was much easier in Asia and Latin America, with their more developed financial sectors, than in Africa and, although the worldwide volume of Bank shelter-related lending increased, it also shifted towards higher-income countries (World Bank, 1993, p. 57). The limitations of the approach and its vulnerability to economic downturn are revealed by the Zimbabwe experience (Rakodi, 1995b; see also Pugh' 1994). Following an overall review of experience (UNCHS, 1987), the new emphasis was nevertheless endorsed by the UN (UNCHS, 1990) and the World Bank (1993) as a strategy for housing based on enabling and facilitating the private sector to address the housing needs of all income groups including the poor.

Parallel with this attention to the housing sector was a recognition that most cities were so poorly serviced that they could not maintain their roles in national economies as the centres of administration and suppliers of rural inputs, let alone satisfy the basic needs of their inhabitants. By the mid-1980s, in the face of "worldwide economic stagnation, the economic benefits of urbanization were revisited" (Stren, 1993, p. 127) and the inhibiting effects on private sector investment of infrastructure neglect recognized (Peterson et al., 1991; Lee, 1993; Becker et al.' 1994). In Tanzania, for example, while the economy stagnated, the per capita decline in expenditure on infrastructure and services was -11 per cent per annum between 1978/79 and 1986/87. As a result, large firms had to lay off workers sporadically in response to irregular water and electricity supplies; this in turn resulted in lower production, lower profits, and lower yields from taxation (Stren, 1993, p. 128). Simon examines urban basic needs satisfaction in chapter 3, using the example of Maputo in Mozambique.

In 1991 a World Bank policy document set out a new agenda designed:

(i) to improve urban productivity by remedying infrastructure deficiencies, rationalizing regulatory frameworks, strengthening local government, and improving the financing of urban development;

(ii) to alleviate urban poverty by increasing demand for the labour of the poor, investing in health and education, and supporting safety nets and compensatory measures to deal with transitional problems caused by SAPs; and

(iii) to protect the urban environment by raising awareness, improving the information base, and developing city-wide environmental strategies and programmes of action (World Bank, 1991a; Cohen, 1992; Cohen and Leitmann, 1994).

To implement this agenda, an increase in World Bank lending was anticipated, and a shift in emphasis from neighbourhood investments in shelter and infrastructure to city-level policy reform, institutional development, and city-wide investment in infrastructure. The Urban Development Cooperation Strategy of the UN Development Programme (UNDP), "Cities, People and Poverty," shares the goals of making cities economically viable and productive, as well as environmentally sustainable, and strengthening the capacity of local government. It apparently places much more emphasis than the World Bank on the need for social justice and participation, by means of poverty alleviation measures, including assistance to small-scale enterprises; enabling and participative strategies for the provision of infrastructure and services; and support for initiatives by non-governmental organizations to improve the environment (Cheema, 1992).

Together with the UN Centre for Human Settlements (UNCHS) and UNDP (and later some bilateral donors too), an urban management programme (1986-1999) was agreed that aims to work with developing countries to strengthen the contribution that cities and towns make toward economic growth, environmental quality, and the reduction of poverty. The programme now works in five areas: land management, infrastructure management, municipal finance and administration, environmental management, and poverty alleviation (World Bank, 1991b). It operates in Africa through a regional office, initially in Accra and now in Abidjan, using city and country consultations as a basis for policy formulation and regional networks of expertise to provide technical advice on the implementation of action plans. The programme is underpinned by earlier World Bank research (for example, Bahl and Linn, 1992, on urban finance) and an ongoing research programme as part of which a series of research and advisory publications are being produced. By the late 1980s, lending to strengthen municipal finance, infrastructure investment and management, and land management had increased (Wegelin, 1994).

As yet, there have been neither published in-house evaluations nor independent external evaluations of the World Bank's new urban agenda and the urban management programme (UMP). However, concerns have been expressed about the assumptions upon which it is based, the gap between policy and implementation, and its relationship to the wider economic policies advocated by the same institutions (Jones and Ward, 1994). Harris (1992), for example, considers that the measures intended to increase urban productivity are not based on an adequate understanding of the structure, competitive advantages, and disadvantages of city economies. Stren (1993) criticizes the agencies' failure to define what is meant by urban management, although he recognizes that this is in part to retain organizational flexibility. The term has become popular, Stren suggests, because of its ideological appeal, given its association with business management, and the desire of the funding agencies to harness private sector resources. Nevertheless, it can be used to encapsulate conceptual and practical advances in approaches to planning for urban growth (Devas and Rakodi, 1993). There is, in addition, a certain political naively in the published documents (Jones and Ward, 1994). For example, the mentions of participatory approaches seem to be made with little understanding, as exemplified by the suggestion by UNDP's programme manager that "we [sic] must organize the urban poor at the community level to increase their capacity to make demands on the urban system" (Cheema, 1992, p. 27). It is unclear if he is implying that the international donor agencies intend to adopt a more proactive role in local political systems, from which they have typically distanced themselves. Harris (1992) also points out that many World Bank and UMP projects are still concerned with traditional land management, household services provision, and housing rather than city-wide institutional strengthening.

Structural adjustment lending, with its economic and political conditionalities, forms the context within which the new emphases in urban lending will be implemented. Although the municipal development funds being established in a number of countries as part of World Bank-funded projects promise a more regular supply of capital funds, they do not of themselves solve all the difficulties in the political relationships between the central ministry responsible and local councils. The ability of local authorities and other agencies to achieve good yields from a variety of revenue sources is threatened by the pressure on them to lay off staff and the likelihood that, in a situation of declining real wages, staff are likely to have to continue and diversify the survival strategies they have already developed. Without adequate administrative capacity, service delivery is often not good enough to persuade users to pay their charges or taxes; poor service delivery in turn diminishes the political legitimacy of local authorities and makes it more difficult to enforce regulatory instruments and tax collection.

By the end of the 1980s, the World Bank (1991a) was more explicit about the expected impacts of adjustment on urban populations. Firstly, urban labour markets were expected to contract and unemployment to increase as a result of civil service cut-backs and labour shedding by industries adversely affected by import liberalization. Secondly, there would be what was hoped to be only a short-term decline in real incomes, as wages stagnated and prices of imports and subsidized goods and services rose. Thirdly, cuts in expenditure on and increased charges for education and health services might reduce access to them by the urban poor, unless compensatory mechanisms were introduced. It was also thought likely that the slow-down in formal sector employment and wages was likely to hurt the informal sector, although it was considered that this might be partly compensated for by increased demand for informal sector products and services both when these substitute for imports and where rising rural incomes lead to increased demand. It was considered possible that rates of rural-urban migration would decline as employment opportunities shrank in urban areas, and that the transition would be eased by reliance on extended family networks. The realities of economic and social trends are analysed by Rogerson in chapter 10 and Potts in chapter 13 respectively.

Adjustment programmes in African countries have typically been associated with very slow growth or a decline in formal sector employment; reductions in public sector employment, even if less extensive than planned (World Bank, 1994), have not been compensated for by increases in private employment, because rapid trade liberalization has undermined local industries given too little time to adjust to changed local circumstances. Real (non-agricultural) average and minimum wages fell 25 per cent between 1980 and 1985 in two-thirds of the countries for which data are available (ILO-JASPA, 1989, quoted in Jesperson, 1992), and country studies show a continuation of this trend in the later 1980s. Although deliberate policies aimed at reducing labour costs were intended to increase competitiveness, lower real wages have a dampening effect on consumer demand and thus on domestic markets for formal and informal sector products. They also have adverse effects on efficiency in both the public and private sectors when they fall below the amount necessary to support a household. What evidence there is shows that urban populations in most cases have responded by devoting increased time to a diversified set of informal economic activities, rather than by return migration to the rural areas (O'Connor, 1991; see chap. 13). The informal sector has expanded to absorb increasing numbers of people, but many of the economic opportunities yield limited returns, especially those available to people without access to capital (Jesperson, 1992; see also Stewart, 1991, and chap. 10). The unstructured markets favoured for capital, it has been pointed out, do not level the playing field between large and small enterprises; they discriminate against the latter (Stewart et al., 1992). The optimism with which the agencies expect the informal sector to absorb additional labour is threatened by shrinking demand as the formal wage bill shrinks, while former civil servants and formal sector employees do not necessarily have the skills and qualifications necessary to be successful in self-employment. The shrinkage of the formal sector may also decrease tax revenue, since any form of tax is harder to collect in informal systems of marketing, employment, or housing development. However, municipalities need a sound financial base, well-trained staff, and political legitimacy in order to improve their administrative procedures and service delivery.

Real government expenditure per capita stagnated or fell in most countries in the region, as required by SAPs, and the pattern of expenditure also changed. Despite World Bank encouragement for appropriate micro-credit schemes, expenditure on public works for upgrading and maintenance of urban infrastructure, and "shielding public expenditure on key health, education, nutrition and other basic welfare services" (Seralgeldin, 1989, p. 50) in order to protect those most vulnerable to cuts, spending on health care, education, economic services, and infrastructure was disproportionately cut (Stewart, 1991; Logan and Mengisteab, 1993). Such cuts reflected not government policy changes but the resources available once increased debt repayments had been allowed for (Jesperson, 1992). Some governments made efforts to redirect expenditure towards primary education and basic health care, but these efforts were threatened or negated by reduced resources and the introduction of user charges. In theory, prices for water, energy, health, education, etc. can be structured progressively. In practice, the balance of interests in most countries has militated against political commitment to progressive price structures (Jones and Ward, 1994), while measures to protect the poor from price increases have often been badly designed and under-resourced (Rakodi, 1995c). As a result, and exacerbated by falling real wages and increased unemployment, defaults have increased, so that the flow of revenue is insufficient to build up local capacity to provide the quality of service people will be willing to pay for. Although evidence is patchy, and sometimes contradictory and inconclusive, there is some indication of worsening nutritional and health status among vulnerable groups, declining school enrolment, and deteriorating basic educational achievements. The pressures have had a particularly adverse impact on women (Stewart, 1991). Reduced expenditure on education and training adversely affects the quality of the available workforce, as does the poor health associated with deteriorating infrastructure, inhibiting the mobilization of private sector investment in manufacturing, while poor health reduces the ability of children to absorb education (Harris, 1992; Stewart et al., 1992).

Programmes introduced to compensate the newly unemployed (severance payments, retraining, credit, etc.) have generally absorbed most of the available funds without reaching the poor, while programmes to assist the chronically poor (public works schemes, nutrition support, and targeting of subsidized education, health care, and food) may mitigate some of the immediate adverse effects of impoverishment but do not address its structural causes. Meanwhile, basic SAP policy packages have not been redesigned either to eliminate these adverse effects or to reduce poverty (Stewart, 1991). Whether lessons from better-designed programmes, such as the GAPVU programme in Mozambique (Schubert, 1995), or recent work at the Bank (Moser et al., 1993) will succeed in improving these programmes remains to be seen.

The blanket faith in the private sector on which SAPs have been based has also been subject to criticism. We have noted above that FDI is unlikely to show any marked increase in volume. It cannot be relied on for the development of manufacturing and is even less likely to be interested in investment in infrastructure and housing. Development will, therefore, depend on the level of domestic savings and investment, which, it is hoped, will increase with interest rate reforms. Some doubt, however, has been thrown on the expectation that higher interest rates will generate increased investment (Helleiner, 1992). It is by no means certain that the funds will be there for local authorities to borrow from the private sector or that the housing finance system will be able to rely on private sector savings. Investment is a function of household income and, as long as incomes are depressed, it is unrealistic to expect savings - for investment in formal sector financial institutions, owner-occupied housing, or small enterprises - to increase at the cost of consumption (Jamal and Weeks, 1993).

The new approaches to housing and urban development are, in many respects, to be welcomed. This brief and incomplete assessment has shown that many of the assumptions on which they are based fit logically with the premises of SAPs. However, not only can many of these assumptions be challenged (Jones and Ward, 1994), but there are notable inconsistencies between the effects of SAPs and the aims of the new urban agenda, as recognized even by some World Bank staff (Cohen, 1990).

Conclusion

The main foundations for Africa's incorporation into the world economic and political system were established during the colonial period, which left a political, economic, and urban legacy that survived the 1960s, despite the attempts of African countries to secure both political independence and economic autonomy. Political independence did bring a degree of autonomy, but this was eroded by superpower interest and continued economic dependence. In addition, with respect to domestic politics, states were beset by a wide range of difficulties, resulting in political instability and administrative weakness. Both took a variety of forms and in many cases influenced patterns of urbanization and adversely affected the capacity of the public sector, especially local government, to manage urban development. The colonial period was marked by a reorientation of urban patterns to serve the needs of trade and administration. Some existing settlements prospered, while others stagnated or decayed, and a series of new centres was established. There has been relatively little change to this pattern since independence, and what change has occurred has been associated with administrative rather than economic change. The rate of urban growth increased, owing, inter alia, to expansion of public sector employment, attempts to industrialize, an increased rate of natural increase, and relative neglect of rural areas. Per capita economic growth was fairly widespread in the 1960s and some progress was made in some countries towards economic diversification and indigenization.

However, the 1970s and 1980s were marked by a series of setbacks, many, but not all, of which were outside the control of African governments. Some, for example oil price increases and deteriorating terms of trade for primary commodities, were exogenous and some, such as drought, endogenous. They are a crucial element in the explanation of Africa's continued underdevelopment and its inability to break free of the vicious circle into which it is locked. The structure of production in north Africa has become more industrialized, with a reduction in the role of agriculture from about a quarter to less than 20 per cent of GDP in most countries, while manufacturing is now just under a fifth and services a half. However, in SSA, despite a relative decline in the importance of agriculture (from 40 per cent of GDP in 1965 to 32 per cent in 1990) and minerals, services and especially manufacturing are still relatively unimportant. This failure to industrialize can partly be explained by external factors, but a variety of domestic factors must also be taken into account, including economic policies, the effects of personal rule, historical and social structure, the role of the state, and low levels of literacy and skills (Killick with Malik, 1992).

The globalization of manufacturing has been reflected in the emergence of a new international division of labour, which has provided a basis for industrialization in the early and more recent NICs. African countries sought FDI in order to develop their manufacturing sectors, and in a number of countries considerable progress with import substitution industrialization was made. However, the desired progression from import substituting to export industry has been elusive. Although some aspects of the reforms advocated by the IMF and World Bank are desirable to counteract previous biases against export industry, these will not necessarily enable countries to gain access to markets, while import substitution industry has been adversely affected, at least in the short-medium term, by rapid trade liberalization. The main thrust of SAPs has, however, been to encourage increased primary commodity exports to earn foreign exchange and repay debt. This has, firstly, by flooding world markets with increased volumes of certain commodities, exacerbated the problem of declining terms of trade and, secondly, re-emphasized colonial trade patterns (static rather than dynamic comparative advantage) (Jamal and Weeks, 1993). Meanwhile, the increased flow of FDI in manufacturing anticipated following liberalization has not materialized and even the international agencies now recognize its volume is unlikely to grow in most countries (Husain, 1993).

In part because of the financial demands of internationalized manufacturing capital, the globalization of services has also occurred and has contributed to the emergence of "world cities," pre-eminent in financial and business services. The congruence of a global services sector and dynamic export-oriented manufacturing in the West Pacific Rim countries has given rise to rapid development of systems of cities with Tokyo at the apex (Yeung and Lo, 1996). Although there has been some increase in services FDI in Africa, it is mostly in the trade and construction sectors, and the FDI stock as a whole remains concentrated in the primary sector and in relatively few countries. Most of the continent remains marginal to the interests of global capital, the economic underdevelopment and political instability of African countries interacting to perpetuate their marginalization. FDI has an influence on patterns of urban economic activity and development and is crucial to many African economies, because of its interlinkages with trade, technology, and financial flows, despite its low volume in world terms (UNCTC, 1991; Helleiner, 1992). However, it cannot be relied upon to provide the necessary impetus to enable Africa to break out of the vicious circle of underdevelopment, and dependence on aid is likely to continue.

This chapter has reviewed how such dependence renders countries vulnerable to the imposition of doctrinaire economic policies, which have tried to achieve rapid adjustment at the cost of longer-term development goals (Stewart et al., 1992). The agencies promoting such policies have also failed to recognize that economics can never be divorced from politics, social processes, and culture, and that individual countries cannot be treated as if they are independent of their neighbours and of the global political economy (Logan and Mengisteab, 1993). Further, the policies have had adverse impacts on the well-being of a variety of social groups, notably the urban poor (Stren, 1992). In the absence of recent census results, the impact of Africa's economic difficulties on urban growth is uncertain, a point that Simon also emphasizes. Despite policy reforms intended to redress a perceived anti-agricultural, anti-rural policy bias, and some efforts to encourage investment in secondary cities and small urban centres, further concentration in the largest cities has probably occurred, because they continue to provide the most profitable locations for investment and the best prospects for migrants, despite the decline in formal sector employment resulting from recession and SAP implementation. Increased unemployment is seen by the funding agencies as a temporary problem, its effects cushioned by the anticipated expansion of informal sector activity and reliance on extended family networks. However, not only is future growth in formal sector employment at best unpredictable and at worst unlikely, but reductions in the number of employees and declining real wages have a knock-on effect on the ability both of those in informal sector occupations to earn reasonable incomes and of local authorities to collect adequate revenue.

Recognition of the adverse impacts of SAPs on welfare and productivity, together with a realization that cities without adequate infrastructure and services do not provide an efficient location for economic activity, has given rise to a new aid agenda which aims to strengthen the capacity of public and private sector institutions to manage urban growth. Aid for urban development in the past has been influential on policy despite its small volume because much of it has taken the form of technical assistance, although reliance on consultants has given rise to a variety of problems (Meikle, 1988; Okpala, 1990). Aid has also been biased towards the larger cities (Blitzer et al., 1983), perhaps reinforcing their dominant position. Some aspects of the new policy approaches are desirable, but experience with earlier lending gives rise to some doubt about whether the policy packages offered are either appropriate or feasible in the African context, especially given the contradictions between the urban policies being promoted and the design and outcome of SAPs. Further, in the absence of debt write-off, neither the economic nor the urban problems of African countries are going to be solved by increases in lending, which have consistently been less than promised.

Notes

1. Although the classifications and methodology adopted are not consistent with its earlier analyses.

2. Ethiopia 1967, 1984, and 1989; South Africa 1951, 1960, 1970, and 1985; Egypt 1947, 1960, 1966, 1976, and 1986.

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