Challenge and Opportunity
Unprecedented urbanization is transforming the planet and the way we live. For the first time in history, more people live in cities than in rural areas. Some 90 percent of this urban expansion is taking place in developing countries, with another 2.5 billion people expected to move into urban areas in the next 25 years. Much of this urban expansion occurs near natural hazards, along rivers and coastlines, and through informal and unplanned settlements. Lack of adequate infrastructure, land use planning and building codes exacerbate the risks to which urban dwellers are exposed. This greater concentration of people and assets means that the impact of natural disasters and a changing climate can be devastating, in lives lost and livelihoods destroyed. The poorest people are always the most vulnerable.
Currently, there is a disconnect between investors seeking opportunities and city leaders looking to finance their infrastructure needs. In some developing countries, the market is not yet sufficiently developed to enable the flow of capital into urban infrastructure projects. Many cities need support to make the most of their existing assets and apply risk-mitigating and capital enhancing mechanisms. Despite strong investment interest in emerging market infrastructure, perceived risk, a lack of well-prepared projects and high transaction costs can inhibit deployment of capital.
The World Bank Group is working to overcome these challenges. For example, in the city of Can Tho in Vietnam, a package of investments across six development sectors is helping increase the city’s physical, financial and social resilience to extreme climate events. And, as part of its financial and advisory services to cities in more than 60 countries, the IFC recently committed a $50 million loan to support the development of a low-emission, climate-resilient urban transportation system under the City of Buenos Aires, Argentina Urban Transformation Project. The project supports new efficient bus lines and new infrastructure for bicycle transportation.
A new City Resilience Program (CRP), supported by the Global Facility for Disaster Reduction and Recovery (GFDRR), will assist city governments to build resilience to climate and disaster risks by connecting them to the finance they need. It will catalyze a transparent pipeline of well-prepared and bankable investment opportunities, enabling private and institutional investors to enter new markets. It will facilitate strategic investments that address the vulnerabilities and risks that cities are now facing.
CRP will catalyze deal flows for investors by supporting city governments in the design of large-scale investment programs. The focus will be on reducing transaction costs including through capacity-building to governments to move to investment readiness, and facilitating negotiations between cities and investors. It will leverage the World Bank Group’s risk mitigation instruments and help mobilize other co-financing institutions. CRP advises cities where and how to access capital for infrastructure investments, through direct lending, public private partnerships and strategic use of land assets.
In the medium to long-term, CRP is working to catalyze a transparent pipeline of climate smart investment opportunities. It will create a marketplace that connects cities and investors. The first phase starts with 30+ cities but is expected to scale up to 500+ cities within 10 years. If CRP is successful, this will become business as usual, no longer a frontier barrier of opportunity and undue complexity.
Key Facts & Figures:
- In recent years, the World Bank has worked in more than 7,000 cities and towns across 130 countries, investing $4.2 billion during fiscal year 2017 in disaster risk management, and committing over $50 billion through more than 900 projects with climate-related activities.
- With its innovative tools and powerful financing products and services, the WBG is helping the urban poor and boosting resilience at the household, community, city and regional levels.
- IFC’s Cities Initiative focuses on addressing the financing gap for sustainable urban infrastructure by attracting private capital to the sector. This is achievable through capacity building and financial structuring solutions. In the last 10 years, IFC invested more than $12 billion in over 350 urban improvement projects and provided advisory services to cities in more than 60 countries.
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