Study Megacities En

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Sponsored by Siemens

A research project conducted by GlobeScan and MRC McLean HazelSponsored by Siemens

Megacity ChallengesA stakeholder perspective

ContentPage

Key Findings 4

Megacity Challenges: an Overview 10

Stakeholder Priorities: the Big Picture 18

Five Infrastructures 24

Transportation 26

Electricity 32

Water and Waste Water 38

Healthcare 44

Safety and Security 50

City Governance and Finance 56

Conclusions 64

Appendix: Methodology 66

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Megacity Challenges

At some point in 2007, humanity willreach a significant demographic mi-

lestone: for the first time in history morepeople will live in cities than the coun-tryside, according to predictions by theUnited Nations. By 2030, over 60% ofpeople will live in cities. The growth rateis particularly rapid in many of the so-cal-led megacities, cities with more than 10million inhabitants. The megacities listedby the UN already have a total populationof around 280 million. They are increa-singly the growth engines of their respec-tive national economies. But as these cities and economies grow, so do thechallenges. One key issue is the burdenthat growth is placing on urban infra-structures.

Urban residents the world over want— and deserve — a good quality of life.They need good air to breathe, good wa-ter to drink and reliable electricity topower their lives. People need healthcare.They also need to be mobile — so trans-portation systems must be capable oftransporting millions of people whileputting as little strain as possible on theenvironment and city budgets. In otherwords, a good quality of life requires awell-functioning infrastructure. More-over, an effective infrastructure in turn

Acknowledgements

This report was written by the Economist Intelligence

Unit, based on research conducted by MRC McLean Hazel

and GlobeScan.

We would like to thank all those who participated in the

survey for their valuable insights and time.

Shanghai

contributes to economic prosperity, furtherimproving quality of life. Unfortunately,the infrastructure in many cities lags be-hind the population’s needs — a majorchallenge for city governments in bothemerging and industrialized nations.

This report summarizes the key find-ings of a unique global research projectundertaken by two independent researchorganizations with the support ofSiemens, the infrastructure provider. Thegoal of the project was to carry out re-search at the individual megacity level togather objective data as well as perspec-tives from mayors, city administratorsand other experts on local infrastructurechallenges. Over 500 public- and private-sector experts from 25 cities were inter-viewed for this purpose.

The result is a fascinating and, wehope, useful picture of how challengesare prioritized and what infrastructuresolutions are best able to improve the local economy, environment and qualityof life of megacities.

We hope you enjoy reading the report!Prof. George Hazel, OBE, MRC McLean HazelDoug Miller, GlobeScan

Preface

2 Megacity Challenges Megacity Challenges 3

2007will be the year that, for the firsttime in history, more people will

live in cities than in the country. For many, it isthe megacity that symbolizes everything that isinspiring and troubling about this era of rapidurbanization.

Today’s megacities are home to almost onein ten of the world’s urban population. Like allgreat metropolises before them, these mega-cities act as magnets for trade, culture, knowl-

Key findings


Key Findings

01edge and industry, but on an unprecedentedscale. In varying forms, they all face hugelycomplex social and environmental challenges.Achieving the opportunities for human andeconomic development that megacities afford,while improving their many problems, willrequire the development of innovative infra-structure solutions and new approaches to met-ropolitan governance.

This report explores the key challenges and

trends that will shape urban development in 25global cities over the coming years. The find-ings are based on an in-depth survey of over500 megacity stakeholders, including electedofficials, public- and private-sector employees,and influencers such as academics, NGOs andmedia. This survey was supplemented withextensive secondary research, enabling us toshed light on the key challenges faced by globalcities at various stages of development.

New York City

Key findings■ Megacities prioritize economic competitiveness and employment■ The environment matters, but may be sacrificed for growth■ Transport overtakes all other infrastructure concerns■ Better governance is a vital step towards better cities■ Holistic solutions are desired but difficult to achieve■ Cities will seek to improve services, but could do more to manage demand■ Technology will help deliver transparency and efficiency■ The private sector has a role to play in increasing efficiency

Key findings


Megacities prioritize economic competi-tiveness and employment. When askedwhich issues drive decision-making, 81% ofstakeholders involved in city managementcite the importance of the economy andemployment. There is a strong focus on creat-ing jobs, with unemployment emerging as thetop economic challenge for survey respon-dents from Emerging and Transitional cities.Competitiveness in the global economy isanother important consideration. Six in tenstakeholders think that their cities place ahigh importance on making themselves com-petitive to attract private investment whendeciding on infrastructure issues.

The environment matters, but may besacrificed for growth. Stakeholders through-out the survey place a high importance onenvironmental issues. They see air pollutionas the most significant environmental chal-lenge, followed by congestion issues. Six inten stakeholders believe their city’s leadershiprecognizes the vital role that infrastructuredecisions can play in protecting the environ-ment. Environmental issues also featureprominently in the thinking of the infrastruc-ture specialists in the survey: those in trans-port predict an emphasis on mass transit solu-tions, and those in the energy sector show astrong inclination for solutions based onrenewables. But if a choice has to be madebetween the environment and economicgrowth, it is the latter that often wins out.This is particularly so in the developing world,where 55% of stakeholders predict that theircities will sacrifice environmental considera-tions for the sake of increased capacity, com-pared with only 14% respondents in Maturecities who believe that this will happen.

Transport overtakes all other infrastruc-ture concerns. Transportation emerges as

the top megacity infrastructure challenge by alarge margin. It is the one infrastructure areathat stakeholders believe has the biggestimpact on city competitiveness. They are alsohighly aware of its environmental impact (forexample, air pollution) and are keen to move togreener mass transit solutions. It is not surpris-ing therefore to find that transport alsoemerges as the top priority for investment.Stakeholders acknowledge that the four otherinfrastructure sectors covered by this study –water, electricity, healthcare and safety & secu-rity — are also in need of investment. Interest-ingly, they are less likely to see a strong linkbetween spending in these areas and improvedcompetitiveness, despite the fact that each hasan important impact on the overall attractive-ness of the city for investment.

Better governance is a vital step towardsbetter cities. With so many areas crying outfor investment in better infrastructure, it isnot surprising that funding emerges as a bigissue for many stakeholders in the survey. Butfor those involved in city management, it isimprovements to governance — rather thanjust money — that are the top priority goingforward. Over half of respondents with know-ledge of urban management see improvedplanning as the priority to solving city prob-lems, compared with only 12% that prioritizeincreased funding. In addition to more strate-gic planning, there is also a strong focus onmanaging infrastructure and services moreefficiently. Both these goals will require citiesto make the step from passive administrationof existing services, to a more active style ofmanaging systems that focuses on improvedefficiency and more measurable outcomes.

Holistic solutions are desired, but are dif-ficult to achieve. The main barriers to strate-gic management are poor coordination between

the different levels of municipal government,together with a lack of strong leadership,according to the survey. Stakeholders expressa clear desire for a more holistic approach tocity management, but this is rarely the realitytoday. Many megacities have a multitude ofadministrative bodies with overlapping andpoorly defined responsibilities, which inevita-bly saps efficiency and makes strategic plan-ning difficult. Governance structures need tobalance the needs of the city with the widermetropolitan area, and also take into accountthe interdependencies between the variousinfrastructures (water and healthcare, forexample). Cities and their needs are complexand the traditional, departmentally organizedapproach to city governance needs to berethought to enable more holistic solutionson the one hand, and more responsivenessand accountability to citizens at a local levelon the other.

Cities will seek to improve services, butcould do more to manage demand. Facedby huge pressures on public services, citiestend to emphasize direct and immediate sup-ply-side solutions. This does not always meanadding more capacity: in many cases stake-holders emphasize the need to increase theefficiency of existing infrastructure over buil-ding new roads, railways, hospitals and so on.By contrast, although it gets mentioned by aminority of respondents, demand manage-ment never emerges as a priority. Demandmanagement approaches have been advocat-ed in a variety of areas, but even the special-ists in specific infrastructure sectors do notsee managing demand as the primary solu-tion to their challenges. Yet with consumptionconsistently outstripping supply in manycities and infrastructure areas, there is astrong case for the wider adoption of demandmanagement strategies on a global basis. In

this context, the proper pricing of servicescould be a step forward.

Technology will help to deliver trans-parency and efficiency. Technology canhelp city governments in two major ways: bymaking them more efficient, and moreaccountable to their citizens. Eight in tenrespondents think that their city will increas-ingly integrate advanced information technol-ogy into their administration and operationsover the next five years. Moreover, city man-agement specialists predict a strong emphasison digitalization or e-government rather thanon recruiting more staff (64% to 36%). Fur-thermore the value of technology is notrestricted to rich cities. Cash-strapped Emerg-ing cities place almost as much importance one-government and digitalization as those inTransitional and Mature cities.

The private sector has a role to play inincreasing efficiency. The stakeholder sur-vey provides a mixed picture on attitudes toprivatization. Most respondents predictstrong public ownership and control of infra-structure sectors and services. However, themajority of stakeholders also say that they areopen to public-private partnerships (PPPs).Private-sector respondents are naturally thebiggest enthusiasts, but more than 70% ofpublic-sector and elected respondents viewPPPs as a viable means to implement infra-structure solutions and more than 60%believe that privatization of infrastructurewould increase its efficiency. Again, it turnsout that efficiency, rather than just funding, isthe main perceived advantage of movingtowards greater participation from the privatesector. But even where cities move towardsthe private operation of services to improveefficiency, they want to retain strong publicleadership and control.

Key findings of the research include the following.

Buenos Aires

Key findings


Cities surveyed

City Country 2003 2015 Area Share ofPopulation Population in km2 GDP

in Mio. in Mio. in %Tokyo Japan 35.0 36.2 13100 40

New York USA 21.2 22.8 10768 <10

Seoul-Inchon South Korea 20.3 24.7 4400 50

Mexico-City Mexico 18.7 20.6 4600 40

São Paulo Brasil 17.9 20.0 4800 25

Mumbai India 17.4 22.6 4350 15

Los Angeles USA 16.4 17.6 14000 <10

Delhi India 14.1 20.9 1500 <5

Manila-Quezon Philippines 13.9 16.8 2200 30

Calcutta India 13.8 16.8 1400 <10

Buenos Aires Argentina 13.0 14.6 3900 45

Shanghai China 12.8 12.7 1600 <10

Jakarta Indonesia 12.3 17.5 1600 30

Dhaka Bangladesh 11.6 17.9 1500 60

Rio de Janeiro Brasil 11.2 12.4 2400 15

Karachi Pakistan 11.1 16.2 1200 20

Ruhr Area Germany 11.1 11.1 9800 15

Cairo Egypt 10.8 13.1 1400 50

Beijing China 10.8 11.1 1400 <5

Lagos Nigeria 10.7 17.0 1100 30

Moscow Russian Fed. 10.5 10.9 1100 20

Paris France 9.8 10.0 2600 30

Istanbul Turkey 9.4 11.3 2650 25

Chicago USA 9.2 10.0 8000 <5

London Great Britain 7.6 7.6 1600 15

Infrastructure highlights

Transportation: More action needed tomanage demandCongestion costs are huge for the megacityeconomy and environment. But despite somesuccess with congestion charging schemes inseveral cities, the idea of road pricing has yetto become a major focus for city stakeholdersaround the world. Page 26

Electricity: Strong focus on renewablesWith demand again outstripping supply, thereis an emphasis on allowing electricity to bepriced by the market rather than subsidized.Specialists in this sector also display a strongappetite for renewable fuels, but it is likelythat surging demand will lead many growingcities to continue to rely primarily on cheaperfossil fuels in the near future. Page 32

Water and waste water: Still fighting forattention?In many megacities, large sections of the pop-ulation live without access to clean water orbasic sanitation. Research indicates that theeconomic, not to mention social, costs of afailure to address this problem are significant.

But only 3% of stakeholders cite water as themajor contributor to growth and competitive-ness. Page 38

Healthcare: Increased spending must becombined with better managementOur survey indicates an emphasis on moreefficiency, delivered through common sharedhealthcare infrastructure, ahead of simplybuilding more facilities. Preventative approaches are desired, but external factorsare sometimes overlooked: no healthcarestakeholder mentions water quality as a majorissue even in Emerging cities, indicating thelack of a more holistic view to problem solv-ing. Page 44

Safety & Security: Organized crime is abigger threat than terrorismOrganized crime is the biggest security chal-lenge for megacities, and is cited as such bytwice as many stakeholders as those whomention terrorism, the second most promi-nent issue. Interestingly, surveillance isemphasized well ahead of concerns for privacy.0

About this reportThis report looks at the challenges facingmegacities in city management and five criticalinfrastructure sectors: Transportation, Electrici-ty, Water and Waste Water, Healthcare, andSafety and Security.The conclusions are based on a survey of 522stakeholders spread across 25 cities. Stake-holders were divided into four groups: Elected political leaders (described in this re-port as electeds). Employees of the municipality (employees). Private sector infrastructure providers, con-struction company managers, and financiers(privates). People who are in roles that influence infra-structure decision makers such as thought lead-ers, academics, NGOs, and media (influencers).The survey included general questions onmegacity issues that were addressed to all 522respondents. More detailed sections on specif-ic areas (ie. the five infrastructure sectors aswell as city management and finance) wereaddressed to those respondents with the mostrelevant knowledge and experience. For thelatter, we use the terms specialist or stakehold-er (as in transport stakeholder, or city manage-ment specialist) as convenient shorthandthroughout this report. Sample sizes rangefrom 124 in transportation to 72 in electricity. To understand the different challenges and is-sues facing megacities at different levels of de-velopment, the research analyzes three cate-gories of city: Emerging cities, Transitionalcities and Mature cities. Although every city isunique, those in each of these archetypesshare many characteristics and face many simi-lar problems. Throughout this report, we high-light challenges and priorities for each of themegacity archetypes, as well as key areaswhere action is needed to enable cities to bal-ance competitiveness with quality of life andenvironmental sustainability. So

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Megacity challenges: an overview


Megacity Challenges

02The rise of the megacity often divides

observers between wonder and conster-nation. On one level, these super-sized citiesare seen as the engines of the global econo-my, efficiently connecting the flow of goods,people, culture and knowledge. They offer, atleast potentially, unprecedented concentra-tions of skills and technical resources that canbring increased wealth and improved qualityof life to vast numbers of people.

But megacities also conjure up an alto-gether darker vision. All the cities covered bythis research face huge challenges rangingfrom congestion and pollution to securitythreats and inadequate services groaningunder the weight of excessive demand. Those

Key findings■ The number of megacities has multiplied over the past 50 years,

to the extent that they now provide a home to 9% of the world’s urban population

■ Their importance in the national and global economy is disproportionately high

■ City governance is having to adapt to the challenge of delivering holistic solutions across vast metropolitan regions

■ City managers must strike the balance between three overridingconcerns: Economic competitiveness, environment and quality of life for urban residents

Mumbai



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Mega-growth, mega-complexitynamely economic competitiveness; quality oflife; and the environment.

The following sections look at the key chal-lenges faced by cities at different stages ofdevelopment. We reveal the overall prioritiesfor stakeholders in a world where resourcesare all too finite. The research also sheds lighton trends and strategies in five critical areasof infrastructure — transportation, electricity,water, healthcare and safety & security — aswell as through new approaches to metropoli-tan governance.

Megacities have been described as theurban phenomenon of the 21st century. Theirunprecedented size and complexity, and theircritical role as gateways in the global econo-my, pose huge challenges for sustainableurban development. We hope that this reportstimulates new thinking on the solutionsrequired to meet the Megacity challenge.

in the developing world also struggle to copewith the rapid growth of informal settle-ments. Today almost one in three of theworld’s urban population lives in slums, with-out access to good housing or basic services,according to UN-HABITAT’s 2006 State of theWorld’s Cities report.

At one level or another, all of the stake-holders surveyed as part of our research mustdeal with this dual reality on a daily basis. Intheir own areas, they hold significant respon-sibility for overcoming the multitude of chal-lenges that, to greater or lesser degrees, con-front the 25 megacities covered by thisreport. Many of them are also tasked withdelivering the solutions and services that willenable their cities to compete in a globallyconnected economy.

This report looks at how stakeholders willbalance these demands in three major areas:

The megacity is a relatively new form ofurban development. In 1950, there were

only two cities with populations of over 10million: New York and Tokyo. By 1975, twomore locations, Shanghai and Mexico City,joined the club. But by 2004, the number ofmegacities had rocketed to 22* and, together,these cities now account for 9% of the world’surban population.

Urban growth is spread unequally aroundthe world, and the same is true of its largestcities. Most of the megacities in the devel-oped world are growing slowly, if at all. Tokyoremains the largest with 35 million inhabi-tants, but the fastest growth will be in thedeveloping world (particularly in Asia and

Africa), placing huge pressure on infrastruc-ture in those locations. By 2020 Mumbai,Delhi, Mexico City, São Paulo, Dhaka, Jakartaand Lagos will each have populations of over20 million. For many Emerging cities, soaringpopulations are extremely difficult to man-age: at current rates of growth, the number ofinhabitants in Nigeria’s Lagos will double by2020, mainly through expansion of informalsettlements. By contrast, most Mature cities(as well as many Transitional ones) will needto address a different kind of demographicchallenge in the form of population ageing.

Today’s megacities are not only biggerthan the cities of the mid-20th century, theyare also more complex. For one, they are

increasingly competing with, and dependenton, relationships with other cities in the glob-al economy. At the same time, we are witness-ing the emergence of new city regions —sprawling conurbations that extend farbeyond the boundaries of a single city. Exam-ples include the “BosWash stretch” (extendingfrom Boston, MA to Washingon, DC) in the US,and Chongqing in China.

These huge megacity regions create a newurban dynamic. Commuters travel large dis-tances from densely populated suburbs. Eco-nomic activity frequently becomes deconcen-trated, dissipating from the center to theperiphery. Often fragmented systems of met-ropolitan governance have not caught upwith this trend, with the result that it is diffi-cult to deliver an efficient, holistic approachto infrastructure challenges at a metro-regional level.

* According to UN definition of megacity

Karachi



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World’s most polluted Cities

Delhi(India)

Cairo(Egypt)

Calcutta(India)

Mexico City(Mexico)

Tokyo(Japan)

London (UK)

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Particle matter in 2002 (micrograms per cubic metre)

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Population levels

Megacities are the gateways of globaliza-tion, driving the flow of people, goods,

knowledge, and money around the world.Already, one-fifth of the world’s GDP is gener-ated in the ten economically most importantcities. Megacities also make a disproportion-ately large contribution to economic growth ata national level. According to a Munich Restudy, Tokyo accounts for 28% of the Japanesepopulation, but 40% of the country’s GDP.Paris is home to 16% of the French population,but is responsible for 30% of its GDP. In thedeveloping world, Lagos is home to 8% ofNigeria’s population but contributes 30% ofthe country’s output. In OECD countries, most

metropolitan regions have a higher GDP percapita than their national average, higherlabor productivity levels, and many of themtend to have faster growth rates than theircountries.

Given their weight in their respective natio-nal economies, the ability of these megacitiesto compete at a global level is paramount. Toattract investment, these cities need modern,efficient infrastructures. Transportation is anobvious case in point, and megacity mayorsare eager to improve often overloaded roadand rail networks, ports and airports. Abundant(and preferably skilled) labor together withmodern IT and communications technologies

are also hugely important, as evidenced by theoffshoring trend that has itself fuelled thegrowth of cities like Bangalore in India. Anoth-er crucial (although sometimes less obvious)factor is the quality of basic services: peoplewith access to quality housing, education andgood basic services such as water and electric-ity are much more likely to fulfill their potentialand contribute to economic growth. The widerbusiness environment is also a key factor:research from the Economist Intelligence Unitindicates that clear, business-friendly policiesand regulations is a more important factor inattracting international investment than in-centives such as subsidies and tax breaks*.

Competitiveness

Environment

Governance

Quality of life Environment

Competitiveness It would be wrong to assume that megacitygrowth is automatically bad for the environ-

ment. It is obvious that a city with 20 millionpeople will have a large environmentalimpact, but it is less clear whether that impactis bigger than if the same number of peoplelived rurally. Certainly there are those whoargue that clean, modern cities, where denseliving enables resources to be consumed effi-ciently, provide an environmentally sustain-able model for the future.

Whatever their potential, however, manyof today’s megacities feature a catalogue ofenvironmental problems. Congestion, air andwater pollution, waste management anddegradation of green areas are familiar issuesin most large cities around the world, and areparticularly extreme in the megacities of thedeveloping world. In London and Tokyo, for

example, air quality has improved over thelast 50 years. In Shanghai and Kuala Lumpur,it has gone down.

Historically, cities tend to get rich first,then clean up later. Unfortunately thatapproach could be disastrous in the context ofclimate change: this is one reason for thegrowing focus on sustainable urban develop-ment. Sustainable solutions promote greateruse of alternative energy sources and moreenergy-efficient buildings and transport,measures to combat congestion and CO2

emissions, water and waste recycling, and theuse of vegetation to filter pollution and cap-ture carbon dioxide. While several cities havestarted implementing at least some of thesemeasures to good effect, there will be a needfor more concerted efforts if the environmen-tal cost of urbanization is to be reduced.

* World Investment Prospects Survey, 2004

Striking a balance

In megacities, the complexity of buildingand maintaining infrastructures, and of

meeting the needs of a huge and often grow-ing urban population, reaches new levels. Asthey seek to address that challenge, thoseinvolved in the delivery of services and solu-tions must balance three overriding concerns.

São Paulo



As is clear from the research, each megaci-ty has its own unique issues that require

specific, local solutions. Nevertheless, citiesat similar stages of economic and social devel-opment face a number of common chal-lenges. With this in mind, we have identifiedthree basic “archetypes”: Emerging cities,Transitional cities and Mature cities, depend-ing on their stage of economic and socialdevelopment.

Emerging Cities: Emerging megacities tendto be characterized by high growth rates dri-ven by migration and natural growth, much ofwhich occurs in informal settlements notserved by the installed base of infrastructureand services. Annual growth rates are on theorder of between 3% and 6%. A 3.5% growthrate implies a doubling of population in 20years. Emerging cities are typically in coun-tries with urban populations of less than 50%.

Populations tend to be younger and moremale, with a high proportion of poorly edu-cated rural migrants. Social polarity, and thegaps in wealth, health, education, and politi-cal power between groups is generally high-est in Emerging cities.

Transitional Cities: Transitional megacitieshave often developed mechanisms to moreeffectively manage dynamic growth, and maybe seeing a slowing of annual growth rates.Continued population growth stems largelyfrom migration, with lower natural populationincreases; several of these cities are seeing thefirst signs of an ageing population. Growthrates are typically of the order of 2%-3% perannum and Transitional cities are often incountries that are more than 50% urbanized.Transitional cities have similar infrastructurechallenges as compared with Emerging citiesbut are better able to respond financially and

organizationally. Increasing affluence in thesecities places additional new demands on infra-structure as growth in demand for transporta-tion, water, energy, and services often greatlyoutpaces population growth.

Mature Cities: Mature megacities have muchslower growth rates than both Emerging andTransitional megacities, at around 1% on aver-age. In some of these cities, the population hasstagnated or is shrinking. Mature megacitiesalso have older population profiles. They existin countries that are typically around 75%urban. Mature megacities have built out theirbasic infrastructure to serve their populationsone or two generations ago. With high-qualityinfrastructure in place the challenge has shift-ed to coping with the need for renewal of age-ing systems or to dealing with obsolescencewhere the installed infrastructure no longermeets regulatory requirements or changingservice expectations. The other, growing, focusof Mature megacities is responding to theincreased and changing demands for servicesof all types posed by their ageing populations.

Three City ArchetypesMegacities may be engines of economicgrowth, but they feature huge inequali-

ties in the distribution of wealth and econom-ic opportunity. In its recent report on urban-ization trends, UN-HABITAT describes cities as“the new locus of poverty”. World Bank esti-mates predict that while rural areas are cur-rently home to a majority of the world’s poor,by 2035 cities will become the predominantlocations of poverty.

The consequences of a failure to improvequality of life for the urban poor are huge. TheUN-HABITAT research indicates that peopleliving in slums, where a large proportion ofthe urban poor reside, are more likely to beaffected by child mortality and acute respira-tory illnesses and water-borne diseases thantheir non-slum counterparts. They are alsomore likely to live near hazardous locations,making them more vulnerable to natural dis-asters such as floods. Inadequate access tobasic services saddles them “with heavyhealth and social burdens, which ultimately

affect their productivity”.* Poverty may beless extreme in the more developed cities, butsocial problems still abound. The OECD’sreport on competitive cities notes increasedsocio-economic inequalities even in some ofits most dynamic metropolitan regions. Itpoints to large and persistent pockets ofunemployment: about one-third of the 78metropolitan regions covered in the OECDreport have above average national unem-ployment rates, and between 7-25% of popu-lations live in deprived neighborhoods thatoften have reduced access to public infra-structure and services. The report concludesthat poverty and social exclusion lead to sig-nificant costs including high levels of crimi-nality (on average 30% higher in urban areasthan the national level). Failure to addressthese inequalities risks making megacitiescenters of deprivation and instability with aconsequent negative effect on their economy.

Development decisions are often seen interms of difficult trade-offs between growthand greenness, or growth and quality of life.But there are obvious interdependenciesbetween the three concerns. Competitivecities are more likely to have the wealth andresources to invest in high-quality infrastruc-ture and services, and to create economic andsocial opportunities for large numbers of theurban population. All things being equal,environmentally clean, modern cities createmore attractive locations for a broad spec-trum of business activities than those withheavy pollution. Equally, cities with a healthy,well-educated urban population are betterpositioned to attract investment than thosewhere deprivation and inequality blocks largeswathes of the population from participatingin economic growth. This suggests that, in thelong run, focusing on one of these concernsto the detriment of the others will be a recipefor failure.

Quality of Life

■ over 40%■ 20 – 40%■ 10 – 20%■ under 10%■ High-income

countries

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Proportion of urban population living in slums

* State of the World’s Cities 2006/7, UN-HABITAT

São Paulo

Huge cities create huge challenges, yetthe money and resources to address

them are distinctly finite. How will the citystakeholders responsible for delivering solu-tions respond? Having summarized the keycharacteristics and issues faced by today’smegacities, we now turn to the priorities andkey factors that drive decision making in the25 cities covered by this report.

The entire sample of 522 stakeholders wasasked the survey questions referred to in thissection. It is immediately clear that the surveyrespondents are balancing a wide range ofeconomic, social and environmental con-cerns. Nevertheless some clear prioritiesemerge.

Stakeholder priorities: The big picture


Stakeholder Priorities

03Key findings■ Unemployment is the top economic

challenge

■ Air pollution and congestion are the principle environmental concerns

■ Stakeholders see transportation as the main infrastructure issue and the top priority for investment

■ Most stakeholders are optimistic that they can solve city challenges, although influencers in the survey are more skeptical

Moscow

infrastructure challenge by just 6% of respon-dents overall and 8% in Emerging cities — thisdespite the fact that several cities covered inthe study face severe problems with waterscarcity/quality. Even lower proportions men-tion electricity (2%) and healthcare (1%) asthe main infrastructure challenge facing theircity.

Investment needs: Stakeholders were askedto rank 13 different areas according to theirneed for investment over the next five to tenyears. Once again transportation comes outas the top priority by a significant margin,cited by 86% of respondents. In joint secondplace comes environmental protection and



the problem to transportation and vehicleemissions. General pollution and water prob-lems are also cited, but are considered to beless of a priority.

Social issues: Stakeholder respondents men-tion a wide range of social concerns, with noclear priority emerging. Topping the list by asmall margin is poor quality housing and livingconditions, cited by 14% of all respondents.This issue is particularly emphasized by stake-holders in Transitional and Emerging cities.Other key issues included the gap betweenrich and poor (11%) and poverty (9%). Publicsafety and crime also feature as a significantissue for respondents in Emerging cities.

Infrastructure: Transportation is perceivedas by far the biggest infrastructure challengeby stakeholders in the survey. Responding toan open-ended question in the survey, 35% ofall stakeholders mention the transport systemor traffic problems as their city’s most signifi-cant infrastructure challenge. In distant sec-ond place is the inadequacy of the city’s infra-structure (10%). Surprisingly, only 6% citefinance issues as a big infrastructure chal-lenge.

Other infrastructure areas appear to bemuch lower on the agenda for stakeholders asa whole. Even when added together, lack ofwater and water sanitation is cited as a critical

Most serious economic challenge

20%

14%

14%

8%

7% % of respondentsmentioning

Unemployment

Cost of living

Economic development

Inadequate infrastructure

Financing

Most serious environmental challenge

26%

15%

14%

13%


Air pollution

Transportation

General pollution

Water pollution

Solid waste

Most serious social challenge

14%

11%

9%

7%

% of respondentsmentioning

7%

7%

7%

Poor living conditions

Gap between rich and poor

Poverty

Education

Population growth

Public safety

Unemployment

Most serious challenge facing city’sinfrastructure

Transportation

Emerging Transitional Mature

% of respondents mentioning

Inadequate /inefficientInfrastructure

Planning

Lack of funding

Environment/pollution

17

9

9

3

9

43 45

14

8

11

4

10

9

4

2

Economy: Unemployment and underemploy-ment emerge as the predominant economicchallenge in the survey (cited by 20% ofrespondents overall). It is the top economicchallenge according to respondents in Emerg-ing and Transitional cities, and comes secondonly to economic development as a concernin Mature cities. The next most commonlycited issues are economic development andthe rising cost of living (both 14%).

Environment: Air pollution is considered byfar the most serious environmental challengefacing megacities (26%), especially by thosein Mature cities (36%). A large proportion ofstakeholders mentioning air pollution relate

London

Infrastructure area most important in attracting economic investment

27%

9%

6%

% of respondentsselecting

6%

6%

6%

6%

Transportation

Safety and security

Education

Communications

Energy supply

Leisure and culture

City management

5%Environment

4%Health care

3%Water

City’s probability of successfully managing short-term future

71%

100%

66%

57%

55%

50%

42%

North America

Africa/ Middle East

India/China

Europe

Latin America

Other Asia

education, both cited by 77% of stakeholders.The need to invest in environmental protec-tion is emphasized particularly highly in Tran-sitional cities, indicating that the desire forecologically sustainable solutions is notrestricted to the rich cities.

Water comes lower down the list of invest-ment priorities overall, but is cited by manymore stakeholders in Emerging cities (81%)where access to clean water and sanitation isoften a major issue.

Competitive drivers: When asked, againwith an open-ended question, which singlearea of their city’s infrastructure is the mostimportant in attracting investment versus

Not surprisingly, respondents in theMature cities were more likely to rate theircities as better than average, while respon-dents in Emerging cities were more likely torate their cities the worst among the threearchetypes; but even here, almost one-halfconsider their cities to be average in terms ofquality of life.

When respondents were asked to rate theircity’s probability of successfully managing itsfuture over the next five years, overall, two-thirds responded positively (67%), with onlyslightly better odds expressed by respondentsin Mature cities.

It is notable, however, that elected officialsand public-sector employees are most likely to

have an optimistic outlook, while influencersin the survey tend to be more skeptical. Thefindings suggest that cities will attempt tojuggle economic, social and environmentalconcerns, but when push comes to shove, theoverriding issue in decision-making is eco-nomic competitiveness.

This perspective filters down to the prioriti-zation of investment into transportation,which is seen as central to a citiy’s ability togenerate wealth and attract investment.

High awareness of the need to invest inenvironmental protection, however, suggeststhat cities will seek to balance growth withsustainable solutions wherever this is viableand affordable.



Need for investment over the next fiveto ten years by infrastructure area

86%

100%

77%

77%

74%

71%

71%

Transportation

Environmental protection

Education

Health care system

Public safety and security

Waste management

70%Water

69%Public housing and civic buildings

67%Energy supply

66%Social services

other cities around the world, transportationis by far the most mentioned, followed dis-tantly by safety and security. Far lower num-bers of respondents cite education andhealthcare as key factors in attracting invest-ment. Communications and energy are seenas more important issues for attracting invest-ment by respondents in Emerging cities.

Stakeholder outlook: Although stakehold-ers are acutely aware of the economic, socialand environmental challenges faced by theircities, the majority have an upbeat outlook.For example, almost one-half of respondents(44%) rate their city’s quality of life as betterthan average.

Net rating — High minus Low

% saying high need for investment

Beijing

All cities need high-quality infrastructureto facilitate the movement of people and

goods, and the delivery of basic services totheir populations. But the challenge of deliv-ering these infrastructures and services intoday’s megacity regions is immense. This istrue for Mature cities where, for example,roads, rail networks, sewers and hospitalswere often built decades or even centuriesago and in some cases are now becoming

Five infrastructures


Five Infrastructures

04increasingly unfit for purpose. It is also true ofthe Transitional cities, which are struggling tocope with demographic change, and Emerg-ing cities where even basic services are badlylacking, particularly in the rapidly expandinginformal settlements. Moreover, in all threecity archetypes there are complex issues to beresolved over the funding, management,maintenance and efficient running of ser-vices, as well as the need to find infrastruc-

ture solutions that are environmentally sus-tainable.

The following section of the report dealswith five major infrastructure areas: trans-portation, electricity, water and waste water,healthcare, and safety and security. For eachinfrastructure sector, survey questions wereanswered primarily by those stakeholderswith the most relevant knowledge and influ-ence, unless otherwise noted in the text.

Shanghai

Transport preoccupies the stakeholderslike no other infrastructure issue. As

noted above, the general survey marks trans-port out as the single biggest infrastructurechallenge faced by their cities, and by a largemargin*. That focus is particularly high inMature cities (45%) and Transitional cities(43%) and in Europe (52%), where car owner-ship in the EU has risen ten times more quicklythan the population over the past ten years. InEmerging cities, the emphasis on transport isless pronounced, but at 17% is still far aheadof the other infrastructure mentioned such aswater (8%) and electricity (5%). Transport isalso the priority for spending, with 86% ofstakeholders overall citing this as an impor-

Transportation


Transportation

05tant area for investment. Transportation is topof the pile for a number of reasons. Whereassome infrastructure problems, such as lack ofwater, primarily affect the poorer areas of thecity, congestion, crowded trains and traffic-linked pollution are very visible at all levels ofsociety. But there is also a clear and direct linkwith city competitiveness. If megacities arethe engines of the global economy, it is thetransport network that keeps those enginesworking efficiently. When roads and railwaysseize up, or when ports and airports becomeoverloaded, the cost to the economy is high.In the UK, where many cities including Lon-don are struggling to keep up with traveldemand, the Confederation of British Industry

(CBI) estimates that the cost of congestion is£20 billion (US$38 billion) a year**. Stake-holders in the overall survey are acutely awareof the importance of transport networks indriving the economy: 27% mention transportas the one area of the city’s infrastructure thatis most critical in attracting investment, farahead of the second most cited issue (safetyand security, 9%).

Coping with growth: As well as cuttingacross all levels of civic society, transportproblems affect cities at all levels of develop-ment, although they manifest themselves indifferent ways across our three archetypes.For Mature cities, the primary problem is old

* Transport questions in the survey encompass mass transit, individual motorized transit, air and surface transport, and people as well as freight transit** “Running out of Road”, The Economist, 2 December 2006

Key findings■ Transportation is seen as the single biggest infrastruc-

ture challenge by a large margin, and is a key factor in city competitiveness

■ With air pollution and congestion emerging as thetwo top environmental challenges, stakeholders predict a strong emphasis on mass transit solutions

■ Cities are more likely to focus on incremental improve-ments to existing infrastructure, rather than new systems

■ Demand management is rarely mentioned as a major strategy for addressing the cities’ transport problems

monorail, despite the fact that the idea forone was floated as far back as 1952. Mean-while the number of public transport vehiclesis insufficient for the population of the city,forcing commuters to travel on the rooftopsof buses with all the inherent safety issuesthat this implies.

Istanbul, a Transitional city according toour methodology, faces both problems. Thecity’s geography poses its own problems, withmany of its residents commuting daily acrossthe Bosphorus from one part of the city to theother. With its many hills and narrow streets,Istanbul has a major problem with traffic con-gestion, particularly at peak travel times.There is also a serious lack of public transportcapacity on the Asian side of the city. Istanbulis having to make major investments toaddress these problems. A 22km light metroline is currently under construction, and fur-ther lines are planned. In total, Istanbul plansto invest a further US$4.9 billion in tram and

Transportation

metro projects over the coming ten years,over and above the US$1.6 billion on currentschemes*. The main cause of these problems,according to stakeholders in transport, is lackof resources, which usually means lack ofmoney (although skills and technology limita-tion are also noted). The second most citedunderlying cause, however, is governance-related: poor planning is selected by 21% oftransport specialists overall, and is especiallyemphasized by those in Transitional cities.Again, this is a significant challenge in Istan-bul’s case. The city has varying administrativebodies that have similar and sometimes over-lapping responsibilities. The result, a recentreport concluded, is that the city lacks anyform of holistic transportation planning**.

Incremental improvements over new in-vestments: Stakeholders are split overwhether they will invest in new transportcapacity as the primary solution to the chal-

lenges outlined above, or seek to increaseefficiency of existing infrastructure. Evenwhere new investment is made available,however, it will most often be used to deliverincremental improvements to the transportsystem (for example, adding new lines to anexisting metro or new bus services) ratherthan outright spending on new transport pro-jects. The most frequently mentioned solu-tion to transport problems is to reorganize orrevitalize the existing infrastructure (33%),whereas building new roads and facilities getsmentioned by only 12% of respondents. Thisfinding seems to reflect a growing trend. Inthe UK, for example, the recent review of UKtransport policy by Rod Eddington empha-sized the need for incremental improvementsto existing systems rather than new, show-case infrastructure projects.

Problems with congestion have, of course,major environmental as well as economiccosts. As noted in the previous section, air


or obsolete systems (40%), then systemcapacity (35%), according to respondentswith specialist knowledge of transport in theircity. With its ageing rail and underground sys-tems, London is a prime example. In a metro-politan area where an estimated 30 millionjourneys take place every day, transportinvestment over the past two decades hasbarely been sufficient to maintain the system,let alone to increase capacity to cope withsoaring demand. As a result, congestion andovercrowding is already acute on all of Lon-don’s transport networks, according to arecent report from Transport for London (TfL).

In Emerging and Transitional cities, stake-holders with specialist knowledge of trans-port tend to be more concerned about inade-quate system capacity than ageing infra-structure. Indeed, sometimes basic infrastruc-ture is non-existent. For example, Karachi isthe only megacity in the world without a masstransit system such as a metro system or

pollution and traffic problems came hand-in-hand as the top two environmental problemsin the survey. Travel by road or air is a majorsource of pollution: road transport alone isresponsible for over 40% of discharges of sus-pended particles into the atmosphere***.

Although decisions on transport invest-ments are first and foremost driven by eco-nomic and employment considerations,according to our transport specialists, envi-ronmental impacts are also deemed impor-tant by three-quarters of respondents. This isprobably a key reason why the vast majority ofthe transport specialists predict that theircities will emphasize the development ofmass transit infrastructure over cars andmotorbikes by a margin of 71 to 29. This isusually borne out in practice. An analysis ofplanned capital expenditures for 2005-10 foreight of the cities under study generallyshows an emphasis of investment on masstransit (that is, rail) over roads, with two

Main cause of transportation problems

30%

21%

19%

16%


Limited resources

Poor planning

Insufficient infrastructure

No transportation network

Poor infrastructure quality

Predicted approach of transport experts

Mass transit infrastructure

Individualmotorized

trans-portation

71%29%

* Briginshaw, International Railway Journal, June 2005, ** Evren & Caliskan, Fundamental Problems of Istanbul Transportation,*** http://www.mobilityweek-europe.org

% = predicted emphasis

Transportation


notable exceptions. Moscow has a world-classmass transit system, with high rail investmentlevels that are comparable with London, butcurrent planned expenditure shows an em-phasis on road over rail that is driven by a risein vehicle ownership. Lagos shows high-lev-els of investment in roads because urban railis virtually nonexistent and the city thereforerelies heavily on buses.

Mass transit may be favored, but there isno doubt that the pace of demand growth inmany of these cities makes delivering sustain-able solutions a huge challenge. Shanghaialone is expected to see a quadrupling of carsand trucks by 2020. The very dense urbanarea and lack of parking and road space forvehicles has pushed growth outside the city,thus setting in motion a spatial developmentpattern that will be increasingly difficult toserve by more sustainable modes of trans-

port. In Shanghai and other Transitional citieswhere car ownership is set to soar, there areno easy answers to the issues posed by con-gestion.

Putting demand management on the map:In recent years demand management solu-tions have been posited as a way to promotemore sustainable modes of transport overcars, but — somewhat surprisingly — thisemerges as a low priority in this part of thesurvey. Only 9% of stakeholders involved intransport mention demand managementsolutions as the best approach to resolvingtransportation issues.

This is despite a variety of schemes in glob-al cities that indicate a role for demand man-agement in reducing congestion. Such solu-tions generally divide into two categories:“pull” measures that focus on providing

motorists with alternatives to using their cars,primarily by increasing the attractiveness ofpublic transport; and “push” measures thatincrease the cost or difficulty of using a car toreach a specific area. Various cities haveexperimented with demand management inthe form of road pricing or congestion charg-ing, including London, Stockholm and Oslo.Singapore introduced the world’s first signifi-cant road pricing initiative to control entryinto its central business district in 1975. Thecity today has electronic road pricing based ona system that uses on-board tags to identifyvehicles.

Road pricing in Singapore runs in parallelwith a more radical “push” solution: a massivetax of over 100% on new car purchases.Where it has been implemented, there is evi-dence that demand management in the formof road pricing has delivered significant bene-

fits. In London and Stockholm, congestion hasbeen reduced by approximately 30%. Bothcities have experienced a reduction ofbetween 10-20% in fuel emissions and roadaccidents*. The economic impact has beenmore difficult to assess — TfL, for example,found no evidence of either a positive or neg-ative impact of congestion charging on aggre-gate business performance in central Lon-don**. But the London transport authoritysays that congestion charging brought in netrevenue of €174m in 2005-06. TfL now plansto extend the scheme in 2007, a move thatwill roughly double the charging area.

Projects like London’s are high profile, butonly a handful of cities currently have suchschemes in place. There are only a couple ofcurrent examples in the US, such as the SR 91Toll Lanes in Orange County, California. Inmany cities, the cost of car use in cities is actu-ally falling. In Shanghai, car ownership washistorically suppressed through high fees andlimited permits. In recent years, however, thishas been reduced (partly as a result of thepresence of vehicle manufacturing), andincomes are rising. In Mumbai, despite thecongestion and pollution caused by privatemotorized transport, road taxes and parkingfees remain low (demand management isnow being discussed). One would have toconclude that, globally, demand manage-ment as a solution to congestion remains anemerging concept that has yet to become apriority in many of the cities under study.

The public and private sectors: For trans-port and other infrastructure sectors, the sur-vey also explored survey respondents’ viewson the involvement of the private sector indelivering solutions. Here, transportation isprimarily seen as a public rather than a privatetask by respondents to the survey (59% versus41%). Mature cities in particular are inclined

to predict an emphasis on public ownershiprather than private (72% versus 28%). Analy-sis of eight of the cities in the study supportsthe view that transportation in generalremains firmly within the realm of publicresponsibility, with high-levels of ownershipand control through regulation and relativelylow levels of private-sector participation inoperations, with occasional exceptions.

However, when asked to predict whethertheir cities would emphasize public or privateoperation of transportation infrastructure inthe future, there was more of an equal split(53% public versus 47% private). Comparedwith current levels of private operation oftransport, which is low on a global basis, thismay indicate growing openness to private-sector management of services. Currently,the rail sector is almost entirely publicly con-trolled and operated, with the notable excep-tion being London where private operatorsexist in a climate of regulatory control andgovernment involvement in infrastructureprovision.

Globally, the road sector is largely publicwith occasional examples of toll facilities/roadpricing. Airports retain a surprising degree ofpublic control despite trends to privatizationand increasing evidence of private-sectoroperations. Ports are almost entirely publiclycontrolled and typically take the form of state-controlled companies that operate in a quasi-private fashion. Overall, private-sector partici-pation in operations remains rare except in afew cities.

For those that predict a greater role for pri-vate-sector operation, surprisingly the majoradvantages of this approach are not financial,according to the survey, but rather improvedefficiency and better management. Perceiveddisadvantages of private operation are pri-marily higher user costs, inability to meetdemand, and a profit-seeking mentality.

The best solution to transportationproblems

33%

17%

12%

12%


11%

10%

9%

Reorganize/revitalizeexisting infrastructure

Allow private investment /increase investment

Build new roads and facilities

Better management/governance

New equipment

Better use of mass transit systemsinstead of personal cars

Manage demand

*Sources: TfL, City of Stockholm, **TfL fourth monitoring report, June 2006

Any discussion of electricity infrastructurehas to take place against the backdrop of

rapidly escalating world demand. Simply put,expanding cities need additional electricity tolive and economies need it to grow. Between1972 and 2002, world GDP increased at 3.3%per annum while electricity consumptionmore than kept pace at 3.6%. Even withexpected efficiency gains, the InternationalEnergy Agency predicts that between 2002and 2030 worldwide electricity demand willdouble. Most of this increase will come in thedeveloping world, especially the rapidly grow-ing economies of India and China. The IEA fur-ther foresees that OECD countries will need tomake nearly US$4 trillion in investment on

Electricity


Electricity

06generation, transmission and distributionduring those years, while developing coun-tries will require some US$5.2 trillion*.

Only 2% of those questioned describedelectricity supply as their most serious infra-structure challenge. Moreover, the impor-tance of investment in this area ranks belowfields such as transportation, water, educa-tion, public housing and security. Not surpris-ingly, Emerging cities see the issue as muchmore important.

Demand outstrips supply: The three cityarchetypes face different difficulties, but theyall revolve around the fact that demandgrowth is outstripping supply. According to

electricity stakeholders in Transitional andMature cities, old or obsolete infrastructure isthe main problem. Then comes efficiency, fol-lowed close behind by lack of capacity. Anexample of the tight constraints weak infra-structure can place on the power system evenin the richest places comes from New York.There, 80% of power must by law be generat-ed in the city because the transmission linesto bring electricity from outside simply cannotcope with the higher load. Companies are try-ing to build small generating plants but thereis little land available on which to do so. With-out a solution, maximum capacity will equalmaximum demand by 2008**.

In Emerging cities, on the other hand, the

* International Energy Agency, World Energy Report 2004** New York City Energy Policy Task Force, New York City Energy Policy: An Electricity Resource Roadmap, January 2004

Key findings■ Cities at all levels of development face a

challenge in keeping up with rapidly rising demand for electricity

■ The impact on the environment is a major con-sideration in decision making on energy issues

■ Stakeholders will emphasize renewable energysources in the future as much as fossil fuels

■ More stakeholders predict a leading role for the private sector in electricity than in any other infrastructure sector in the survey

infrastructure is the biggest difficulty. Thiscan describe both average and peak load.Mumbai, for example, has seen hard to meetdemand growth of 12.4% over the last fouryears*. Meanwhile the power system in itsstate, Maharashtra, suffered its highestdemand peak in January 2006 which exceed-ed supply by 4,500 MW** more than one-third over the average requirement for all ofMumbai. As the next most important prob-lem, Emerging city stakeholders point to latemaintenance and lack of planning. Those inTransitional cities blame lack of investment.Lagos is an excellent example of how all theseproblems work together. There, because of lit-tle investment since 1990, the 6,000 MW

Electricity

maximum generation capacity cannot meetthe 8,500 MW that the city requires on aver-age before even considering represseddemand of 5,000 MW. Worse still, poor main-tenance means actual output averages 3,000MW. All this before 45% of power is lost in thepoorly maintained and frequently vandalizedtransmission system*.

The problems of Mature cities seems aworld away: the chief culprit is monopoly reg-ulation — such as a ten-year price freeze onChicago’s domestic electricity prices thatsometimes leaves the private utility thereforced to pay more on the open market forelectricity than it can charge. Such a structureallowed unscrupulous power producers to

create the great California energy crisis of2000-01. Like their colleagues in Transitionalcities, for Mature cities stakeholders under-investment is the second most frequentlycited concern.

Pricing power: Electricity stakeholders ex-pect to address the energy needs of theircities mainly by putting money into powergeneration. When asked the single thing thatthey could do to solve problems in this area,the most frequent response was to improveon existing infrastructure or build new (citedby 29%) followed by general investment inthe system (23%).

The regulation of energy use — a heavy-


lack of sufficient generating capacity is by farthe most pressing concern, according to thesurvey. Old infrastructure and inefficientoperations are lesser problems because thereis relatively little of it anyway. This is a particu-lar issue in India and China where half thestakeholders cited difficulties arising fromlack of capacity. Shanghai, for example, hasfrequent brown-outs in summer. Businesseshave had to shut down completely or shiftproduction to night time when more electrici-ty is available.

Stakeholders in each type of city also ana-lyze the underlying causes of their problemsdifferently. For Emerging, and even more forTransitional cities, unexpected load on the

handed version of demand management —came fourth (11%), but had no takers inMature cities where it would doubtless appeardraconian. Mumbai does not have the luxury.The local utility has resorted to “load shed-ding” — stopping provision to certain areasand restricting the use of neon signs and evencable TV transmission — to help maintain aservice that already experiences power loss ofone to two hours per day in urban areas andmore in rural ones**.

This does not mean efforts to affectdemand will have no role. When asked howmuch their cities would emphasize the cre-ation of new capacity compared with demandmanagement, responses were split fairly

The most serious problem of electricityinfrastructure

30%

27%

20% % of respondentsselecting

Lack of system capacity

Obsolete infrastructure

Inefficient operations

Combination ofproblems

20%

83%

100%

81%

81%

79%

76%

75%

Energy sources

Environmental impacts

Up-front capital cost

User affordability

Regulations

Appropriateness

73%Life cycle costs

73%Impacts on economy andemployment

Factors influencing the city’s decisionmaking on electricity supply

The best solution to electricity problems

29%

23%

13%

11%


Improve on existing infrastructure

Additional investment

Promote alternative energysources

Regulate energy use

Improve governance andadministration

* BEST data filed with regulator: MERC/22-26, 38, 39-45, 61 of 2003/1326 dt. June 7/22, 2006, **The Financial Express, 16 January 2006

*Nigerian Electric Power Supply Nigerian Electric Power Supply Industry, http://www.bpeng.org/CGI-BIN/news/reform%20 electricity.pdf, “You're going to feel a jolt, Chicago Tribune, 19 June 2006, ** Prayas submission on CII proposal for Pune Load Shedding, Dec 5, 2005,

% saying important impact

Electricity


evenly (53% versus 47%). If this played out inpractice, and nearly half of cities placed asmuch emphasis on demand management ason new capacity, this would be a significanttrend.

The potential value of demand manage-ment initiatives is certainly great. Studies inIndia indicate that they could eliminate 20%to 30% of demand growth*. To reach theeffectiveness foreseen this sort of demandmanagement will require a dramatic rampingup. Probably the most effective way to affectdemand quickly will be market pricing of elec-tricity. Electricity specialists expect theemphasis to be on selling power in their citiesat market prices rather than be subsidized(57% versus 43%). Denmark took this onestep further by heavily taxing use of fossil

fuels. The biggest outliers in the survey areIndia and China, where the combined equiva-lent figures are 36% at market prices and 64%subsidized.

Energy and the city environment: If ener-gy stakeholders aspire to modify demand,they also show a marked concern for environ-mental issues. On average, they thought thatover the next five to ten years their citieswould emphasize fossil fuels and renewabletechnologies to nearly the same degree (52%to 48%), an understandable result as thebroader survey lists air pollution as the singlelargest environmental problem cities face,and global warming as the sixth (third amongMature city respondents). Only North Ameri-ca still seems wedded to fossil fuels (73% ver-

sus 27%). Environmental issues also figureprominently as key factors driving decisionmaking in the survey, along side financialconcerns.

The aspiration to move toward renewablesis clear, but there is a long way to go in prac-tice. London, for example, uses 39% gas, 35%coal, and 20% nuclear to power its genera-tors, but only 4% comes from renewablesources. Moscow uses Russia’s relativelycheap gas for 95% of its fuel mix; China andIndia both use readily available local coal sup-plies for 75% of theirs despite the detrimentaleffect on the already bad air pollution. Evenafter several decades of probably the mostactive state measures in the world to promoteuse of renewables, by 2004 Denmark pro-duced only 25% of its power this way*. It is

therefore unlikely that renewables will pro-vide a major contribution to megacity powerneeds in the near future. Nuclear power — along proven technology — is another optionthat has been advanced as the best short-term solution to global warming by people asdiverse as British Prime Minister Tony Blair andthe environmentalist Professor James Love-lock**. Despite its low CO2 footprint, howev-er, nuclear power’s other drawbacks keep itfar less popular among all energy stakehold-ers than even traditional power sources (40%versus 60%).

The public and private sectors: If, as notedabove, those responding to the larger surveyput the importance of investment in electrici-ty behind many other infrastructure areas,one reason may be that cities are lookingmore to the private sector in this field than inothers discussed in this study. When askedabout the relative emphasis of reliance on pri-vate firms versus public bodies, electricitystakeholders expected to look 54% to the for-mer and 46% to the latter. Figures for privateor public operation of generation and distrib-ution facilities, as well as private or publicfinancing, were nearly identical.

The vast level of new generating capacityand money needed in the coming years isleading governments worldwide to considerhow best to use the private sector and com-petitive market forces. Those surveyed whoadvocate private ownership or operation,indicate that greater efficiency is the majoradvantage, with access to funding mentionedless frequently. The disadvantages are primar-ily seen as higher user costs, which suggeststhat if privatization is to work there needs tobe strong competition to keep prices down.

A number of Mature cities, including Lon-don and New York, already have largely pri-vate, if highly regulated, power industries

serving their needs. Places as diverse asShanghai, Mumbai, and São Paulo have sig-nificant private activity in a mixed system. Thefirst of these in particular has private partici-pation in power generation, while in SãoPaulo nine separate companies compete inpower distribution.

Meanwhile, Turkey, Russia, and Nigeriahave reached different stages of restructuringtheir state power sectors as a precursor to privatization of, and the introduction of com-petition in, various functions. In the lattercases, the need for investment and greaterefficiency is driving the process.

Regional differences: Given their varyinglevels of economic development, the differ-ent city archetypes have understandably dif-ferent needs and responses in the field ofelectricity supply.

The responses from continental Europe areparticularly interesting. This region seems tocombine a much more traditional view of therole of the state in power generation and pro-vision with a far greater concern for environ-mental issues. Contrary to overall opinion,electricity stakeholders in Europe expect aslightly greater emphasis on subsidized pric-ing than the free market (53% versus 47%),and by far the greatest focus on public overprivate ownership of any region (62% versus38%). In making decisions about electricitysupply issues, they put far more emphasis onenvironmental impact. This may be the rea-son why European stakeholders are the onlygroup in the survey that expects to look moreto demand management than new capacity(60% versus 40%).

These figures should serve as a reminderthat even though megacities worldwide facesimilar difficulties across diverse fields, theirresponses will be profoundly affected by theirpolitical and cultural contexts.

Predicted approach of electricity experts

Renewabletechnologies

Fossil fuels

48%52%

* Demand-Side Management (DSM) in the Electricity Sector, Prayas Energy Group (Pune) for Climate Change & Energy Programme World WideFund for Nature, February 2005

* IEA, Energy Policies of IEA Countries – Denmark, 2006, **PM 'convinced' on nuclear future, 29 November 2005, 'Only nuclear power can now halt global warming', The Independent, 24 May 2004


One of the Tokyo-based respondents toldthis survey, “Recently there are often

rainfalls of more than 100mm. Rain water isstored in underground rivers to avoid flooding.Most people do not know. Real infrastructureshould be working in the background withoutbeing noticed.” For Mature cities, “working andunnoticed” is usually a good description of thewater infrastructure: the presence of gooddrinking water, sanitation, and drainage aresimply assumed. Any problems, such as therecent drought restrictions imposed in London,provoke annoyance. Catastrophic failures, suchas in the wake of hurricane Katrina, provokeoutrage. As in both these cases, the publicinsists that those responsible should have had

Water and waste water


Water and Waste Water

07proper infrastructure in place – the problem iscertainly not nature. For Transitional, andespecially for Emerging cities, the situation isprofoundly different. The UNDP estimates thatin 2004 some 1.1 billion people lived morethan 1km from the nearest safe water source.Worse still, 2.6 billion people, roughly 40% ofthe world’s population, had no access toimproved sanitation. These figures, UNDPsuspects, probably underestimate the scale ofthe problem. Official data for Jakarta andNairobi, for example, both indicate 90%coverage for clean water and sanitation. Thesefigures apparently leave out huge slum areas,in the former accounting for some 7.6 millionpeople without such facilities. The roughly 1

million residents of Nairobi’s notorious Kiberaslum rely on putting human waste in plasticbags and throwing it into the street*.

A growing challenge for the emergingworld: Our overall survey data reflects thedifferent experience of respondents across thearchetype cities. When survey respondentswere asked about the most serious infra-structure challenges facing their cities, waterrelated issues were split into separate catego-ries: water supply and wastewater manage-ment. If added together, the combination con-stitutes the third most frequently cited issue(8%), a figure that nevertheless puts it farbehind transport as a perceived challenge

* UNDP, Human Development Report, 2006

Key findings■ Water and sanitation is seen as an important issue

by specialists in this sector, but comes lower down the list of priorities in the survey overall

■ Even in Emerging cities, the importance of water issues for their economic development is not widely recognized

■ Solutions that focus on water reuse emerge as a significant trend for the future

■ There is some movement towards private sector management of publicly-owned water provision as a wayto improve efficiency

serious drinking water problems in the 21st

century*. Investment priorities also reflect a higher

focus on water issues in Emerging cities. Ove-rall, 70% of respondents believe that there is ahigh need for investment in water and wastewater infrastructure, placing it sixth out of 13infrastructure areas. In Emerging cities, how-ever, the figure was much greater (81%).

Hidden costs: The link between public healthand clean water and sanitation is clear: theUNDP estimates that a lack of these servicesresults in about half the developing worldsuffering from a health problem at any giventime, and accounts for 1.8 million annual childdeaths from diarrhea alone. Conversely, intro-duction of safe water supplies and sanitation inLondon and various American cities about a


century ago coincided with the largest drops ininfant mortality and increases in life expec-tancy those locations have ever seen. Cholera,of only historic interest there, is a frequentvisitor to Lagos where water treatment iseffectively nonexistent*. Nevertheless, health-care stakeholders make no mention of the roleof water infrastructure in improving healthcareoutcomes, which may reveal a lack of holisticthinking.

In the same way, when all survey res-pondents were asked about factors enhancingeconomic competitiveness, only 3% placedwater supply and sanitation first, even inEmerging cities where water is such a big issue.Noticed or not, water and sanitation are inreality crucial for economic development. TheWHO estimates roughly that lack of access tothem costs developing countries US$170

billion per year, or 2.6% of their GDP**. Sub-Saharan Africa loses about 5% of GDP, or someUS$28.4 billion annually, a figure thatexceeded total aid flows and debt relief to theregion in 2003. Conversely, investment inwater can generate a high return. The UNDPestimates that every US$1 spent in the sectorcreates on average US$8 in costs averted andproductivity gained.

According to water stakeholders, theprimary difficulty this under-appreciated areafaces overall is older, obsolete infrastructure(cited by 47% of respondents). This figure iseven higher in Mature cities (59%), andespecially Europe (63%) and North America(66%). These cities, having benefited from safewater for over one 100 years, face thedifficulties of maintaining or upgrading cen-tury-old facilities. London’s water company,


(35%). In Emerging cities, water issues comesecond (13%), but in Mature ones they appearwell down the list (3%). Similarly, overall waterpollution/water quality is listed as the fourthlargest environmental challenge (13%), butcomes second in Transitional cities (22%).

Shanghai is one Transitional city facinghuge challenges in this area. Its main watersource — the River Huangpu — is so con-taminated by industrial and agriculturalpollutants that it has been devoid of aquaticlife for over 20 years. The River Yangtze, thealternative water source, faces increasedsalination in its lower reaches resulting fromlower water levels brought about by the ThreeGorges Dam. Meanwhile, ground water isfacing increasing contamination from sea-water. Little wonder that the UN namedShanghai one of six major cities likely to face

even after substantial upgrading efforts, stillloses one-third of water to leaky pipes, 90% ofwhich occurs in London’s Victorian-erasystem***. New York, meanwhile, which hasalways had a clean water source so clean as notto require filtration, now may have to spendUS$8 billion to filter suspended particles****.Transitional and Emerging cities also faceobsolete infrastructure: Moscow’s water sys-tem rivals that of London and New York in ageand urgently needs modernization.

A bigger role for water reuse: Despite thevarying intensity of challenges to water infra-structure in the different city archetypes,stakeholders overall had a similar approach tosolving these problems. Asked which strategywould have the biggest impact, the mostcommonly cited choice was renovation/impro-vement of the infrastructure (42%), followedby the more general one of increasedinvestment (29%). Respondents did not seemuch value in raising the low political profile ofwater — 5% suggested making it a priority —which is interesting in light of the UNDP’srecent call to do so in its 2006 HumanDevelopment Report.

Any renovation and investment is unlikelyto revolutionize how cities address waterneeds. Water stakeholders expect that theemphasis in their cities in the next five to tenyears will be slightly more on improvedefficiency than new plants and facilities (52%versus 48%). This is even more likely to be thecase in Mature cities (62% versus 38%). Suchan approach makes sense in a city like Paris,where ongoing investment and judiciousexpansion over a century and a half have left asound basis for future water provision. The stillrelatively low emphasis on new plants inEmerging cities (52% versus 48%) may arisefrom widespread denial about the extent of theproblem. Mumbai, for example, claims its

The most serious problem of water supply and wastewater management

47%

14%

12%

20% % of respondentsselecting

Old or obsolete infrastructure



Combination ofproblems

92%

100%

91%

90%

85%

81%

79%

Water quality

Environmental impacts

Up-front capital cost

Appropriateness

User affordability

Impacts on economy andemployment

Factors influencing the city’s decision making on water supply and waste water management

* http://www.chs.ubc.ca/china/shanghai.pdf, http://www.ehponline.org/docs/1994/102-2/focus.html * UNDP 2006, ProMED-mail 6 January 2006, **WHO (World Health Organization), “Economic and Health Effects of Increasing Coverage of Low Cost Water and Sanitation Interventions”; UNHDR Occasional Paper, http://hdr.undp.org/hdr2006/pdfs/background-docs/Thematic_Papers/WHO.pdf), ***”Drought in London”, London Assembly Committee, July 2006, ****"New York’s Water Supply May Need Filtering”. New York Times, 20 July 2006.

% saying important impact



water provision covers 95-100% of itspopulation: the UNDP suspects the number isclose to half of that*.

One surprising finding is the emphasis inthe future on water reuse rather than thetapping of new sources (55% versus 45%).Such an approach need not solely involvewater for industrial use. Beijing’s Bei XiaoheWastewater Treatment Plant currently providesdrinking water for 400,000 people and isundergoing an expansion — the largest suchproject in the world — to more than doublecapacity. It will provide drinking water at thecoming Olympic Games. Singapore, mean-while, hopes to get 20% of its water requi-rements from a recycling plant: the PrimeMinister proudly serves its output at state din-ners.Market forces and conservation: Focusedon investment, water stakeholders see asmaller role for demand management: only

15% cited it as the best strategy to address theirproblems. Simple expedients in this area canhave a great impact. Shanghai’s recent require-ment that families replace 13-litre toilets with9-litre ones will save the city US$189 millionannually in water treatment costs**. Ratherthan focusing on education programs, how-ever, water stakeholders expect to managedemand and encourage conservation throughmarket forces. Overall, they foresee the em-phasis for water revenue to be more on userfees than on taxes (67% versus 33%). In Maturecities the former figure rises to 80%. The con-straint in Emerging and Transitional cities ismore likely to be the technological one ofinstalling metering equipment than anythingideological.

Lagos, for example, is happy to privatize itsbankrupt Lagos State Water Corporation buthas no idea where 90% of the company’s watergoes*.

The public and private sectors: Althoughmarket mechanisms will apply in water pro-vision, water stakeholders still expect theemphasis on the public sector to predominateover the private in operating facilities (57%versus 43%). North Americans seem par-ticularly attached to public operation (78% ver-sus 22%), this being one of the few areaswhere Europeans are happier to contemplateprivate sector participation (52% versus 48%).

Such an emphasis could involve a remark-able increase in private participation. Current-ly, the UNDP estimates that public utilities pro-vide 90% of the developing world’s water;Veolia Environment, the world’s biggest pro-vider of water and waste recycling services,puts the world figure at 95%**.

Recent trends suggest, however, that al-though private-sector involvement in waterwill increase, it will do so in specific areas andtake on very specific forms. In the 1990s, the

World Bank encouraged greater private par-ticipation in water provision. A number ofhigh-profile grants of concessions tocompanies to provide municipal water faileddramatically, for reasons ranging from thepolitical difficulty of raising prices to covercosts through to currency exchange-ratefluctuations. Although there have beensuccess stories in this field – notably in Chileand parts of Manila – this history and the highupfront investment costs involved with waterhave increased corporate reluctance to take onsuch concessions***.

Instead, a variety of World Bank and OECDpublications**** indicate that the privatesector is moving more into the management ofpublicly owned water provision to improveefficiency, and especially the building andoperation of waste treatment plants. Privateoperation in particular involves lower risk – asthe state or the public utility, not the end user,

is the customer – and are less politicallysensitive. A typical example is a new waterplant set to open in Moscow in 2007 con-structed by a German company under theBOOT model (Build, Operate, Own, Transfer).The company will operate and receiverevenues from the facility for ten years beforeit slowly transfers it to the municipality*****.

Private contracts also now tend to besmaller than the huge concessions of the1990s, although there are more of them, with54 countries having opened the door to, andcontinued on with, private participation inwater infrastructure in the last 15 years. Astime goes on, smaller domestic companies aretaking a larger share of the market from thehandful of transnational operators, increasingcompetition.

In areas with reasonable levels of risk andreturn, private-sector participation will likelygrow as the survey results indicate. It will,however, have only limited ability to helpEmerging cities, as companies are avoiding notonly politically sensitive business models butalso locations unlikely to be profitable, how-ever welcoming.

The vast majority of new private investmentin water projects is currently going into China(56% of the world total) and Algeria (34%). IfLagos finds a purchaser, it will be an exceptionto the trend. Emerging city water stakeholdersexpect the split of public and private emphasisin the operation of new facilities to be 57% ver-sus 43%. Most will likely need the state tocontribute far more than this.

The biggest advantages cited by the advo-cates of privatization are increased efficiency,better funding, better quality managementand a higher-quality service.

Those who are more skeptical about pri-vate-sector involvement cite high costs tousers, profit seeking and inadequate supply asmajor impediments.

The best solution to water problems

42%

29%

15%

12%


Improve existing water infrastructure

Increase investmentfunding

Manage demand witheducation/awareness

Better information andtechnology

Improve management

Predicted approach of water experts

New sourcesWater reuse systems

45%55%

* Urban Water Sector in South East Asia, Benchmarking Performance, Water and Sanitation Program (WSP) May 2006, UNDP, Human Develop-ment Report. **"City Launches Toilet Reform", Xinhua News Agency, 13 May 2002, ‘Shanghai Flash’, Consulate General of Switzerland in Shang-hai Commercial Section, Issue 4, July 2003.

* "Lagos residents thirst for better water supply", Planet Ark, 10 June 2003, ** UNDP, Human Development Report, 2006, p. 10, "Water supply bogs down in complexity", International Herald Tribune, 20 August 2005, ***UNDP, Human Development Report, ****For example, see http://www.ppiaf.org/Gridlines/14ppiwater.pdf and papers listed on http://www.oecd.org/document/22/0,2340,en_2649_37425_37456726_1_1_1_37425,00.html#Background, *****http://www.degremont.com/uk/files/actualites/presse/files/2004/juin/contrats.htm


Healthcare


Healthcare

08Around the world, healthcare systems are

coming under increasing pressure. Therising cost of prescription drugs and privatehealth insurance is one challenge. Hugeinefficiency in the delivery of healthcare isanother. But it is arguably the phenomenon ofpopulation ageing that creates the biggestlong-term problem for many countries, par-ticularly in Europe and East Asia.

Increased life expectancy means thathealthcare systems face an increase in theproportion of older patients. Ageing alsoplays a role in the occurrence of chronicdiseases, which in turn leads to greaterdemand for long-term care. That people livelonger has much to do with the achievements

of medical science, but it comes at con-siderable financial cost. People over the ageof 75 incur per capita health expendituresthat are five times higher than people aged 25to 34. Ageing is currently estimated toaccount for 6%-7% of the increase in health-care costs per year.

Costs rising fastest in developed world:Spiraling healthcare costs are particularlymarked in the developed countries with theirextended health systems. Between 1990 and2004, health spending has been growingfaster than total output in all OECD countriesexcept Finland. In the US, which has the mostexpensive healthcare system in the world,

health expenditure as a percentage of pro-duction has increased from 13.1% to 15.2% insix years*. In contrast, developing countriescannot afford to spend anywhere near asmuch on healthcare, and access to treatmentsis often non-existent or inadequate. Accord-ing to the World Bank, developing countrieshave 90% of the world’s disease load but only12% of its health spending. More drama-tically, the poorest countries have 56% of thatload but only 2% of spending**.

Healthcare in megacities reflects theirbroader national environments. Emergingcities have basic infrastructures and, exceptfor privately funded care for the elite, canoften provide only rudimentary service.

* Source: OECD, ** OECD Health Data 2006, October 2006, World Bank, Health Financing Revisited: A Practitioner’s Guide, 2006

Key findings■ City healthcare systems around the world will struggle

to cope with the effect of an ageing population

■ There is a high emphasis on increasing the efficiency of the system to contain costs while improving quality

■ Stakeholders predict an emphasis on preventative solutions and integrated healthcare

■ Healthcare is mainly seen as a public task, but significant proportions are open to private sector involvement — with quality of service and efficiency cited as key advantages

Lagos’s health system cannot even providebasic needs in the face of serious AIDS,tuberculosis, and malaria problems*. Mum-bai, although India’s richest municipality andspending 25% of its budget on health, can stillcare for only 20% of the population, leavinglarge slum areas poorly served**. Transitionalcities are doing better, with places likeIstanbul and São Paulo seeing good impro-vements in recent years***. This city arche-type is now beginning to face medical pro-blems associated with more developedsocieties: whether the effects of pollutionarising from industrialization in Shanghai, orthe need for specialized facilities for Seoul’sageing population as Korea undergoes thedemographic transition typical of matureeconomic development. Mature cities such asNew York, which boasts one of the world’shighest concentrations of hospitals, are

Healthcare

troubled by healthcare inflation and diseasesof affluence, such as obesity-induced dia-betes and cardiovascular problems.

Given the scale of these challenges, it issurprising that healthcare is not more of apriority for respondents in the overall survey.It comes well down the list of socialchallenges (mentioned by only 4%) and infra-structure challenges (1%). Of the 4% whothink it the leading area for determining acity’s competitiveness, most are in the healthfield. The combination of underinvestmentand lack of focus can prove dangerous. As onesurvey participant from Beijing noted, theoutbreak of SARS had a pronounced effect onthe Chinese Government’s attention tohealthcare.

The biggest problem facing city healthcaresystems is lack of capacity followed closely byinefficient operations, according to the

survey. Concerns about inefficiency were par-ticularly marked among stakeholders fromthe Emerging cities. Overall, it appears thathealth stakeholders think that it is not enoughsimply to pump money into current systems.Far more important is the need to put cityhealth infrastructures in order so that theycan use what they have more efficiently.

Improving healthcare efficiency: Whenasked about solutions to these problems,most stakeholders again offer a combinationof greater efficiency and increased capacity.Those in Mature cities expect to emphasizeefficiency gains by a wide margin (61% versus39%). Emerging cities also had a greater focuson measures to improve efficiency, withstakeholders prioritizing the need for bettergovernance of healthcare, a more integratedhealthcare system, and only then more staff.


Stakeholders in Transitional cities have adifferent order of priorities, in that theyexpect to emphasize new capacity overincreased efficiency. Their preferred strategyis more money, so greater investment (41%)comes well ahead of the need for anintegrated system (17%) in their view.

The desire to control costs and increaseefficiency also informs two other trends in thesurvey: towards preventative and away fromacute medical care (67% versus 33%) and –particularly in Transitional and Mature cities –toward common healthcare infrastructureswith shared services as against independentindividual institutions (63% versus 37%).

One universal point worth noting across allcity archetypes is that stakeholders focused somuch more on their systems as the providersof health, rather than on patient behavior andliving conditions. When naming the most

The most serious problem in the healthcare sector

32%

29%

19%

14%

% of respondents selecting



Obsolete infrastructure

Combination of problems

* www.vanguardngr.com/articles/2002/features/health/gh105092006.html; USAID Nigeria:http://www.usaid.gov/ng/index.htmFinancialNigeria.com (2006); Economic Report: New Polio Report Challenges Nigeria's Commitment to Health-care Delivery 05/09/2006

** T.R. Dilip and Ravi Duggal, “Unmet Needs for Public-Health Care Services in Mumbai, India”, Asia-Pacific Population Journal, 2004*** OECD, Health Data 2006: How does Turkey compare?, “Sumario de Dados, 2004”; Secretaria Municipal de Governo Municipal

Healthcare


effective single strategy to address thechallenges outlined above, health promotionand education came well down the list, citedby only 5% of respondents. Getting thepatient to avoid anything from unsafepractices that spread HIV/AIDS to theexcessive drinking devastating Russian healthwould have a profound effect. So too wouldaddressing significant air or water pollutionissues, such as those in Transitional cities likeShanghai and Mexico City, with even Maturecities like Tokyo, London and New York excee-ding WHO-recommended nitrogen dioxidelevels.

IT in healthcare: IT has a major role to playin healthcare, supporting both treatment andadministration. The shift towards electronicpatient records is one example. São Paulo hasa medical smartcard that lets patients taketheir medical record between hospitals on

wallet sized pieces of plastic. IT can also savemoney: for example, a new system linkinghospitals in Copenhagen is expected to bringsavings of approximately US$46 millionannually. These are attractive benefits, butimplementing IT systems is not just a matterof finding suitable technology. Specialistsargue that the problems experienced by theUK’s National Health Service in implementingelectronic patient systems are more to dowith the difficulty of achieving cooperationon a huge project between a multitude ofstakeholders than the technology itself. Thesechallenges indicate that organizational inno-vation will be just as important as technolo-gical advances when it comes to improvingthe performance of megacity healthcare systems.

The public and private sectors: Stakehol-ders in the survey believe that public healthinfrastructures will be the path for the future.

In terms of public or private ownership oroperation of facilities, they expected theemphasis to be for the former (58% versus42%). They also believe that there will be agreater emphasis on free-to-user medical ser-vices as opposed to healthcare models wherepatients pay for treatment (59% versus 41%).

Attitudes do vary by city archetype, how-ever. Transitional cities are especially likely toemphasize public ownership (63%), operation(63%) and free health care (70%). However,Mature city stakeholders expect fee-payingservices to be emphasized slightly more thanfree ones in the coming years, and splitroughly evenly on public or private ownershipand operation. Currently the public sector isdominant in healthcare in the developedworld, with the state covering 70% of healthspending in OECD countries, so this may con-stitute a relatively high degree of openness toprivate-sector involvement.

Emerging cities stakeholders predictgreater emphasis on public ownership (56%)and operation (59%) in the future. This mustbe viewed in the context of low public spen-ding on healthcare in these countries (only29% of health spending comes from the pub-lic purse, and in India the figure is just 19%,according to the World Bank). Where themoney will come from to move this beyondaspiration is unclear.

The one certainty is that Emerging cities,faced with pressing health problems, willneed to use whatever resources they canmuster, public or private, in as efficient a wayas possible.

In this context it is worth noting that, as inother infrastructure sectors in the survey,quality of service and efficiency are cited asmajor benefits of privatization. High usercosts and profit-seeking are perceived as themain disadvantages.

Predicted approach of health care experts

New capacity Increased efficiency

49%51%


Security has one important qualitativedifference from other infrastructure areas

in this study: whereas water or transport pro-vide something tangible, the ultimate goal ofsafety efforts is to create a subjective state ofmind. Statistical success is not enough. In2005, the FBI reported that violent crime hasbeen decreasing in America for a decade, buta Gallup poll showed that two thirds of thepopulation believed the complete opposite.Worries have real world implications: flyingafter September 11, 2001 was objectivelysafer because of enhanced security, butpassenger numbers suffered nonetheless.

Whatever the difficulties, urban specialistsunderstand that security is a crucial infra-

Safety and security


Safety and Security

09structure element. The complete surveypopulation ranked public safety and securityas the second most important infrastructurearea in determining competitiveness with 9%of respondents. It is also the sixth-biggestsocial challenge, while crime/corruptioncomes in tenth.

Threats against the city: The more detailedsurvey answers by security stakeholdersfleshes out their more informed concerns.Organized crime, including by armed gangs,is their biggest challenge — named by 36% ofthose questioned and by even higher num-bers in the Emerging and Transitional cities.Next, a surprising distance behind, comes

terrorism (18%), a particular concern inEmerging and Mature cities.

Although distinct threats, the two overlapin important ways. Terrorists use organizedviolence to weaken the state: criminal gangsdo so to gain wealth. This frequently becomesa distinction without a difference: to furthertheir ends, the IRA robbed banks and the Calicartel undermined the Colombian state. Inpractice, the main problem facing securityprofessionals is organized groups thatchallenge the rule of law, and that increasing-ly cooperate with each other whatever theirfinal goals. A recent study, Illicit by MosesNaim, shows that globalization has allowedorganized crime and terrorism to cooperate

Key findings■ Safety and security comes second only to transport as a factor

contributing to city competitiveness

■ Organized crime emerges as the biggest problem, followed some distance behind by terrorism

■ Cities are attempting to shift to a more proactive approach to security

■ Although open communities are the favored as the route forward for most, gated communities will also be emphasized by many — especially in Emerging cities

■ Public surveillance is deemed more important than protecting privacy

Towards proactive protection: How canthe city protect itself against these threats?The survey indicates a greater focus on thethreats themselves, rather than underlyingcauses. The leading ones they named were:crime itself (put first by 24%), corrupt orincompetent law enforcement (15%), poorplanning/city management (10%), terrorism(9%), and natural disasters (9%). In otherwords, the causes of crime, terrorism andnatural disasters are criminals, terrorists, andnatural disasters, or incompetence in fightingthem. Social issues such as unemploymentand poverty are well down the list. The lack ofa holistic approach to these threats is evident,possibly because security specialists in thesurvey feel that the underlying social causesof crime are outside their remit.

Asked how best the city could addresssecurity issues, the most popular response isadditional officers and law enforcement

Safety and security

capacity (28%), while the third is betterpreparedness and planning (17%). Emergingcities emphasize the former and Mature ones— which can already afford larger policeforces — the latter, but the common messageis more capacity, better used.

Over recent decades numerous policedepartments have shifted from a reactiveapproach to take the fight to the enemy. Thesurvey results show this occurring worldwide.Respondents indicate that, given a two-waychoice, the emphasis of security efforts wouldbe towards preventing problems over pro-tection from them (60% versus 40%). Inanother question they emphasize protectingthe city from threats over responding to them(57% versus 43%).

The success of so-called “risk-based po-licing” has been dramatic. New York City’songoing, widely copied COMPSTAT program,which analyzes police data to indicate crime

hotspots, allowing frequent tactical resourcereallocation, was important in that city’s dropin crime figures in the late 1990s. A similarinitiative in Bogotá, and related efforts toreclaim crime-blighted public spaces iden-tified by technology, were instrumental inreducing its murder rate by 48% between1994 and 2005. A slightly different, butrelated approach, which has spread from theUK through Europe and Australasia is dubbed“intelligence-led policing”. In addition tocrime data analysis, this involves the sys-tematic collection of informant informationdescribing the criminal environment and par-ticularly the behavior of repeat offenders.

Safety over privacy: A strategy based onpredicting crime has its controversial ele-ments. Survey respondents thought that theemphasis on the need for public surveillancewould far outstrip privacy concerns, a con-


and thrive. For example, from 1990 to 2005money-laundering expanded five times morequickly than global trade.

The next most pressing safety concern,potential natural disasters, shows theimportance of context in risk perception. Ove-rall, 13% name this as their city’s leadingsecurity challenge. Mature city respondents,however, rank it almost as high as anythingelse, while Emerging city respondents do notmention it. The latter are not exempt frompotential disasters. Lagos will lose significantterritory if global warming raises sea levels.With a barely functioning security apparatus,however, it cannot even properly addresscurrent annual floods. Shanghai, though,with a low crime rate and greater resources,can invest in preparation for potential earth-quakes and flooding. Security stakeholdersare perhaps focusing on where they have thecapacity to make a difference.

viction strongest in Transitional and Maturecities — where risk-based policing is mostadvanced.

In pursuing their campaign againstcriminals and terrorists, however, securitystakeholders fully understand the need tomaintain perspective. The most importantfactors influencing their decisions are impacton the economy and employment, appro-priateness, public satisfaction and communityimpact. These all come well ahead of cost.The city's protection cannot unduly constrainpeople's lives and businesses — indeed thefocus of decisions is to enhance the city’seconomic competitiveness and quality of life.

Technology is essential for risk-basedpolicing, and a vital tool for general surveil-lance in cities wishing to increase policecapacity. Crime mapping is just one example.Another ubiquitous and sometimes veryuseful one is CCTV. Introduction of such a

The most serious safety and securityproblem

36%

18%

13%

8%

% of respondents selecting

8%

6%

7%

Organized crime

Terrorism

Natural disasters

Ethnic conflicts

Mass events

Crime and violence of all types

Combination of problems

Predicted approach of safety and security experts

Prevention of problems

Protection fromproblems

60%40%


Public surveillanceProtecting Privacy

59%41%

% = predicted emphasis % = predicted emphasis

Safety and security


system, for example, in central Johannesburgbrought an 80% drop in crime in 2002 andwas instrumental in the revival of a previouslydevastated downtown*.

The security stakeholders see technology'simportance, expecting the emphasis on itspurchase to be greater than investment inhuman resources (54% to 46%). This figure,though, also indicates that technology with-out having enough people to use it is insuf-ficient. More strikingly, while 28% of res-pondents see more officers as the best way topromote security, only 4% wish to rely onmore CCTV alone. Technology is seen as acrucial tool, not a complete solution.

Mobilizing citizens: The survey also indi-cates the international strength of anotherimportant shift in policing: enlisting the

community in efforts to promote its ownsecurity. After more enforcement capacity,respondents thought the best option for citieswas increasing awareness/education/sense ofcommunity (18%). Combining these respon-ses with those advocating the same measuresspecifically directed at youth raises the figureto just under one quarter.

Community involvement can make a hugedifference. A core part of Chicago’s Alter-native Policing Strategy has been mobilizingthe public. From 1992-2002, robbery in thecity declined by 58% — more than anywhereelse in America — and more importantly fearof crime fell by 20% among the mostvulnerable. Still more dramatic were efforts inSão Paulo’s Jardim Ângela, which the UN oncelabelled the world’s most violent neigh-borhood. Efforts by the city and 26 NGOs to

increase community cohesion were crucial inreducing the murder rate there between 1999and 2004 by over 73%.

Harnessing community strength, however,alters the relationship between the securityforces and society. Safety is no longer simply astate-provided public good, but becomespartly the responsibility of individual citizens.Now, measures like Neighbourhood Watch orcountless volunteer citizen patrols in NorthAmerica — from New York’s Guardian Angelsto the South Cariboo Citizens on Patrol in ruralBritish Columbia — are no longer branded asvigilantism but are often assisted by thepolice. Once people in a community feel thatthey have responsibility for their own safetyand security, the incentive exists to turn toprivate security solutions if they considerpublic efforts insufficient.

The public and private sectors: Thegrowth of a private-sector role in such a tradi-tionally public field sparks some anxietyamong those surveyed. Those most opposedare moved by more ideological arguments:this field is the role of the state (39%); the pri-vate sector is unaccountable (23%); and pri-vate security companies are elitist (16%). Themuch smaller number favoring greater privateparticipation instead point to utilitarian justi-fications: such arrangements are credible andreliable, they attract investment, and arehighly efficient.

Given such views, the surprise is that indeveloping solutions to the security problemsof their cities over the next five to ten years,on average these respondents expect effortsto emphasize private versus public efforts by33% to 67% — a finding that could be signifi-

cant in what is currently a state-dominatedfield.

Force of circumstance is driving thisgrowth, in two areas. The first involvescompanies hired to perform specific, oftennot front-line, tasks by government agencieswith a security role. This arouses relatively litt-le controversy. Britain, for example, out-sources part of its passport application pro-cess to Siemens Business Systems and manyairports use private security firms to somedegree.

The second category results from privateindividuals or companies exercising theirresponsibility for their own safety becausetheir fears are insufficiently allayed by thestate’s efforts. An increasingly common formof this practice around the world is the gatedcommunity — protected by walls and, usually,its own private guards. Although most studiesindicate that such neighborhoods enjoy aboutthe same level of safety as their surroundings,the feeling of security within is invariablymuch higher.

Such private security procurement arousessome controversy. In our survey, respondentsthink that their cities will strongly emphasizedeveloping open communities over gatedcommunities (61% versus 39%). In Emergingcities, however, with higher crime rates andfewer public resources, respondents are moreinclined to predict an emphasis on gated overopen communities (52% versus 48%). Ascrime rates drop and resources rise throughTransitional and Mature cities, support forgated communities lessens.

Thus, where cities can provide for thesecurity of their residents, or more impor-tantly make them feel safe, the public sectorwill outsource some highly controlled tasksfor reasons of efficiency and finance. Wherethey cannot, the private sector will of ne-cessity do so for those who can afford it.


Develop gated communities

Develop open communities

39%61%

88%

100%

83%

82%

82%

78%

Impacts on economy and employment

Public satisfaction

Appropriateness

Community impacts

Regulations

Factors influencing city’s decision making on safety and security

* (http://www.joburg.org.za/metro_police/police_projects.stm, http://www.joburg.org.za/july_2002/cctv.stm)

% = predicted emphasis% saying important impact

Metropolitan governance has becomeincreasingly complex as cities have mor-

phed into agglomerations combining multipleadministrative organizations and jurisdictions.This has led to calls for a complete reassess-ment of urban governance. Megacities alsoneed innovative funding strategies to releasemuch-needed investment to address the infra-structure challenges outlined in previous sec-tions.

These requirements are widely acknowl-edged, but there is considerable debate abouthow to address them. As usual, a one-size fitsall strategy is inappropriate: governance andfinance structures must be adapted to meet theunique circumstances and needs of each city.

City governance and finance


City Governance and Finance

10

Beijing

Key findings■ Economic growth and employment are the primary drivers in decision-making for

specialists in city management

■ Environmental issues are also important but are sometimes sacrificed in the race for growth

■ Attempts to deliver holistic solutions are often undermined by a lack of strategic planning and poor coordination between different levels of government

■ Many cities focus on increasing supply to cope with growth; demand management strategies have yet to be widely adopted

■ Infrastructure will usually remain under public control, but the private sector has an important role to play in managing services for increased efficiency

6% of respondents to this survey saw educa-tion as the most important area determiningcity competitiveness. Similarly, cities need ahealthy workforce to achieve their economicpotential, yet in the survey only 3% citedhealthcare as the single biggest factor in citycompetitiveness. It is therefore worth stressingthat the health, education and welfare of thecity’s inhabitants may be at least as big a factorin attracting investment and delivering growthas physical transport infrastructure.

Environmental concerns are importantbut are sometimes sacrificed for growth.Respondents also have a high awareness ofecological factors: six in ten city managers inthe survey think that their city’s leadership rec-ognizes the vital role that infrastructure deci-sions can play in protecting the environment.This echoes a wider sensitivity to environmen-tal issues in the survey overall — for example,the desire to make transport greener byemphasizing mass transit solutions, or to placean increased emphasis on renewable energysources to provide a greater proportion ofpower to the city.

Even so, when push comes to shove thesearch for economic competitiveness oftenwins out over environmental considerations.For example, 45% of respondents overall pre-dict that their cities will increase infrastructurecapacity at the expense of the environment.Stakeholders in the developing world are par-ticularly likely to put capacity growth first:about 55% of respondents in Emerging andTransitional cities believe their cities will sacri-fice environmental considerations for the sakeof increased capacity, whereas only 14% ofrespondents in Mature cities believe that thiswill happen.

More resources need to be made availablefor the urban poor. A wealth of depressing


statistics drive home the scale of urban pover-ty. Worldwide, 18% of all urban housing unitsare non-permanent structures and at least 25%of all housing does not meet urban construc-tion codes. Problems are especially acute in theEmerging cities and particularly in Sub-Saha-ran Africa, which has the highest slum growthrate.

In the UN-HABITAT report, Kofi Annan com-ments that efforts to improve the lives of theurban poor have not kept up with the rate ofurbanization. Many in the survey seem toagree: only 37% of stakeholders say that theircity makes adequate infrastructure invest-ments into the poorer areas. Respondents inEmerging cities are most likely to think thatinvestment into poorer areas is inadequate.

It is not that stakeholders in the survey donot appreciate these problems. Education andhousing are two areas where stakeholders saythere is a high need for investment. However,Emerging cities often lack the resources toaddress these issues effectively.

Better performance begins with bettergovernance. Stakeholders are aware that get-ting money to invest in improved services,though important, is not the only issue. Long-term strategic planning emerges as the singlebiggest problem facing city managers in thesurvey. When asked what the best solution is tothe challenges they face, one-half of respon-dents in this area call for better planning, ver-sus only 12% that cite the need for more fund-ing. The call for better city governance isechoed in a related issue, the need for moreefficiency in the management and implemen-tation of infrastructure. Only half of all respon-dents to the survey say that the implementa-tion of infrastructure decisions is currentlydone well, although that proportion rises toapproximately two-thirds for public-sectoremployees and elected officials.

Finance is of course a major issue, and iscited as such when we asked the differentinfrastructure specialists about their chal-lenges. What is clear, however, is that city man-agement stakeholders see that good gover-nance is a prerequisite for raising funds andachieving value for money. In this respect,good governance is the cornerstone of com-petitiveness. Poor governance also acts as abarrier to achieving the goals of sustainabledevelopment. Even in the more developedcountries, recent OECD research* on metropol-itan governance discusses how the currentstructures are not well-suited to balancing theneeds of economic competitiveness and ‘live-ability’. The three main obstacles identified area fragmentation of administrative jurisdiction;strain of the financial and fiscal abilities of localmunicipalities in metropolitan areas; and a lackof transparent, accountable, decision-makingprocesses. The report goes on to identify cer-tain features that can contribute to the dualgoals of enhancing competitiveness and live-ability of large metropolitan regions. Theseinclude stronger area-wide metropolitan gov-ernment, improved coordination and integra-tion of policies in metropolitan areas, and gov-ernance and strategic planning to supportmore sustainable urban development.


However, some strong themes and challengesemerge in the survey that provide an insightinto how governance and finance strategiesmight evolve in megacities globally and at thethree archetypal stages of development.

Growth and competitiveness are the pri-mary drivers in decision-making. The clearpriority for those stakeholders in the surveyinvolved in city management is to grow theeconomy and create or protect jobs. Whenasked to rate the importance of ten factors interms of their impact on the city’s decisionmaking today, 81% acknowledge the impor-tance of the economy and employment,whereas smaller proportions cite the impor-tance of responding to citizens (73%) or of con-sidering community impacts (68%).

Competitiveness also emerges as an impor-tant consideration in decisions relating to spe-cific infrastructures. Six in ten stakeholdersthink that their city places a high importanceon making themselves competitive to attractprivate investment when deciding on infra-structure issues, a proportion that rises amongelected officials and municipal employees.

A multitude of different factors combine tomake a city competitive. Some are related tophysical assets, others to the contributionmade by the city’s inhabitants*. As noted inprevious sections, stakeholders are highlyaware of the more tangible and direct factors— namely that a good transport infrastructureis vital for commerce. By contrast, other infra-structure areas covered by this report are seenas social or environmental problems in need ofinvestment, but are rarely linked with city com-petitiveness. This may be an oversight. Forexample, a number of surveys of internationalexecutives by the Economist IntelligenceUnit** indicate that the availability of skills is adecisive factor in attracting overseas invest-ment from global businesses. Despite this, only

City management must become moretransparent and accountable. Many stake-holders in the survey are aware of the need toimprove transparency in municipal govern-ment. Only 44% of city management stake-holders agree that their city has transparentand consistent decision-making processeswhen it comes to investing in infrastructure,while 38% disagree, and the remainder areneutral on the subject. One-half of respon-dents believe that their city’s bidding and ten-dering processes are major obstacles to thetimely implementation of infrastructure pro-jects. Once again, improvements in these areasare vital steps towards improving access tofunding. Investment and lending is increasing-ly tied to clear measures of how money is beingspent, and assurances that projects will be effi-ciently managed. When the World Bank signeda deal with Nigeria in 2006 to lend US$200 mil-lion to improve drainage and solid waste man-agement in Lagos, the agreement includedclauses on transparency and financial report-ing. Political reform at the metropolitan levelhas been a key factor in delivering improvedinfrastructure in Bogotá, Colombia. A recentcase study** emphasized the importance ofcity-level leadership and an enabling politicalcontext, especially in a developing country.

51%

12%


Improve management /planning

Additional funding

Better education 5%

The best solution to city management

*In its recent report on city competitiveness, the OECD notes that factors such as infrastructure and accessibility, industry and eco-nomic scale and structure, human capital and the labor force act as major determinants of city competitiveness. **For example, World Investment Prospects 2004, CEO Briefing 2005

*OECD Policy Brief, The reform of Metropolitan Governance, October 2000; OECD Policy Brief, Competitive Cities in the Global Economy, 2006**The Mobilization of Private Finance in Bogotá,



Important measures included reforms thatgave more authority to local officials and madethem accountable to their constituents. Fiscaldecentralization provided funding sources forlocal programs and initiatives. The combi-nation of these factors and an enabling legalframework provided a window so that localofficials could be more responsive to localissues, as well as needs of the poor in particular.

Silos and short-term thinking are holdingmegacities back. The underlying reason forpoor planning, according to city managers inthe survey, is poor coordination and a lack ofleadership. While the influencers and private-sector respondents are especially critical, evenone-third of the public-sector employees arenot satisfied with their own performance inthis regard. Poor coordination between depart-mental silos makes it hard for cities to provide astrategic response to complex infrastructurechallenges across multiple jurisdictions. Theinterdependencies between different infra-structures are seemingly overlooked, judgingby the survey — the fact that improved waterand sanitation is rarely cited as a key step topreventative healthcare being a classic example.

There is a clear stakeholder emphasis onholistic urban management over separatedresponsibilities in the survey (61% versus39%). But it appears that current structures formunicipal governance often prevent this fromhappening. For example, another recent OECDreport* analyzed the challenges posed by frag-mented governance in Mexico City. The city’soverall metropolitan area consists of fourmajor governmental units: the Federal District(itself consisting of 16 sub-units); the stategovernments of Mexico and Hidalgo (with 59municipal governments); and the federal gov-ernment (which maintains substantial day-to-day responsibilities). The different governmen-tal entities within the metropolitan area clearly

recognize the need for cooperation at the met-ropolitan level, as evidenced through the largenumber of coordinating bodies that have beencreated to manage specific issues, but the over-all impact of these has been minimal. The over-all impression is that these plans are poorlylinked to the political channels through whichinvestment decisions and budgetary allocationare determined. These problems resonate else-where. The city of São Paulo is one of 39 citieswithin the greater Metropolitan area, and thecity government has major challenges in coor-dinating its activities with surrounding com-munities. The municipal government wentthrough a process of decentralization in the1960s that was necessary to address the prob-lems of rapid growth but, as stated in a recentreport from the Woodrow Wilson InternationalCenter for Scholars, better municipal coordina-tion will now be vital for improving the effec-tiveness of metropolitan governance. Coordi-nation is also a major issue in Mumbai, wherethere are multiple administrative agenciesoften with overlapping authority. It is estimat-ed that, compared with other large cities, ittakes more time in Mumbai to process typicalmunicipal tasks such as building plans or con-struction regulation**. A government task-force identified improved governance as a keystep towards Mumbai becoming a World ClassCity***. This challenge of delivering holisticsolutions that balance the needs of the city andthe wider metropolitan region are acknowl-edged by some, but by no means all, of thestakeholders in the survey.

One implication of the research is that thetraditional model of municipal governmentmay need to be reconsidered. As opposed tohaving many departments based around a sin-gle discipline (for example, planning, transportand environment departments), cities mightadopt “local area teams” that offer the multi-disciplinary skills required to deliver integrated

solutions at a local level. This would need to becombined with a central planning and deliveryteam with responsibility for delivering holisticsolutions across the metropolitan region.

Cities emphasize supply over demandmanagement. Faced by huge pressures onpublic services, cities tend to emphasize supply-side solutions. This does not necessarily meanbuilding more roads, railways, hospitals and soon. On the contrary, there is often a preferenceto increase efficiency of existing infrastructureas opposed to building new capacity. For exam-ple, healthcare stakeholders make the case forintegrated healthcare systems, those in trans-port emphasize the need for incrementalimprovements to existing systems, and citymanagement stakeholders look to the efficien-cies offered by IT. Where cities invest in newcapacity, this tends to be combined with thedesire for more efficient management of pro-jects to achieve a better outcome. Demandmanagement does get mentioned by a minorityof respondents, but never emerges as a priority.This is true even of responses from specialists inparticular infrastructure sectors — a findingthat is perhaps surprising given that demandmanagement has been a hot topic for severalyears. Despite the success of several road pric-ing schemes in cities such as London and Singa-pore, only a fraction of respondents citeddemand management as a priority for solvingtheir city’s challenges. Demand management iseven less likely to be cited as a key solution bystakeholders in the Water and Waste Water sec-tor, despite the fact that many (including theUNDP) have argued for the benefits of meteringand pricing water.

Information technology will help to drivetransparency and performance. IT can playan important role in improving transparency,accountability and the efficiency of municipal

services. As a measure of transparency, theWorld Bank report on city governance and glob-alization looked at whether cities have a web-site that includes information on the city bud-get, and advice on how to start a business.Those that met these criteria tended to performbetter across a range of public services. Ofcourse, as well as increasing transparency, ITcan improve cost-efficiency. In Denmark, thecountry that topped the Economist IntelligenceUnit’s e-readiness rankings in 2006, e-procure-ment is saving the country’s taxpayers as muchas US$188m per year. Politicians elsewherehave also cottoned on to the benefits of e-gov-ernment strategies. EU ministers have nowdecreed that by 2010, at least 50% of publicprocurement in member countries should becarried out electronically. The value of technol-ogy is well recognized by city managementstakeholders in the survey. Eight in ten respon-dents think that their cities will increasinglyintegrate advanced IT into their administrationand operations over the next five years. More-over, respondents predict an emphasis on digi-talization or e-government over recruiting more

staff by a ratio of 2:1. Interestingly, Emergingcity respondents predict almost as muchemphasis on e-government and digitalizationas those in Transitional and Mature cities, sug-gesting that the benefits of IT are not restrictedto the rich cities alone.

The private sector has a role to play inincreasing efficiency. The survey provides amixed picture on privatization. Generally, mostrespondents predict public ownership of infra-structure sectors and services. However, themajority of stakeholders also say that they areopen to public-private partnerships (PPPs). Notsurprisingly, private-sector respondents are themost likely to predict privatization. However,more than 70% of publics and electeds viewPPP’s as a viable means to implement infrastruc-ture solutions and more than 60% believe thatprivatizing infrastructure would increase itsefficiency. Surprisingly, respondents cite themain advantages of privatization as increasedefficiency, rather than money. Given that PPPwas traditionally perceived primarily as a way totap the private sector for increased funding, this

Predicted approach on city management

Digitalization/e-Government

More staff

64%36%

*OECD Territorial Review, Mexico City, 2004, **Mumbai City Development Plan, Appraisal Report, 2006, ***Transforming Mumbai into a World Class City, First report of the Chief Minister’s Task Force, 2004




may represent a significant shift in attitudes. Bycontrast, the main disadvantages of privatiza-tion are seen as potential higher user costs andinadequate supply for the broad population. Areport from the World Bank acknowledges that,while there is growing empirical evidence of pri-vatization’s benefits, this often coincides withdissatisfaction and opposition among citizensand policymakers. It argues that rather thanabandoning privatization, there should be aredoubling of efforts to privatize correctly. Thisentails tailoring privatization to local condi-tions. The report also warns against focusingsolely on privatization transactions, arguingthat instead cities need to create a framework inwhich public-private partnerships can succeed.This involves developing and protecting com-petitive forces, creating proper regulatoryframeworks before privatization, introducingand enforcing transparency in the sales process,developing social safety nets for the adverselyaffected, and introducing innovative pricingand subsidy mechanisms that ensure access toaffordable basic services. Get these admittedlycomplex issues right, and the efficiency gainsfrom privatization can be compelling.

Megacities are calling for public leader-ship. It is clear that many stakeholders are opento the benefits of public-private partnership,but they are also reluctant to relinquish publiccontrol of services. If anything, our city man-agement specialists call for stronger municipalgovernment. As noted in the infrastructure sec-tions of this report, stakeholders predict an

emphasis on public ownership. The need forstrategic solutions at a city-wide level is also dri-ving a shift towards greater central control andautonomy within municipal government. Thereis a clear emphasis on greater regulation ratherthan deregulation in the future (58% versus42%), and a bias towards centralization ratherthan decentralization in city management (62%versus 38%). Thus it seems that governmentand the public sector will seek to provide strongleadership, but will bring in the private sector tomanage and increase the efficiency of services.

“By raising the price [the seller of scarce corn] discourages the consumption, and puts everybody more or less, ... upon thrift and good management. ... If by not raising the price high enough he discourages the consumption so little that the supply of the season is likely to fall short of the consumption ..., he exposes the people to suffer ... the dreadful horrors of a famine.”

Adam Smith, Wealth of Nations, (1776) Book 4, Chapter 5

75%

PPP’s are viable means ofimplementing infra-structure solutions

ElectedsEmployees

Privates Influ-encers

Role of public private partnershipsand the private sector

73%77%

70%64%

Privatization of cityinfrastructure wouldincrease efficiency

ElectedsEmployees

Privates Influ-encers

63%

77%

63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

The link between supply, pricing and demand

management has long been at the heart of

economics. It has moved toward the heart of

sustainable development strategy as well.

Kyoto’s carbon emission trading provisions are

just one example.

For megacities encountering water, fuel, or

transport constraints, correct pricing can play

an important role in building a sustainable in-

frastructure, by unleashing entrepreneurial in-

genuity in support of the environmental trinity:

reduce, reuse, recycle.

Beijing, for example, a city that faces serious

water shortages and where low prices led to

rampant waste, has seen nine price increases

for water customers in the last 15 years, rai-

sing the price by some 3,000% – although still

costing the average household only 1.8% of its

total outlay. Between 2001 and 2005, the city’s

overall use dropped by 15%. The EU has adop-

ted this strategy too: its Water Framework

Directive requires pricing by 2010 that encou-

rages resource efficiency.

Prices can also affect electricity use and the ty-

pes of fuel used for power. Denmark’s policies

of selective taxation of fossil fuels throughout

the 1990s were central to bringing about its

vastly increased energy efficiency — its energy

intensity, or energy used per unit of GDP — is

35% below the average of International Ener-

gy Association Member States, and its renewa-

bles sector now provides 25% of all its energy.

Road pricing can have even more rapid results

in transport. In its first six months, Central

London’s Congestion Charge brought a drop of

30% in non-exempt vehicles entering the char-

ging zone, most of the occupants of which

had switched to more sustainable means of

travel, such as public transport.

Success in this type of demand management,

however, requires more than simply taking

people’s money. First, new fees must be correctly

targeted. Price increases work better in some

places than others. For example, the market for

indoor residential water use is relatively inela-

stic. For water, industrial and (often heavily sub-

sidized) agricultural users — including garden-

ers — are much more responsive: higher prices

led to a roughly 25% improvement in Chilean

irrigation efficiency between 1975 and 1992,

and numerous companies in water-poor Chen-

nai (India), rather than pay for expensive pri-

vate supplies, are treating their own wastewater.

Even more importantly, such charges require

groundwork to garner political support. Despi-

te using market mechanisms, charges to pro-

mote sustainability are not market driven: a

cyclical fall in crude oil prices is more likely to

exacerbate global warming than reduce it, for

example. Price setting, and its acceptance by

consumers, is a process both deeply political

and expensive when misjudged. The large

Cochabamba water concession in Bolivia

collapsed in 1999 over protests at charges for

previously free water, putting an acrimonious

end to plans for a new dam and purification

plant; and in early 2005 the residents of Edin-

burgh voted three to one against a congestion

charge modeled on London’s successful sche-

me, slowing the spread of such arrangements

to other cities in Britain. Doesn’t market pri-

cing further disadvantage the poor? Some

form of subsidized service for those who are

simply destitute will be essential, but in prac-

tice the main beneficiaries of infrastructure

charges are, when properly constructed, the

least well off themselves. According to the

UNDP, in megacities the people least likely to

be connected to the water system are the po-

orest residents, especially those in slums who

must pay exorbitant prices for bottled water of

dubious quality. Meanwhile, subsidies often

go to those connected to the municipal sy-

stems and able to afford water. In Bangalore

and Kathmandu, 30% or more of these bene-

fits go to the richest 20% of the population.

Using water charges to fund expansion of the

network to poor parts of cities, as the private

water utility does in Abidjan, does far more to

reduce costs to those less well off than would

offering free water. Similarly, those in London

who cannot afford its Congestion Charge pro-

bably cannot afford a car to begin with. Funds

raised to improve the public transport that

they use and improved air quality with redu-

ced noise in their urban environment costs

them nothing.

Thus, properly structured and targeted char-

ges can lead to more sustainable infrastructu-

re and thereby help with all three goals of ur-

ban leaders: a more competitive city, a better

environment, and an improved quality of life

for all residents. Adam Smith was right: get-

ting the price right is as much a moral duty as

an economic operation.

Pricing and Sustainability

% Agree

Dense, vast and complex, megacities posechallenges on an unprecedented scale

for urban planners, city managers and thoseresponsible for delivering basic services andinfrastructure. It is clear that each city has itsown unique issues and circumstances toaddress. However, this research has highlight-ed a number of common themes and trendsthat will shape the evolution of megacitiesover the coming years.

The majority of stakeholders see economiccompetitiveness as a priority. This is under-standable: unless megacities can createwealth and attract investment, they will notcreate the number of jobs needed for theirburgeoning populations, nor will they attract

Conclusions


Conclusions

11require megacities to contract out the man-agement of more services to the private-sec-tor.

One of the more surprising findings in thesurvey is the fact that the main perceivedadvantage of private-sector operation isimproved efficiency, more than access tofunding.

Where cities do increase private sectorinvolvement, they will need to create the rightframework for success. There is a variety ofmodels available, where ownership and oper-ation of services can be shared. But whenentering into partnerships with the privatesector, the consequences must be wellthought through, and success will require a

“context-sensitive” approach to privatization,with overall control (and responsibility) rest-ing with the public sector.

Overall, the research indicates that megac-ities are moving from passive administrationof services to active management of theirinfrastructures.

This entails a desire for strong public con-trol of services and the ability to deliver astrategic, city-wide response to the chal-lenges that they face. If comprehensive gov-ernance models and efficient managementstructures are put in place, economic attrac-tiveness, environmental protection and quali-ty of life for all citizens need not be contradic-tory goals.

the financial resources needed to address thehuge challenges that they face. However,while areas like transport infrastructure arerecognized as being vital to competitiveness,stakeholders often overlook the economic im-portance of other areas – in particular educa-tion, healthcare and basic services such aswater.

City stakeholders do place significantimportance on environmental considerations,and there is a clear aspiration to focus onmore sustainable solutions in many of theinfrastructure sectors. However, the surveyalso suggests that, when push comes toshove, ecological considerations can be sacri-ficed in the race for economic growth. In par-

enue. A key factor in this will be the correctpricing of services to support sustainablegoals.

Delivering in each of these areas willrequire new governance structures and moreefficient management. Stakeholders are high-ly aware of this, but delivery is tricky. Gover-nance structures need to deliver holistic solu-tions across infrastructure sectors, whichbalance the needs of the city with the widermetropolitan area and take into account theinterdependencies between the various infra-structures. This may mean a new non-de-partmental approach to the management ofcities.

The search for improved efficiency may

ticular in Emerging cities, economy and ecology are still often viewed as contradic-tions.

Can stakeholders’ desire to deliver greenersolutions be reconciled with the need to deliv-er growth? This is the question at the heart ofthe debate on sustainable development, andone that cannot be fully addressed in a paperof this size. However, a greater focus ondemand management – a concept that thesurvey indicates has yet to gain global accep-tance — would be one way that cities coulddevelop more sustainable infrastructures.Failure to monitor and manage the use ofmany services (for example, road usage orwater) also creates problems in raising rev-

This report studies infrastructure chal-lenges and governance trends in the

world’s largest megacities. The researchfocuses on five critical infrastructure sectors –transportation, water, electricity, healthcareand safety & security. It also looks at how citymanagement is evolving to address thesechallenges, based on the views of a range ofmunicipal stakeholders.

The UN defines a metropolis as a “megaci-ty” if it has a population of 10 million or more.This report focuses on 25 megacities and met-ropolitan areas, most of which were selectedon the basis that they are the most populouscities in the world*.

Choices include some large metropolitanagglomerations like the German Ruhr (with alarge number of independent municipalities).London, which has fewer than 10 millioninhabitants, was chosen for its economicimportance.

The findings in this report are primarily

Appendix


Methodology

City archetypes: It is recognized that citiesare unique, as each city today is a reflection ofits own unique mix of social, political and eco-nomic history. Nonetheless, as an organizingprinciple for the study of megacities, a sec-ond, and related, element of the MRC McLeanHazel study has been to undertake an analysisof whether there are logical, simplifying,groupings of megacities in order to facilitatean understanding of the processes anddynamics of urbanization on a global basis.These groupings should be powerful enoughto undertake a first order generalization inorder to simplify further analysis and providea common understanding of key issues.

Our analysis is based on three major arche-types: Emerging Cities, Transitional Cities,and Mature Cities, using a simple two-axisgrid based on readily available data.

The methodology employed uses a combi-nation of absolute Gross Metropolitan Product(GMP) to position cities along a vertical axis

and a proxy for the level of social and physicaldevelopment along the horizontal axis. GMPranged from approximately 1,500 euros/capi-ta for Emerging cities, to 5,000 euros/capitafor Transitional cities, and 30,000 euros/capi-ta for Mature cities.

The proxy for social and physical develop-ment was a composite measure that usednational scores from the United NationsHuman Development Index, city scores fromMercer Human Resource Consulting's 2006Quality of Living Survey, and national scoresfrom Transparency International's CorruptionPerception Index.

Each index was brought to a common scalefor the purpose of developing the compositemeasure. The composite index ranged from atypical value of 0.40 for Emerging Cities, 0.60for Transitional cities, and 0.98 for Maturecities. Sensitivity testing, by varying theweightings of these three indices, revealed lit-tle change in the city groupings.

The UN Human Development Index is astandard comparative measure of well-beingfor countries. It employs measures of lifeexpectancy, literacy, education, and stan-dards of living for countries worldwide, and isused to assess a country’s level of develop-ment and to measure the impact of economicpolicies on quality of life.

Mercer’s city-level Quality of Life index isbased on detailed assessments and evalua-tions of 39 key quality of living determinants,grouped into categories that include: politicaland social environment; economic environ-ment; socio-cultural environment; medicaland health considerations; schools and edu-cation; and public services and transporta-tion.

The Corruption Perceptions Index ranksmore than 150 countries by their perceivedlevels of corruption, as determined by expertassessments and opinion surveys.

based on the following research initiativesand methodology.

Stakeholder survey: The report is based ona survey of 522 stakeholders spread across 25cities, with approximately 20 interviews percity**. The survey was conducted by GlobeScan*** between September 28 and Novem-ber 17, 2006, either face-to-face or by tele-phone. Respondents include four stakeholdergroups: elected political leaders (Electeds);employees of the municipality (Employees);private-sector infrastructure providers, con-struction company managers, and financiers(Privates); and people who are in roles thatinfluence infrastructure decision makers andimplementers such as thought leaders, acade-mics, NGOs, and media (Influencers). Sixty-nine percent of respondents have at least tenyears of experience in city infrastructure.

City diagnostics: MRC McLean Hazel under-

took an analysis of critical infrastructure sec-tors in eight of the 25 cities covered by thisreport. The megacities studied were: Istanbul,Turkey; Lagos, Nigeria; London, England;Moscow, Russia; Mumbai, India; New York,USA; Shanghai, China; and São Paulo, Brazil.The project relied exclusively on secondarydata sources (ie. existing studies and datasets).

A primary goal of the project was to devel-op an understanding of the key functionalcharacteristics of the megacities on a sector-by-sector basis, the level of service provided,critical challenges faced, solutions employedto overcome these challenges, and importantbarriers remaining to be overcome. Wherepossible, MRC McLean Hazel’s researchfocused on the entire metropolitan region;where data availability issues preclude thisfull metropolitan perspective, focus is givento the core cities within the region.

Stakeholder survey

Electeds:100 (19%)

Privates:108 (21%)

Influencers:130 (25%)

Unweightedtotal:

522 (100%)

Public Employees:184 (35%)

12

*Based on methodology used in Megacities – Megarisks: Trends and challenges for insurance and risk management, Munich Re, 2004**The graphs in this report only display the most frequently mentioned factors and thus do not always add up to 100% ***and various local partner companies

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