Zenata Eco-city (right), a major development in Morocco that is one of 15 new cities being planned by its government, is just one example of urban developments financed by International Financial Institutions (IFIs).

These institutions, originally set up in the post-war era to deal with reconstruction and economic development in developing countries, are responding to the rapid rise in urbanization by changing their focus to deal with the demands of the increasingly urbanizing world.

Globally, they now contribute $30 billion of lending directly to urban projects each year. 60 percent of their total IFI lending has an impact on cities, as funding from commercial banks to cities has significantly declined and they have stepped in to fill the gap. Moreover, they are assisting not just with finance but with knowledge-sharing, a trend that is likely to continue.

In the future, many of the largest western financial institutions will no longer be the largest global lenders, as large, middle-income countries are increasingly able to tap global capital markets tightly themselves. This means that the influence of IFIs could be felt at all stages of urban development projects.

These are the conclusions of a new report, based on case studies of 13 IFIs, plus interviews with 21 representatives of 11 of them, on how the agenda for urban investment and innovation is evolving.

The chief lenders

These are 13 of the main players included in the report. They vary dramatically in lending capacity, though all generally operate regionally and focus on investing in specific sectors.

  • AFRICAN DEVELOPMENT BANK (AFDB)
    • OPERATES IN: Africa
    • HEAD OFFICE: Abidjan
    • SECTORS: Energy, Transport
  • ASIAN DEVELOPMENT BANK (ADB)
    • OPERATES IN: Asia-Pacific
    • HEAD OFFICE: Manila
    • SECTORS: Transport, ICT, Energy, Finance, Trade
  • EUROPEAN INVESTMENT BANK (EIB)
    • OPERATES IN: Europe
    • HEAD OFFICE: Luxembourg
    • SECTORS: Transport, Industry, Services, Water, Urban
  • INTER-AMERICAN DEVELOPMENT BANK (IADB)
    • OPERATES IN: Latin America
    • HEAD OFFICE: Washington DC
    • SECTORS: Productive Infrastructure, Education, Energy
  • ISLAMIC DEVELOPMENT BANK (ISDB)
    • OPERATES IN: Asia, MENA, Sub-Saharan Africa
    • HEAD OFFICE: Jeddah
    • SECTORS: Transport, Energy, Finance, Agriculture, Health
  • WORLD BANK
    • OPERATES IN: Global
    • HEAD OFFICE: Washington DC
    • SECTORS: Governance, Energy, Transport, Health
  • AGENCE FRANÇAISE DE DÉVELOPPEMENT (AFD)
    • OPERATES IN: Sub-Saharan Africa
    • HEAD OFFICE: Paris
    • SECTORS: Transport, Water, Urban Development, Energy
  • DEVELOPMENT BANK OF LATIN AMERICA (CAF)
    • OPERATES IN: Latin America
    • HEAD OFFICE: Caracas
    • SECTORS: Transport, Energy, Water, Social Services
  • COUNCIL OF EUROPE DEVELOPMENT BANK (CEB)
    • OPERATES IN: Europe
    • HEAD OFFICE: Paris
    • SECTORS: Skills, Urban Renewal, Health, Housing
  • DEVELOPMENT BANK OF SOUTHERN AFRICA (DBSA)
    • OPERATES IN: Southern Africa
    • HEAD OFFICE: Midrand, SA
    • SECTORS: Energy, Roads, Sanitation, Water, ICT
  • CDC GROUP
    • OPERATES IN: Sub-Saharan Africa, South Asia
    • HEAD OFFICE: London
    • SECTORS: Financial Services, Manufacturing, Business Services
  • KFW
    • OPERATES IN: Global
    • HEAD OFFICE: Frankfurt
    • SECTORS: Infrastructure, Environmental Protection, Entrepreneurial Investments
  • EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (EBRD)
    • OPERATES IN: Eastern Europe, Caucasus
    • HEAD OFFICE: London
    • SECTORS: Environmental Infrastructure, Transport, SMEs

What do IFIs need from cities?

According to the report, in order to be confident about providing finance, IFIs needs cities to become more joined up so that their infrastructures work better together to make them more efficient and effective. This means that significant changes in thinking must take place in order the cities of the future may prosper.

The financiers stressed that strong leadership and effective long-term planning is vital to achieve integrated urban development in a sustainable manner. Sectors such as engineering and financial services are increasingly important to creating a sustainable system for cities.

On the financial side, flexibility and fiscal decentralisation is cited by several officials as becoming increasingly important because so far cities and municipalities have frequently been unable to invest in joined up solutions.

Finally, it is no longer sufficient for administrations to decree what may happen in their territories. Conventional top-down approaches must be complemented with bottom-up knowledge transfer and citizen engagement, with a genuine commitment to improve everyone’s quality of life

Cities will have to remove traditional divisions between sectors such as transport, housing and energy by convening multi-stakeholder working groups.

IFIs will set up knowledge networks so that cities tackling similar urban issues can share ideas and best practice. They will promote long-term thinking and planning about urban development, with an increasing focus on urban integration for city systems.

These financiers will increasingly work with national governments to establish an independent infrastructure delivery body to identify and invest in key projects that are perceived to be risky, and help cities to learn how to blend various financial instruments.

The report includes various case studies, including:

  • The aforementioned Zenata, which has just completed its first phase of creating a new industrial park and the provision of a port on the edge of Casablanca.This has been financed by the French Agency for Development and the European Investment Bank with €300m in long-term investment;
  • The European Bank for Reconstruction and Development, which is currently exploring opportunities for multiple municipalities to syndicate, in order to reduce loan prices and achieve economies of scale;
  • The CAF – Development Bank of Latin America, which seeks technical assistance rather than cancelling projects when there are difficulties;
  • The European Commission and European Investment Bank’s Joint European Support for Sustainable Investments in City Areas (JESSICA), which has set up Urban Development Funds by combining Structural Funds with ‘non-grant’ financial instruments;
  • The Asian Development Bank’s City Cluster Economic Development (CCED);
  • The Islamic Development Bank’s water and sanitation lending which now exceeds $1bn to help expand beyond conventional stand-alone water and wastewater projects towards more intelligent systems in response to growing urban migration;
  • The African Development Bank, which is investing heavily in Dakar.

The report, Urban Innovation and Investment has been published by Future Cities Catapult and produced by Greg Clark and Tim Moonen of The Business of Cities.

This article is published in collaboration with Sustainable Cities Collective. Publication does not imply endorsement of views by the World Economic Forum.

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Author: David Thorpe is a Special Consultant for Sustainable Cities Collective.

Image: A man walks past buildings at the central business district of Singapore February 14, 2007. REUTERS/Nicky Loh.