The Future of Development is Local
Throughout their article Xavier Michon and Jaffe Machano examine how nation-centric investments stifle progress in developing countries and how these countries would benefit from nation-independent approaches focused on cities to finance urban development projects. In their opinion, the global structure of financial flows mostly serves nation-states as creditworthiness is often derived from criteria that apply to the state as a whole instead of just cities, at least when it comes to developing countries. To illustrate: while Los Angeles is allowed to borrow on capital markets to finance infrastructure projects, a city such as Cotonou is not granted the same opportunity, even though as Benin’s capital it makes up for most of Benin’s national GDP.
The two authors provide several reasons for why cities in developing countries are not able to access capital. Firstly, there are strict regulations that apply to developing countries in terms of accessing capital markets in general. Secondly, the budget of cities is tied to the government’s budget and they lack independence in accessing these funds. Michon and Machano argue that the strong dependence on local implementation concerning development projects makes it necessary however for this to change, in particular as local governments are in a unique position to adapt policies to local needs, build strong stakeholder relations for urban projects and support local businesses through better rule of law as well as economic and digital infrastructure.
The authors continue to explain that in terms of the allocation of resources local urban development needs often have to compete with national needs such as budget deficits, issues of foreign affairs or spending on national defence. Therefore, cities often lose out in cases in which the central government decides over the spending of funds provided by international donors. Consequently, Michon and Machano call for distinguishing between the debt profiles of governments and cities in order to grant creditworthiness to municipalities and provide them with access to credit to enhance their role as key players for urban development in future. This step would however require the support of international donors and governments.
To conclude: Currently, 80% of the global GDP is provided by cities. 96% of the increase in the world’s population by 2030 will reside in cities. 65% of the SDGs require implementation through local government. Reforming the distribution of urban development funds is therefore urgently necessary.
The complete article was published by Foreign Policy in January 2020 and can be accessed here.