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Stimulating investment in smaller cities is crucial for resilience building

July 2022

Over 2.3 billion people call Asia’s urban centres home, a number that is expected to continue to rise by another 1.2 billion people by 2050.[1] To sustain this level of growth, whilst dealing with poverty and responding to climate change, the ADB estimated that developing Asia and the pacific will need to spend $1.7 trillion per year on infrastructure alone.[2] This money will flow from many sources, both public and private. However, in order for it to have the most impact on reducing poverty and building climate resilience, efforts need to be made to support and drive investments into smaller, “secondary cities”.

 

Almost half of Asia’s population lives and works in secondary cities,[3] and they are growing at a faster pace than the megacities. Globally, populations in secondary cities are projected to rise by almost a third between 2015 and 2030, accounting for 469 million people. Compare this to large cities and megacities, which are expected to grow by just over a quarter (26%), adding 203 million people.[4] In order to build the resilience of the largest number of people, special attention must therefore be paid to stimulating investment in secondary cities.

Of the $1.7 trillion that ADB says is needed to invest in infrastructure, about 2%, or $40 billion per year, is expected to be directed to support climate change adaptation.[5] However, delivering the infrastructure needed for rapidly growing, secondary cities also comes with significant challenges.

Larger cities, are natural magnets for inward investment, typically having bigger economies, better developed existing infrastructure systems, and more resources and capacity for governance, planning, procurement, and for project development and bidding.

The competitiveness of large cities has often been reinforced through monocentric development models favored by many central governments. Investment in large cities, the theory goes, will produce a higher economic dividend for the country that will generate economic benefits for citizens in other smaller cities. However, in reality, this policy tends to concentrate development gains in large cities at the expense of resilience development elsewhere.

Many smaller cities find themselves trapped in a vicious cycle of poor-quality infrastructure systems that are becoming increasingly inadequate to serve rapidly growing populations, which undermines the appetite for investment, further compromising the quality of infrastructure and supporting services. 

A blueprint for stimulating investment in secondary cities

Financing infrastructure development projects in secondary cities, such as those with projects supported by the ADB’s Urban Climate Change Resilience Trust Fund (UCCRTF), is more challenging due to the high costs associated with climate resilience-building projects. This is mainly because of a lack of climate resilience studies, development planning and supporting structures to manage and maintain infrastructure investments in the long term.

When considering the interventions in cities for urban development, decision-making must also shift towards long-term thinking about the value such investments can provide by improving cities’ resilience to climate change. Up-front costs for investments when climate change factors are considered in the detailed engineering design can be more expensive than those that do not. This is in part due to the additional assessments that need to be done, using reliable data at resolutions that are useful to inform project design at the city level.

Since 2013, UCCRTF has been working with 25 fast-growing cities in Asia to reduce the risks people face from floods, storms, droughts, and other climate-related impacts through better planning and design of infrastructure. The UCCRTF invests in interventions at the early stages of project development in its target cities, supporting project conceptualization, development, preparation and planning to make infrastructure investment projects more attractive for financial institutions and other investors to take forward for implementation. make infrastructure investment projects more attractive for financial institutions and other investors to take forward for implementation.

In UCCRTF’s experience, sustainable resilience building in cities demands long-term commitment, going beyond individual infrastructure investments. Instead, a systemic approach is needed, that cuts across all urban sectors and incorporates both ‘hard’ measures (such as physical infrastructure) and ‘soft’ measures (such as governance improvements).

A systemic approach allows finance to be channeled to support resilience goals in many ways. Examples of UCCRTF projects that have helped to drive financial support for resilience include:

  • Disaster Risk Financing pilot in Hue city, Viet Nam: UCCRTF provided $2 million in Technical Assistance (TA9417) to enable the city to implement an insurance scheme to protect public assets against climate change and the impacts of disasters. The combined, indemnity-based and parametric insurance products will help to de-risk investment and unlock municipal finances that would have otherwise needed to be kept in reserve for disaster recovery.

  • Project Preparation Studies: By funding climate resilience aligned project preparation studies for improving drainage and sanitation in the cities of Baguio and San Fernando in the Philippines, UCCRTF helped them mobilize local and national government funds that went towards the implementation of the infrastructure projects.

  • Community-led projects: UCCRTF implemented community-led projects in Bangladesh, Pakistan, and the Philippines, to improve the climate resilience of 8 towns. The projects were identified and developed through a participatory approach involving local communities. The projects were undertaken with match-funding from the city government.

  • Nature-based solutions: Working in Makassar, Indonesia the UCCRTF helped to improve water supply and sanitation in an informal community using a combination of nature-based solutions and hard infrastructure, the UCCRTF was able to mobilize $2.8 million in additional funding support from the Government of Australia.

  • Resilience measurement and capacity building: The UCCRTF has funded work to build the capacity of city governments to understand climate impacts in their cities and is helping them shift to more climate risk-informed planning. In part, this has been achieved through an innovative project to measure resilience in 17 UCCRTF cities. A baselining exercise was undertaken in cities in Bangladesh, Pakistan, the Philippines, and Viet Nam, providing a snapshot of urban resilience in the cities. Measuring resilience according to various resilience indicators has been helpful to engage municipal officials, and highlights areas where future investment is needed.

To build the resilience of the rapidly increasing numbers of vulnerable people living in Asia’s secondary cities, it is essential to find new ways to incentivize investment in those areas. This will mean new, more pluralistic development models from central governments and a commitment to providing public finance that can be used to encourage inward investment.

UCCRTF’s experience shows that a systemic approach to resilience building is needed to ensure that financing for rapidly growing secondary cities can be leveraged from a range of different sources, crowding in both public and private capital. For example, ADB’s Climate Investment Funds, launched in 2008, are the largest source of financing for the Bank’s climate change program and of concessional climate finance for the Asia–Pacific. The Climate Investment Funds have built a strong private sector component with around $1.6 billion under management in 2016.[6]

The work of UCCRTF is essential for testing new and innovative approaches and laying the foundations for investment in cities that have weak governance structures, poor quality existing infrastructure and low levels of capacity to undertake detailed development planning and climate risk and vulnerability assessments. Whilst in many cases the megacities are big enough to look after themselves, stimulating investment in secondary cities remains an urgent priority.

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[1] https://www.unescap.org/publications/future-asian-and-pacific-cities-2019-transformative-pathways-towards-sustainable-urban

[2] https://www.adb.org/publications/asia-infrastructure-needs

[3] CDIA (2020) https://cdia.asia/2020/07/30/why-cdia-works-with-secondary-cities/

[4] Birkmann, J., Welle, T., Solecki, W. et al. Boost resilience of small and mid-sized cities. Nature 537, 605–608 (2016). https://doi.org/10.1038/537605a

[5] https://www.adb.org/publications/asia-infrastructure-needs
[6] https://www.adb.org/publications/adb-and-climate-investment-funds-country-fact-sheets

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