The Promise of Local Governments Reforming Themselves
The International Finance Corporation’s (IFC) Cities Initiative leads discuss how local governments can leverage private capital and innovation to address infrastructural needs.
By 2050, more than 70% of the world’s population will live in cities.This presents both challenges and opportunities for the rest of the world, as well as for Georgia. Over the past several years, Georgia has granted increasing autonomy and recognized the powers of local governments. Last year, the central government announced reforms that will make local authorities more responsible for developing infrastructure and improving local services. This creates unprecedented opportunities for cities to take the future into their own hands and better the lives of citizens.
Improving public transport networks, modernizing water and waste management systems, introducing smart technology – such as for traffic management– and strengthening resilience to climate change all require major investment in urban infrastructure. Having said this, the scale of such investment is often more than public budgets can bear. Unlocking private sector capital can help fill the disparity in investment and combat a challenging financial environment. IFC is convinced that responsible fiscal decentralization within a supportive regulatory and policy framework of sound public financial management are the critical ingredients for overcoming the investment gap. However, local authorities will need to work diligently to improve their creditworthiness and design financially sound projects that they can realistically deliver.
For the past fifteen years, through IFC’s Cities Initiative, we have partnered with cities all over the world, helping them develop projects through advisory support and financing. Our primary focus is to help cities raise investment directly. We do this by leveraging their balance sheets, thereby complementing scarce government funding with commercial or private financing. For example, we take risks just like any commercial bank, providing loans directly to cities and companies without guarantees from the central government. We also help cities issue municipal bonds and finance private providers of urban services. We leverage the full capabilities of the World Bank Group, bring in private sector expertise, offer project structuring and development support for Public Private Partnerships (PPP). Additionally, we offer community outreach programs and capacity-building to facilitate the implementation of infrastructural projects. Also, we convene private players, financial institutions, technical experts, developers, and others to share their knowledge across regions. In summary, by including the private sector we help cities gain expertise and raise additional financing beyond what the government can provide.
In Belgrade in Serbia, for example, we supported a waste-to-energy ‘PPP’ project that is among the first large-scale demonstration of a bankable, private sector-led waste management solution in an emerging market. This project is an excellent illustration of successful engagement by the entire World Bank Group. It built on prior engagements by IBRD (The International Bank for Reconstruction and Development) to improve the efficiency of Serbia’s state-owned utilities and on IFCled reforms of Serbia’s ‘PPP’ and renewable energy legislation. IFC not only helped structure the project and the tender, but also arranged a long-term financing package from other development institutions, which were supported by MIGA political risk insurance. Once operational, the project will provide significant environmental, social and climate benefits; enabling the closure and remediation of the largest open dumpsite still active in Europe, the construction of a new sanitary landfill, and the usage of municipal waste and landfill gas as a low-carbon source for heat and electricity.
In Izmir in Turkey, for instance, we have supported over ten projects over nearly a decade of partnerships, which have contributed to a tangible improvement of transport and sanitation systems. As another illustration, in Bogota in Colombia, IFC is working to support the construction of an aerial cableway, the “TransMicable”, which will connect 669,000 inhabitants in the mountains of Ciudad Bolivar–one of the poorest areas of the city– to the urban center. We also developed a community engagement program and helped the city comply with the highest international environmental and social standards. The cable car project reduces commute times from two hours to thirteen minutes; increasing access to jobs for many low income residents. The project also allows passengers to pass over unsafe neighborhoods, which together with a revitalization of public spaces in Ciudad Bolivar– including parks, gardens, and community centers– will significantly improve the quality of life for Bogota’s citizens.
IFC’s vision is to build long-term strategic partnerships with cities through collaborations with mayors and municipal leaders to build inclusive, resilient, and sustainable cities that “work”; as well as, open new markets, and create opportunities for all. Backed by Austria and Switzerland, our donors in Europe and Central Asia, we are ready to support cities in Georgia.
For these reasons, we are hopeful about the reforms in Georgia and the many opportunities that lie ahead.