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Helping cities to finance infrastructure is a major challenge

Latin American cities must build new business models to fund infrastructure projects and learn how to access private financing that is available from a variety of sources globally.Using data more wisely, making rigid fiscal responsibility policies more flexible, and focusing on how to make cities more resilient are ways that will make it easier to mobilize financing for infrastructure, a panel on the revitalization of cities during a Clinton Global Initiative (CGI) meeting in Rio de Janeiro last Decemberconcluded.

The panel, part of the first CGI event in Latin America, included Michael Berkowitz, managing director at the Rockefeller Foundation, Louise Goeser, CEO of Siemens S.A. de C.V., Eduardo Paes, mayor of Rio de Janeiro and Susana Villarán, mayor of Lima, and was moderated by the former President of Costa Rica José Maria Figueres Olsen.

Latin America is the most urbanized region in the world, with 80 percent of the population living in cities; this compares with50 percentglobally. Cities need $1.4 trillion in financing for infrastructure every year, and $1 trillion will be financed by the cities themselves, according to a World Bank study. At the same time, there are investors looking to finance infrastructure projects but cities have trouble getting those projects to a fundable stage, said the Rockefeller Foundation’s Berkowitz.

“Helping cities bridge that gap to access financing is critical,’” he said.

Mayors and city bureaucrats often don’t have the skills to understand the players involved in arranging funding for large infrastructure projects, Berkowitz added. Moreover, the time it takes to mobilize financing and complete these projects are usually much longer than the political cycle. 

A third challenge for mayors is that cities more often than not need central government approval to access financing from large international organizations or private companies, said Rio de Janeiro Mayor Eduardo Paes.

“Central governments make our lives very tough,” he said. “Cities need a straight link with institutions that finance projects.”

In Brazil, states and municipalities face strict limits on indebtedness since 2000, when the Fiscal Responsibility Law bailed out local governments who had taken on debts they could not repay. One of the conditions was the acceptance of limits on total future debt levels. The law was a key step in Brazil’s subsequent success in stabilizing the economy and maintaining growth, and in several other achievements of the past decade, including bringing inflation to manageable levels, gaining investment-grade status, and lifting millions out of extreme poverty.

Working to make cities more resilient -- more able to respond and recover from chronic stresses like food, water and energy shortages, and from acute shocks like storms, earthquakes and terrorist attacks -- also helps mayors access financing, Berkowitz said.

“If cities are better organized around this issue of resilience, they will be better able to connect the dots internally and make more of the initiatives they have going on right now, and they will be able to receive all the solutions that are out there,’’ he said.

The Rockefeller Foundation in May 2013 announced a $100 million commitment to build urban resilience in cities around the world. The “100 Resilient Cities Centennial Challenge’’ is selecting 100 cities that will receive technical support and resources for developing and implementing plans for urban resilience. With this initiative, the Foundation will help cities leverage billions of additional dollars in infrastructure financing.

For Louise Goeser, CEO of Siemens S.A. de C.V., creating systems that allow cities to share their experience with solutions to infrastructure challenges is key to sustainable growth. Siemens and the Economist Intelligence Unitcreated a Green City Index, which assesses how green and sustainable cities are based on nine criteria that include land use, waste management and CO2 emissions.

“The main goal was to create a vast library of best practices that can be shared among cities on how their problems can be shared by someone else’s innovative solution,”Goeser said.

The future is all about data, and how citizens and authorities can access and share data that will help them build more sustainable cities, she added.

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