Urban stock: a neglected capacity for financing municipalities
Tasnimnews agency: Undoubtedly, cities should be considered as the center of economic, social, and cultural development, which many interactions and exchanges are determined in them. On the other hand, considering the increase of citizens’ life quality as a principle from most governments is considered due to patterns of welfare economics. However, the issue of financing local governments or the municipalities to improve services and develop facilities is a concern that many cities in the world are involved. Nearly most municipalities in Iran face budget shortage and they cannot be successful in achieving their macro-goals. Here is an interview with Seyyed Mohsen Tabatabaei Mozdabadi, the secretary of IUESA:
Generally, how municipalities’ financing take place in the developing countries?
Today, financing urban projects is one of the main problems of urban management particularly in developing countries because a high proportion of the urban population in Africa, Asia, Latin America and other less developed regions live in settlements that they do not have infrastructure at least. Such countries need 6.3 trillion dollars investment by 2030. Therefore it minimizes inefficient financing method like selling density or land use change. Greening of municipal financial instruments is a new approach. Cities like Sydney, San Francisco, Paris, Toronto, and London did considerable measures in this field.
How can infrastructures to green and sustainable city be provided?
The transition to a green and sustainable city has some costs. These costs does not include only new infrastructures but it also contains rehabilitation and modification previous infrastructures in energy field, transport, wastewater, physical context of cities, green space, traffic problems, dealing with air pollution, immunization of cities against environmental hazards, and other infrastructure projects of city that generally conventional resources of municipalities’ revenue including governmental aids and other resources do not meet its needs. Private sector participation needs an economic structure and fiscal planning.
In your view, how can the private sector participation in financing municipal projects develop?
Private sector participation in financing projects is an issue that governments follow it from several decades ago. For example, during 1990 to 2001, Private sector in developing countries has invested more than 755 billion dollars in more than 2500 mainly urban projects.
Does it mean citizens become shareholders of urban projects?
One of the used instruments in this method is project stock that the company owns the project introduces the project plan after doing researches and predicts its profit, and then they determine a basic rate as account profit and they postpone it until completion of the project.
Do other countries use such instruments to finance urban projects?
The study of international experiences regarding financing municipal projects show a variety of different tools such as methods based on debt and based on capital ones. According to the type of financing urban projects, in different countries particularly developed countries, the first method is used more than the second one. For example, in England financing is common via bonds or municipality of Sao Paulo, Brazil, had successful experience in the field of infrastructure financing through the sale of shares.
Is it possible to expect citizens accept this plan i.e. urban stock?
How to involve the private sector to invest and work depends on specific local and national fields and there is no single solution for it. It is obvious that a minimum of effective and efficient legal and institutional framework is needed. There are several related mechanisms in many developing countries at local and national level reducing private sector participation include inefficient legal frameworks, inadequacy of laws and regulations related to property and investment rights, weakness in creditor protection laws, and nontransparent planning. Other obstacles and difficulties of private sector’s investment is high investment risk. Technology risk is worth mentioning. Since modern technologies used in urban infrastructures in order to smartize cities have a high degree of risk.
Do you think the boom in this type of financing needs cultural measures?
In addition to the economic, social and cultural aspects are also important because cost-benefit look is not always a guide for citizens.Urban management through strengthening social trust and social capital can provide citizens’ participation in urban infrastructure.
