Developing Economic Geographies; Strategic Approach to Development and Affordable Housing in Colombia

1. Developing Economic Geographies; Strategic Approach to Development and Affordable Housing in Colombia Gabriel Nagy, Fiscal and Municipal Development Specialist April 8, 2010

2. Concentration and Integration Matters • The success of an economic region/human settlement is largely determined by how it responds to shocks generated by rapid changes in its external and internal environments. • How urban areas and its related/supportive rural areas respond, recover and prepare for future shocks will depend on setting clear strategies integrating local and global markets and improving their performance and self-reliance managing growth, embracing sustainability and delivering high-quality services and products. • Production concentration drives economic prosperity in big cities and provinces. But economic concentration leaves out some populations. Developing economic geographies lack the necessary concentration of production needed to foster prosperity.

3. Concentration and Integration Matters • Markets favor integrated geographic areas that facilitate the concentration of production, promote good governance and ensure access to basic services such as primary education, primary health care, adequate sanitation, and clean water for everyone. • Production concentrations benefits from the link to local, regional or global markets. Hence integration policies should include roads, railways, airports, harbors, and communication systems that facilitate the movement of goods, services, people and ideas and connect to local regional and international markets.

4. Purpose of DEG • Modernization of the State, governance strengthening of civil society. • Support economic policy, multiyear budgeting and macroeconomic forecasting. • Strengthening fiscal policies and institutions, decentralization and intergovernmental fiscal relations at all levels. • Improving sources of public revenue – income taxes, business taxes, sales taxes and property taxes.

5. Purpose of DEG • Strengthening local functions such as planning and management (upgrading, rehabilitation, expansion), and planning, implementing and managing capital investment projects. • Placing implementation of strategic projects and service delivery with local PPP operators contributing to economic growth, job generation; and improving living conditions of local dwellers. • Concentrate dedicated infrastructure in a delimited area and reduce the cost of that infrastructure per-business. • Improve performance and more effective and efficient delivery use of land and delivery of services including housing, recreation, water, sanitation.

6. Purpose of DEG • Attract new business by providing integrated infrastructure in one location. • Reduce environmental and social of industrial uses. • Provide environmental controls specific to the needs of industrial areas.

7. Development Approach • Strategic Planning: Multi Annual and Multi-sector Master Plan, rigorous set of guidelines developed to ensure a vision; private and public sector influencing public planning policy, driving change and improve social and economic environment benefiting existing communities and businesses in line with local needs and desires. • Special Purpose Vehicle: Implementation executive coordination agency in charge of implementing the vision. • Action Plans (investment portfolio): by sector including technical studies and investment projects (action plans by sector); encourage the private sector to become far more engaged with larger, multi-sector and more strategic development proposals.

8. Strategic Vision Quality and Integrated Planning Government and others Stakeholders Commitment to Success Project Management Implementation Delivery of Services Key Elements of DEG approach

9. Analysis of Planning Framework and Enabling Environment Physical and Location Analysis of all Supportive Areas Economic Development and Impact Analysis Outline Integrated Vision for the Region and Institutional Strategy Outline Concept Master Planning and Integrated Development Framework Outline Urban Investment/Sector Plans Project Framework Specific Economic Region

10. Targeted Economic Region Assess situation and validate findings through participatory approach Strategic operations (Pilot Projects) to enable the region/city to change its performance

11. Public Sector Land Efficient Approval Process Regulatory Environment Incentives Government Commitment Takes over market risk Private Sector Design Development & Building Infrastructure Funding Asset Management Promotion – Marketing Maintenance Takes over investment risk Owns Asset Partnership Approach to Development IDB • Guarantees • Takes over exchange rate and repayment risk Delivers SERVICE Contract and Payment OF SERVICE Underwrites PAYMENT

12. Typical Business Structure Public Sector Entity Central, Regional or Local Government Authority Output Specification Only Residual Risk Transfer Banks or Bondholders Insurance 90% SPV Special Purpose Vehicle Company 25 year Service Agreement Financial Providers 10% Shareholders Construction Contract Facility Maintenance Agreement Contractor FM Provider Financial Investor Defined Risk Transfer 12

13. Land Use and Settlements Trends • Population concentrated in urban areas and settlements at foothills and other sensitive and risk areas. • Steady growth in urbanization and housing development and uncontrolled settlements • Considerable expansion of urban areas and small settlements is taking place at the expenses of forests, agricultural lands and environmentally sensitive areas • Vast number of squatting settlements • Growth of a main urban center together with the outgrowth of closer to and smaller urban center, villages and settlements • Mixed planned and informal developments and unprecedented rates of growth in recent decades. • Concentration of economic activities and population generates efficiency gains in certain urban areas of Colombia while living other areas, towns and settlements behind with severe imbalances in the incidence of poverty, inequality and environmental degradation • Spatial disparities have become more visible and have increased • Most of the poor urban households in Colombia are clustered in underserviced slum areas located anywhere in main cities and surrounding settlements lacking one or more elements of adequate housing. • In most such settlements poverty is endemic, urban infrastructure is absent, and housing is inadequate overall. • Many people lives in slums for various reasons, ranging from the lack of affordable housing in better parts of the city to proximity to family, work and social networks. • It is clear that expanding urban infrastructure to underserviced or informal settlements is essential for improving the lives of slum dwellers.

14. Land Use and Settlements Trends • Rapid urban growth has overtaken the planning processes, resulting in reactive and often outdated plans. • Enforcement is weak and the planning profession is seen as lacking capacity, leading to loss of credibility • Land-use and transport planning are conducted as separate exercises, leading to new formal and informal developments without transport, and transport infrastructure that fails to further cities’ long term vision • Responsibilities for land use and transport planning is fragmented between different agencies and different tiers of government

15. Housing Trends • Escalating land prices • Increasing costs of building materials and labor • Declining household income • Inadequate and limited supply system of both public and private sector • Declining government revenues and rising costs: • Reduced public supply of housing • Reduced public long term finance for housing • Increasing number of families squatting

16. Characteristics of Land Development for the Poor

17. Characteristics of Housing Development for the Poor

18. Government Business Priorities • Regional and urban planning • Urban upgrading programs • Urban renewal programs • New urban development (mix use) programs • Micro finance home improvement and expansion • Rental housing

19. Typical Business Schedule – Rental Housing Guarantee Up to 22 years PRIVATE BANK Finance Up to 3, 5 to 8 years SPV Construction Affordable Rental Housing Up to 2 (1st Stage) years SPV Facility Maintenance Up to 20 years PUBLIC SECTOR ENTITY Pays 40% Rental Agreement TARGETED FAMILY Pays 60% Rental Agreement – MAX. 5 years/family Up to 20 years 0 Years