Page 16 - A U4SSC deliverable - Guidelines on tools and mechanisms to finance Smart Sustainable Cities projects

sustainable development will be achieved through a combination of financing options, according
to their availability and appropriateness to particular SSC projects, as encouraged by the Addis
Ababa Action Agenda. Policymakers must ensure that the necessary steps are taken to create an
enabling environment to attract and sustain feasible sources of financing. Reusable and sustainable
platforms, which are scalable for other planned projects, should be prioritized. Listening to and
understanding the experiences of innovative financing from within and outside the region, adapted
to meet specific local challenges, is a good starting point.

Cities are a crucial space in the effort to achieve the SDGs. According to the World Bank: 8

By 2050, with the urban population more than doubling its current size, nearly 7 out of 10 people
in the world will live in cities. With more than 80 per cent of global gross domestic product
(GDP) generated in cities, urbanization can contribute to sustainable growth if managed well
by increasing productivity, allowing innovation and new ideas to emerge. However, the speed
and scale of urbanization brings its own unique challenges. These include meeting accelerated
demand for affordable housing, well-connected transport systems and other infrastructure, basic
services, as well as jobs, particularly for the nearly one billion urban poor who live in informal
settlements. Conflicts are on the rise, resulting in 60 per cent of forcibly displaced people living in
urban areas.

Once a city is built, its physical form and land-use patterns can be locked in for generations,
leading to unsustainable sprawl. Urban sprawl and inefficient land use contribute to biodiversity
loss, with around one million animal and plant species threatened with extinction. Cities also play
an important role in tackling climate change, as they consume close to two thirds of the world’s
energy, and account for more than 70 per cent of global greenhouse gas emissions. As cities
develop, their exposure to climate and disaster risk also increases.

Building cities that “work”, that are inclusive, safe, resilient and sustainable, requires intensive
policy coordination and investment choices. National and local governments have an important
role to play in taking action now, to shape the future of their development and to create
opportunities for all. 8

However, at the same time, private corporations also see this as an opportunity. According to
McKinsey & Company:

To keep pace with the projected GDP growth over the next 15 years, developing countries will
need to invest more than USD 2 trillion a year in infrastructure. To do so, governments will need
to unlock private-sector infrastructure financing with partners in development finance institutions
(DFIs). Solutions will go through innovative finance in order to increase the level of the much-
needed private financing.

Governments and DFIs have to establish infrastructure as an investable asset class, and can
increase availability of funds (liquidity) from both domestic and international providers of capital;
they can also increase the scale of investment by bundling together individual projects and
providing a portfolio of products in which such providers of capital can invest; and, lastly, as
proposed by many stakeholders, address the governance and capability gaps that often hinder
private-sector investment. 9

xiv U4SSC: Guidelines on tools and mechanisms to finance Smart Sustainable Cities projects