Prof. Paul Collier opened the conference by talking about what it takes for cities to be successful, and what Rwanda can do. The session was closed by the minister of finance and economic planning, Hon. Claver Gatete, who highlighted urbanisation as a key priority and expressed enthusiasm for our partnership as they begin the process.
Prof. Collier spoke across three areas: the Rwandan context, the process of building successful cities, and housing in Rwanda.
Urbanisation in the Rwandan Context:
Rwanda’s demographic trends and geography means it needs to urbanise rapidly and successfully. To keep rural living standards rising, there has to be a decrease in absolute terms of rural populations to raise rural productivity. Cities need to pull people in from the countryside with opportunities, rather than wait until rural desperation pushes them and slums emerge. It is not, though, an automatic process.
How do you achieve those opportunities? We have to act today, but don’t know what we’ll be doing in the future. But we know what it will take to be good at making something in the future. Rwanda should focus on building cities as platforms for manufacturing something, rather than what that something will be. To be successful platforms, cities need to be a) highly efficient and have b) highly skilled people. Both are needed to be successful.
Building Efficient Cities
Building efficient cities requires three investments. These investments are separate and undertaken by different actors but all three must be undertaken together to produce productivity. The investments – housing, infrastructure and commercial – need to be coordinated and should be the priority for public policy.
Sequencing of the investments is essential. Commercial investment will always come last, so the choice is whether households move first with housing investment or governments do with infrastructure. Government must move first. When governments move second, retrofitting infrastructure investment becomes expensive and without the timely provision of public goods first to which households can positively respond; there can be disastrous outcomes.
For governments to move first well, they need to do two things together: investing and coordinating. Investing requires planning and implementing. When we plan, we should aim for high-density cities. High density cities generate greater spill-overs and create jobs endogenously – notably, because high density is a public good and markets will undersupply it. For good implementation, we need mandates with budgets and clear mandates to deliver investment in a timely manner. Coordinating household and commercial investments needs a regulatory function with two distinct processes for both categories.
Building low-income housing
Professor Collier argued that low income housing is most essential. Without housing that can be afforded by majority of citizens – rather than grandiose dreams – slums emerge and many things go wrong. Building low-cost housing can also produce a lot of jobs and benefit quickly.
Achieving low-income housing means overcoming four obstacles. 1) housing has to be affordable, not necessarily grand. 2) Have the right building standards appropriate to the country that make it easy for people to build. Cumbersome (or inappropriate colonial era) codes push people to informality. 3) Industrial organisation: it needs to be small, local firms doing the construction, not large, foreign ones. 4) We need secure legal rights: land, collateral and tenancy rights.
Finally we need to consider financing. Banks are inappropriate because of their cost structure. We need building societies, e-savings and targeted taxation to capture a good share of the large returns that accrue to the private sector via urbanisation.
Panel One: Urbanisation, growth and structural transformation
Panel Two: Urban Management, Planning, Managing Performance, and Community Engagement
The presenters Roxanne Qualls, former mayor of Cincinnati, and Jerry Newfarmer, CEO of urban planning consultancy Management Partners, based their presentation on extensive experience in urban planning and management in the United States of America. Since an appreciation of the specific context is crucial for giving advice, their aim was to highlight key historical and institutional arrangements that underlie urbanisation in the US.
The presentation was structure as follows:
Power sharing and local government
Managing performance for effective implementation of vision, strategies and goals
Local master planning for urbanisation
Engaging people and communities
The focus on local government in the United States is to provide services for the citizenry. There are a variety of taxes that provide the resources for these services and locally financed infrastructure, including income tax, property tax, sales tax and various user fees and charges. Where necessary, grants and loans complement that income and debt can be used for infrastructure development. Sharing of resources mainly occurs between state and local level rather than with the federal government. To enhance the economic development potential, business promotion and public-private partnerships – both in housing construction and redevelopment – are employed.
There is no central performance evaluation of local government. In view of the multitude of institutional arrangements that have developed in the country, best practice sharing and benchmarking are the major vehicles of policy dissemination across the country, with effective policies quickly adapted in localities across local and state borders. The comparative perspective with other local government bodies is often complemented by user surveys that gauge citizens’ opinions of the quality and scope of services provided in order to identify areas for reform and improvement.
The master plan of Kigali already had forerunners in the US as early as 1791 for Washington D.C., 1811 for Manhattan and 1871 for Chicago following that city’s great fire. Despite the difference in time horizon, the challenges faced by early American urban centres are similar to those of present-day low-income cities: mass migration, lack of infrastructure and public health problems that resulted in regular epidemics.
A key issue in US urban history that offers valuable lessons for developing cities is urban sprawl. A lack of public transport infrastructure and the incentive of municipalities near urban centres to develop land for residential construction in order to raise municipal revenues has resulted in unbalanced land use. The result is extensive building that leads to high infrastructure construction and maintenance cost as well as long transport times to work places in city centres. At the same time, the neglect of urban regeneration has led to the declining city centres attractiveness for residential use and an inefficient pattern of land use. However, new approaches of mixed residential-commercial land use, more emphasis on public transport and the limitation of land for development have borne fruit, for example in the case of Portland, Oregon.
Panel Three: Local Financial Management and Revenue Development
The session opened with Jonathan Nzayikorera outlining the challenges and opportunities of financing infrastructure development and improving the tax revenue streams. There are a number of tax revenue streams – both actual and potential, which have been more or less maximised. These include property taxes, taxing the transfer of property, and looking into methods of valuing land (including agricultural land). Other low-hanging fruits include improving the tax administration systems: integrating these systems into modern IT frameworks, improving tax collecting capacity and local expertise.
Following the collection of these revenues, local government budgets in Rwanda are largely dependent on transfers from the central government. This is despite the efforts to decentralise revenue generation activities; the decentralisation process began in 2002, yet the central-to-local transition has not yet been completed. Empowering local governments, therefore, is a key priority. A second, related priority is ensuring accountability at all levels of revenue collection. This will have important knock-on benefits; for example, in improving public perceptions of the taxation process, and investing citizens with an interest in ensuring good governance and service delivery.
Mihaly Kopanyi followed this with a presentation on the various sources of finance, and their attendant challenges and benefits. With examples from around the world (Iran, Pakistan, China, India, Nepal, Hungary), Kopanyi noted that the first priority was to ensure a current budget surplus. A second priority was to limit subsidies, or – if using subsidies to address equity issues – to ensure that those subsidies are well-targeted and have an impact.
Various sources of finance were outlined. For example: the land market provides a variety of options, from developer’s fees to property transfer taxes. There is also the potential of using the capital market for long-term debt financing; however, this should be approached with caution, as inter-generational issues may become an issue (with latter generations saddled with imprudent debt). Donor or central government initiatives may provide a source of funding to local government initiatives. Furthermore, there are opportunities in using ring-fenced project financing: financing is obtained for a specific project which will be individually assessed on its viability.
Vincent Munyeshyaka, Permanent Secretary at the Ministry of Local Government, was the first discussant. Mr. Munyeshyaka noted the opportunities available in the capital and money markets for long-term debt financing. For example, the Rwanda Stock Exchange was opened in 2008, and the country is currently examining the possibility of issuing a municipal bond.
The second discussant, Richard Dada of the Rwanda Revenue Authority (RRA), outlined the ways in which the RRA is supporting local government revenue mobilisation. This addresses a variety of challenges which continue to be experienced by Rwanda: a narrow tax base; lack of tax database and other IT systems; lack of awareness by small taxpayers in terms of who pays what; and, finally, the high costs of tax collection.
Panel Four: Finance for Affordable Housing
In panel four of the conference, we opened with Benjamin Manzi, Director of Investments at the Development Bank of Rwanda, who spoke broadly about how the development bank has been targeting its approach. He began by noting some of the challenges involved in the supply of affordable housing: materials are expensive, usually imported, and there are not enough local materials used, technology is also expensive and geared to larger, high-end building. The development bank’s approach, going forward, is to develop new financing strategies and new lending mechanisms. In addition, they want to develop new housing support services that target broad areas of the process from helping with land acquisition to materials sourcing.
The next speaker, Robert Buckley of the New School in New York spoke about the need to distil down the many possible options to a few options.
Broadly, it seems convincing that Kigali needs to grow out and expand, and to grow vertically with density. This should help with agglomeration and job creation, yet density is not a custom in Rwanda and this could be a problem. As the cities grows outward, we should avoid this being done in an ad-hoc manner.
Whilst being explicit that his thoughts are ideas for debate, not rules, He stated four options. First, there are some dos: do grow up, embrace the private sector and upgrade large portions of the informal stock and focus on increasing supply and improve conditions. However, don’t subsidise developers in ways that benefits the rich. Secondly, do expand the city with clear road layouts for future needs. Don’t feel obliged to expand with a public sector which may not be as efficient as the private sector. Third, do provide infrastructure where housing can be developed and make the public land available for development. Don’t have the public sector buy land for development. Fourth, do look at ways to reduce interest rates – enormous margins will reduce transformation. Don’t take undue risks – which might include investing in slower developing cities.
We also heard from Edward Kyazze of the Rwandan Housing Authority and some of the intended initiatives to boost the market and home ownership. These included housing seed funds, affordable groups of low-income people with collective collateral to enable them to borrow better. Private-public partnerships are another option, but they are aware that government needs to be well informed to deal with these effectively.
Finally we heard form Eric Gasava of the Rwandan Social Security Board and how they manage workers’ pensions. Real-estate is a large part of their investments and one they want to see strong returns on, but their challenge is to ensure that they balance a boosted supply in affordable housing with profitability of their investments.
Panel Five: Supply of Affordable Housing
Esther Mutambo, DG of the Rwandan Housing Authority, opened the presentation with the government’s sector strategic plan to guide urban development. While Kigali is the main point of focus, attention is also being paid to secondary cities to lessen the pressure on Kigali. With Kigali’s population set to grow to 3.8 million people in the next 20 years, housing is a major need. However, at the current rate of progress Rwanda can only afford to house 1 million people and the government is making efforts to meet the shortfall and supply to targeted groups.
Dr Antjie Ilberg from MINIFARA shared a draft policy which is being developed and whose number one concern is to formulate policies aimed at providing affordable housing. The policy hopes to address a number of challenges including land availability, access to finance, the high cost of construction as well as the quality of construction. The policy also hopes to explore different financing options such as cooperative finance, mortgages and private investments. Furthermore, the policy would like to offer various incentives to attract investments in housing development which will include import, VAT and income tax exemptions for the construction sector. The issues of integrated planning at national and district level to ensure interventions are coordinated through a one stop centre will also be addressed.
Vivian Kayitesi from the Rwanda Development Board commented that the Government has reduced a lot of processes on construction permits though financing still remains a big issue. She noted the establishment of a cement plant which will reduce the cost of construction as well as government considerations to manufacture building materials locally.
Jane Weru of Akiba Mashinani Trust shared important experiences from Kenya. The general indications are that access to finance for housing has remained a huge challenge even in Kenya with banks asking for collateral and charging very high interest rates. Rwanda will need to prepare for this.
Ira Peppercorn’s (World Bank) presentation gave an international experience and perspective on urban housing development. According to him, Rwanda stands a better chance at succeeding because the leadership seems to have a clear vision. However, Rwanda’s low income levels means that focusing on home ownership through construction and mortgages may be unaffordable for most Rwandans. Therefore Ira recommends that a focus on rental housing could be a helpful alternative. Ira also observed that supply of housing does not necessary mean building new houses; government can be more supportive to small scale owners with rental units, allow people to formalise their houses, and invest in cooperative housing by calling people to do things together.
Tsedale Mamo shared the Ethiopian experience on housing development. Their government has been offering a lot of support to private sector and small scale operators in various ways including capacity building, finance and upgrading of skills and infrastructure development. Clear policy direction is essential for success. Policies of land acquisition, ownership, sources and types of finance for housing, all need to be made explicit.
Fred Owambo from Hydraform talked about their technology which is an example of innovations which meet these challenges by building more cheaply and using unskilled labour.
Panel Six: Infrastructure to sustain mobility and healthy living
Jit Bajpai of Columbia University presented his thoughts on the role of government in sustaining mobility in Rwanda. He said that we had seen excellent strategies over the course of the conference, but the question is to figure out near term actions. Then, the appropriate sequencing needed to be considered.
In moving from strategy to implementation, Prof. Bajpai proposed the following considerations:
Prioritisation of investment within budget
- Strategic alignment
- Economic merit, i.e. cost – benefit analysis
- Social impact
Sequencing or critical building blocks
- Investment & actions
- Institution & capacity building
- Pricing & cost recovery
- Operations & maintenance
There are several key challenges in the implementation of the plan. For internal and external connectivity, the improvement of strategic roads linking Kigali, land borders, secondary towns and economic nodes is provided for to which not much needs to be added as the plan is comprehensive enough. However, the building of national and district institutions and an adequate funding base for the Road Management Fund are critical for the sustainability of the road system.
In terms of challenges for Kigali, traffic and congestion management needs to be strengthened or there will be gridlock given the rising number of vehicles. Secondly, improvements to the private bus service are necessary to provide adequate transport capacity. At present, the bulk of the population walks as the main mode of transport, so space for pedestrians and cyclist deserves consideration in the layout of roads. The promotion of transit nodes is another consideration crucial to linking different modes of transport.
In addition to considering concrete actions for the transport strategy, careful sequencing of activities is essential. First, institutional capacity building, attention to operations and management issues as well as the development of effective standards and regulations should form the foundation for the future of the transport policy. Second, as capacity grows, improved public transport, infrastructure for freight and bus transport and regulatory strengthening should be the next step on the ladder. Third, a reallocation of road capacity to buses and other mass transport, demand management and the extension of road capacity are objectives of further transport system enhancement. Finally, congestion pricing, urban rail and other advanced methods can be considered.
Prof. Bajpai then turned towards building blocks of a competitive private transport sector. Several options for the organisation of the sector exist, including gross cost contracting, management contracting, net cost contracting, franchises, and concessions. The basic dynamic is that the less funding is applied from the public side, the more regulation is necessary to safeguard the public interest and create social value added.
Contracting has advantages: there are incentives for operators to control costs and increase revenue (though not necessarily ridership) and that the public authority is not required to control and monitor revenue collection. The disadvantage is that strong regulation is required as otherwise private operators will reduce service levels where unprofitable and they may overcharge. There may also be regulatory capture and if not handled properly, and chaotic and unsafe service delivery will occur as private operators maximise profit without consideration of externalities.
Panel Seven: The Way Forward
Rwanda faces an important opportunity in its urbanisation process: cities, as engines of growth, can encourage and promote economic development. While Kigali remains the centrepiece of Rwanda’s urbanisation, due to its size and importance, secondary cities will likely become important as well. There are a number of ways that Rwanda can meet the challenge of sustainable, pro-growth urbanisation head-on: first, by establishing a master plan for both Kigali and the secondary cities. This plan would be holistic – keeping in mind the role each city plays at both the national and regional levels – and it would be future-minded – planning, for example, the infrastructure investments needed for future urban growth.
The next step is in identifying financing mechanisms to ensure revenue sustainability: this revenue would feed directly into implementing the plan. Financial mechanisms discussed by this high-level panel included capital markets and tax revenue mobilisation. A third step is in designing affordable housing which is truly affordable, accessible and desirable to Rwanda’s low- and middle-income groups. Coupled with this is the need to build cities upwards (as well as outwards): vertical building is still culturally new in Rwanda, and efforts to sensitise the population and normalise multi-story housing are needed.
The panel noted that, in order to move an urbanisation strategy forward, an institutional framework would need to be outlined. Notably, the point was made that the government should time its investments accordingly so that nothing is prematurely rushed whilst investment is not delayed either. Similarly, it was recommended that policymakers throughout the Government of Rwanda would also need to become sensitised to the importance of urban strategies in the broader economic growth agenda.
Urban Growth Management Strategies
Didier Sagashya, of the National Land Centre, began by speaking about the role of Rwanda’s National Land Use Masterplan. The plan (adopted in 2011, and repeatedly updated according to new data and targets) uses economic and spatial mapping to show how land is being used, and to suggest how each plot should be developed to help Rwanda meet national targets such as Vision 2020 and EDPRS2.
Shagashya stressed that land use planning was particularly important for Rwanda, because of its incredibly dense population (more than twice as dense even as China’s). He also argued that Rwanda is particularly well-prepared to make good land use plans, due to being number one in Africa for registration of land (with nearly all plots of land in Rwanda registered).
UN-Habitat’s Mathias Spaliviero also discussed the spatial mapping of land. He stated that achieving 35% urbanisation by 2020 would require a huge acceleration of the historically low urbanisation rate in Rwanda, and that planners, while planning for accelerated urbanisation, should also investigate why urbanisation has been historically low and make plans flexibly with this in mind.
Spaliviero introduced Rwanda’s National Urban Policy, which, like the Land Use Plan, uses spatial mapping to highlight existing services and economic activity by area, and plan primary and secondary areas for urban development. He stressed that government planning was vital for ensuring that high quality public spaces (such as parks, museums, and public libraries) are created and defended in Rwanda’s cities, to keep them attractive to potential rural migrants, and to protect the human capital within cities.
Okju Jeong from the Global Green Growth Institute described Rwanda’ green urban growth agenda and its importance to sustainable and inclusive economic growth. Dr. Jeong showed that no countries had achieved middle-income status without considerable urbanisation, but that rapid urbanisation was not always associated with growth, arguing that as well as the quantitative target of 35% urbanisation by 2020, Rwanda should, as an equal priority, adopt qualitative targets about what life and economic activity in cities should be like.
Dr. Jeong suggested how economic activity should be spread between Kigali and Secondary Cities, with Kigali becoming a hub for East Africa, and Rwanda’s ‘Secondary Cities’ becoming specialised industrial producers and centres supporting the growth of local rural economies. She explained that GGGI was facilitating the development of Rwanda’s Secondary Cities as model green cities.
The session was closed by Pedro Ortiz, a metropolitan planner and World Bank consultant, who began by highlighting that Rwanda was roughly the size of Los Angeles, New York, or London; one can travel almost anywhere within Rwanda in under 3 hours. Rwanda’s accessibility, combined with its dense population, creates unique possibilities for its urban structure, and policy-makers should think creatively about how to use this endowment.
Ortiz also highlighted that despite the benefits of dense housing, people may resist moving into apartment blocks, and creative housing alternatives should be considered. He highlighted the expense of urbanisation and affordable housing, stating that urban plans must be made and adapted in line with budgets. Finally, Ortiz stated that the priorities of local municipalities should be on providing the most essential public infrastructure- water, electricity, and feeder roads-, to support high living standards and human capital, while social goods like stadiums and markets should not be neglected if Rwanda’s cities are to attract and nurture the population.
Please find Pedro Ortiz’s presentation here.