A New Paradigm for Rural Development

Rural paradigmCarl Dahlman, Special Advisor to the Director of the OECD Development Centre

Three billion people in developing countries live in rural areas. They include the majority of the world’s poor, and their number will continue to grow for the next decade and a half  until 2030. Conditions for them are worse than for their urban counterparts when measured by almost any development indicator, from extreme poverty, to child mortality and access to electricity and sanitation. And the gulf is widening, contributing to large-scale migration to urban areas. They are constrained by a lack of productive employment opportunities, poor education and infrastructure, and limited access to markets and services. This situation exists despite half a century of rural development theories and approaches, and despite the global momentum built around the Millennium Development Goals between 2000 and 2015. Without a new framework for rural development in developing countries, it is unlikely that the new Sustainable Development Goals will be met.

Rural areas versus urban areas multidimensional poverty index (MPI) late 2000s

Fig 2
Note: MPI ranges from 0 to 1 with 1 as the highest level of multidimensional poverty. The MPI reflects poverty in three dimensions (education, health and living standards)
using 10 indicators: nutrition, child mortality, years of schooling, school attendance, cooking fuel, sanitation, water, electricity, floor and assets.
Source: Oxford Poverty and Human Development Initiative (2015), Global MPI Data Tables for 2015, database.

Although building on the experience of early developers is useful, rural regions in less developed parts of the world today face new challenges and opportunities that developed countries did not face before. Challenges include a more demanding competitive international environment, rapidly growing rural populations, increased pressure on limited environmental resources and climate change. Opportunities include advances in information and communications, agricultural, energy, and health technologies that can help address some of these challenges.

A new paradigm for rural development is needed to move forward. It needs to incorporate the lessons of past experience but also needs to meet the challenges and harness the opportunities of the 21st century – including climate change, demographic shifts, international competition and fast-moving technological change.

Based on the lessons drawn from previous approaches and theories on rural development, the experience of OECD countries and lessons from case studies of developing countries adapted to the reality of developing countries, the OECD Development Centre proposes a new rural development paradigm (NRDP) for developing countries in the 21st Century

The NRDP is founded on eight components that need to be included for successful rural development strategies.

  1. Governance. A consistent and robust strategy is not enough if implementation capacity is weak. It is thus important for an effective strategy to build governance capacity and integrity at all levels.
  2. Multiple sectors. Although agriculture remains a fundamental sector in developing countries and should be targeted by rural policy, rural development strategies should also promote off-farm activities and employment generation in the industrial and service sectors.
  3. Infrastructure. Improving both soft and hard infrastructure to reduce transaction costs, strengthen rural-urban linkages, and build capability is a key part of any strategy in developing countries. It includes improvements in connectivity across rural areas and with secondary cities, as well as in access to education and health services.
  4. Urban-rural linkages. Rural livelihoods are highly dependent on the performance of urban centres for their labour markets; access to goods, services and new technologies; as well as exposure to new ideas. Successful rural development strategies do not treat rural areas as isolated entities, but rather as part of a system made up of both rural and urban areas.
  5. Inclusiveness. Rural development strategies should not only aim at tackling poverty and inequality, but also account for the importance of facilitating the demographic transition.
  6. Gender. Improving rural livelihoods should take into account the critical role of women in rural development, including their property rights and their ability to control and deploy resources.
  7. Demography. High fertility rates and rapidly ageing populations are two of the most relevant challenges faced by rural areas in developing countries today. Although the policy implications of these two issues are different, addressing these challenges will imply good co-ordination across education, health and social protection policies, as well as family planning.
  8. Sustainability. Taking into account environmental sustainability in rural development strategies should not be limited to addressing the high dependence of rural populations on natural resources for livelihoods and growth, but also their vulnerability to climate change and threats from energy, food and water scarcity.

The Sustainable Development Goals (SDGs) are closely linked to addressing the new challenges for rural areas, such as demographic pressure, ecological side-effects and climate change, and poor governance, along with negative consequences imposed by lagging rural areas such as polarised regional development and rural migration into urban slums. Since the SDGs and rural development are closely interconnected, investment in both areas will have mutually beneficial impacts. Thus rural development should be put at the heart of national development strategies in all countries at all development stages to ensure equal, inclusive and sustainable development

The challenge is that urban areas in most developing economies with fast growing populations are not able to productively absorb their growing urban populations, let alone migrants from rural areas. The result is an increase in urban slums, informal employment, underemployment, falling labour force participation rates and persistent poor livelihoods in rural areas. Furthermore, with the slowdown of China’s growth and its changing economic structure toward services, the fall in commodity prices is not a cyclical but a structural change. Combined with the expected rise in global interest rates there is likely to lead to slower economic growth in developing countries which will further complicate prospects for rural development.

The challenge is particularly large for South Asia and Sub-Saharan Africa because their populations are largely rural and they also have high population growth rates (Figure 3) and the lack of productive jobs to absorb the rapid increase in the labour force. There is already vast growth of urban slums and the informal labour force, underemployment in rural areas, and falling labour force participation rates. While most other developing regions have already had the demographic transition and seen their population growth rates fall starting in the 1980s, in Sub-Saharan Africa population growth rates have been around 2.8 % per year for the last 35 years. They are only now starting to decline, but are more than twice the average for the world. They are expected to remain about 1.5 percentage points higher per year than the world average for the next three decades (Figure 3). The increase in the labour force (population 15-64 year olds) by 2030 from people that have already been born is 300 million workers, which is roughly the current labour force of the EU. In addition many Sub-Saharan countries are fragile states and many are also very environmentally fragile. As a result there are likely to be large humanitarian challenges as well as increased pressure for people to migrate out of Africa to Europe and other regions.

Unless effective rural development policies can be put in place it will not be possible to meet the SDG because rural areas tend to be left behind. Addressing the challenge of rural development is going to require innovative approaches at the local, national and international level. These include developing multi-sectoral and multi-level and multi-agent strategies that further economic and social development and are also environmentally sustainable. Innovative approaches to urbanization and the development of intermediary cities that are economically and environmentally sustainable will be needed, which will require bringing to bear the best global knowledge on how to achieve this in a cost-effective way and also addressing the difficult governance and financial challenges for achieving this.

In addition the challenges are not only at the country or regional level but at the global level because in our currently very interconnected world lack of productive jobs, increasing inequality and population pressures in the developing world can lead to social unrest, political instability, conflict and increased migration flows which will impact other parts of the world as we are seeing with the spread of global terrorism and the refugee crisis.

Useful links

GFD

The 2016 OECD Global Forum on Development on 31 March in Paris will discuss how national policies and strategies for achieving the SDGs can be optimised. It will also look at approaches to scale up rural initiatives and leverage the data revolution to track progress toward achieving the SDGs and maximising resources through innovative partnerships.

  • How will global trends, including migration, affect the implementation of the SDGs?
  • Why is rural development still critical and how can rural strategies be strengthened in international and national agendas to further support the SDGs?
  • How can a smarter use of data better prioritise and facilitate SDG implementation?
  • Is it possible to secure adequate and predictable financing in support of developing and emerging countries’ development strategies?
  • How can policy dialogue and peer learning be further leveraged to support the implementation of the 2030 Agenda?

Finance, Growth and Inequality

NAECBoris Cournède and Oliver Denk, OECD Economics Department

Finance is the lifeblood of modern economies, but too much of the wrong type of finance can hamper economic prosperity and social cohesion. We have taken a holistic approach to study the consequences of finance for the inclusiveness of growth, in the spirit of the OECD initiative New Approaches to Economic Challenges.

The UN’s Sustainable Development Goals are looking at finance in a similar way. They specify the target of better financial regulation under Goal 10, “Reduced Inequalities” and thereby directly recognise the importance of finance for inequality. Our research thus provides an empirical foundation for the SDGs’ target to improve the regulation of financial markets and institutions to attain greater economic prosperity and income equality.

Credit intermediation and stock markets have seen a spectacular expansion over the past half-century. Since the 1960s, credit by financial institutions to households and businesses has grown three times as fast as economic activity. Stock markets too have expanded enormously. These secular changes to the financial landscape have taken place amidst a global economy in which growth has declined and inequalities have widened. They have therefore raised deep questions about the role of finance: What are the effects of changes in the size and structure of finance on economic growth? How do financial developments influence income inequality? Which policies can improve the contribution of finance to people’s well-being?

The development of credit markets boosts economic growth when it starts from a low base, and many developing countries have a lot to gain from further financial expansion. Nevertheless, looking at the data over the last 50 years, our empirical analysis shows that credit expansion has reduced economic prosperity on average across OECD countries. An increase in credit by financial institutions by 10% of GDP has been associated with a 0.3 percentage point reduction in long-term growth (figure 1). At the levels now reached in most OECD countries, further credit accumulation is therefore likely to lower long-term growth. On the other hand, further expansions in equity finance are found to promote economic growth (figure 1).

We identify three main channels linking the long-term expansion of credit with lower growth:

Excessive financial deregulation. OECD countries relaxed financial regulation in the 40 years preceding the global financial crisis, and this initially benefited economic activity. Relaxation of regulation however went too far and resulted in too much credit.

The structure of credit. Our research decomposes credit by lending and borrowing sectors. These breakdowns show that, on the lender side, bank loans have been linked with lower growth than bonds (figure 1). On the borrower side, credit has dragged down growth more when it went to households rather than businesses (figure 1).

Too-big-to-fail guarantees. Our findings of excessive financial deregulation and over-reliance on bank credit suggest that too-big-to-fail guarantees to banks have been one channel encouraging too much credit. This is further supported by evidence that the link between credit and growth is not as negative in OECD countries where creditors incurred losses due to bank failures as in those where they incurred no such losses.

Finance may also exacerbate inequalities, a concern that comes out very strongly in the formulation of the SDGs. Our work finds that this has indeed been the case. Expansions in bank credit and stock markets are both linked with a more unequal distribution of income. We suggest three underlying mechanisms:

The high concentration of workers in finance at the top of the earnings distribution. There are few financial sector employees in low-income brackets and many higher up in the income distribution (figure 2). The strong presence of financial sector workers among top earners is justified as long as very high productivity underpins their earnings. However, our detailed econometric investigations show that financial firms pay wages well above what employees with similar profiles earn in other sectors. The premium is especially large for top earners.

Unequal bank lending. Banks generally concentrate their lending on higher-income borrowers. Credit is twice as unequally distributed as household income in the euro area (figure 3). This may reduce credit risk, but it also means that well-off people have greater opportunities than the poor to borrow money and fund profitable projects. In this way, lenders are likely to amplify inequalities in income, consumption and opportunities.

Unequal distribution of stock market wealth. Stock market wealth is concentrated among high-income households who thus get most of the income and capital gains generated through capital markets.

A better architecture for the financial system

The evidence base from our research therefore suggests that the SDGs’ target of reforming finance is likely to contribute to greater economic prosperity and income equality. Reforms should involve avoiding credit overexpansion and improving the structure of finance:

Avoiding credit overexpansion. Macro-prudential instruments can provide tools to keep credit growth in check. Caps on debt-service-to-income ratios have been identified as effective in this regard. Strong capital requirements on banks and other lenders help limit the extent to which financial institutions can fund lending through liabilities that benefit from public support. Further reforms are necessary to reduce explicit and implicit subsidies to too-big-to-fail financial institutions and level the playing field for competition between large and small banks. This could be achieved through break-ups, structural separation, capital surcharges or credible resolution plans. In the short term, however, measures to avoid credit overexpansion may temporarily hurt economic activity.

Improving the structure of finance. Tax systems in most OECD countries currently encourage corporate funding through loans rather than equity. Tax reforms can improve the structure of finance, by reducing this so-called debt bias, which leads to too much debt, and not enough equity. They would help make finance more favourable to long-term economic growth. Measures to encourage broad-based participation in stock holdings, for instance a wider application of nudging in pension plans, can allow for a better sharing of the benefits from stock market expansion

Useful links

Cournède, B. and O. Denk (2015), “Finance and Economic Growth in OECD and G20 Countries”, OECD Economics Department Working Papers, No. 1223, OECD Publishing, Paris.

Cournède, B., O. Denk and P. Hoeller (2015), “Finance and Inclusive Growth”, OECD Economic Policy Papers, No. 14, OECD Publishing, Paris.

Denk, O. (2015), “Financial Sector Pay and Labour Income Inequality: Evidence from Europe”, OECD Economics Department Working Papers, No. 1225, OECD Publishing, Paris.

Denk, O. and A. Cazenave-Lacroutz (2015), “Household Finance and Income Inequality in the Euro Area”, OECD Economics Department Working Papers, No. 1226, OECD Publishing, Paris.

Denk, O. and B. Cournède (2015), “Finance and Income Inequality in OECD Countries”, OECD Economics Department Working Papers, No. 1224, OECD Publishing, Paris.

Denk, O., S. Schich and B. Cournède (2015), “Why Implicit Bank Debt Guarantees Matter: Some Empirical Evidence”, OECD Journal: Financial Market Trends, Vol. 2014/2, OECD Publishing.

The Sustainable Development Goals: A Duty and an Opportunity

NAECGabriela Ramos, Special Counsellor to the OECD Secretary-General, Chief of Staff and G20 Sherpa

The Sustainable Development Goals (SDGs) are universal, multi-dimensional, and ambitious. To achieve them we need an integrated framework that promotes a growth path that respects the environment, and whose benefits are shared by all, not only by the privileged few. The concept of sustainable development challenges us to rethink how we relate to the world around us and how we expect governments to make policies that support that world view.

First, there is the realisation that economic growth alone is not enough: the economic, social and environmental aspects of any action are interconnected. Considering only one of these at a time leads to errors in judgment and unsustainable outcomes. The growth accounting that we have relied on has fallen short, by not raising the alarm regarding the accumulated imbalances that brought the worst crisis in our lifetime in 2008, and regarding natural resource depletion and high inequalities of income and outcomes for people.

Next, the interconnected nature of sustainable development calls for going beyond geographical or institutional borders, in order to co-ordinate strategies and make good decisions. Problems are rarely easy to contain within predefined jurisdictions such as one government agency or a single neighbourhood, and intelligent solutions require co-operation as part of the decision-making process. Our policy decisions should keep in mind that our decisions and actions will have impacts elsewhere, will influence the future, and be bound by national circumstances, institutional settings, and the historical and cultural traits that define our societies.

Most of all, we need a growth path that puts people’s well-being at the core of policy efforts, and where GDP per capita and income are key elements of course, but not the only ones. In a highly interconnected global economy, the linkages between our economies, societies and environment should be central, and our policy choices should be informed by this high level of complexity.

The SDG’s therefore are a healthy reminder that, to deliver, we should change the way we operate and update the tools that we use to understand the world. Indeed, realize that GDP is a means to an end, and not an end in itself.

At the OECD we have been preparing for this in the last decade. We launched the New Approaches to Economic Challenges Initiative that makes a call to develop an agenda for sustainable and inclusive growth. We have also developed a hands-on agenda for green growth, and we have been working to address the slowdown of productivity growth with policy measures that will also have a positive impact on reducing inequalities of income and opportunities. That means changing the way we work, getting away from the “silo” approach, and trying to anticipate and shed light on the unintended consequences of the choices we make.

Our work on inclusive growth is a good illustration of this. Rising income inequality is often accompanied by greater polarisation in educational and health outcomes, perpetuating a vicious circle of exclusion and inequality. Moreover, inequalities impose costs on economic growth, particularly where inequality of opportunity locks in privilege and exclusion, undermining intergenerational social mobility. Accounting for the multidimensional nature of inequalities means evaluating the effects of policies on both income and non-income outcomes, as well as for different social groups.

Our analysis shows that “multidimensional living standards” – a measure that combines changes in household income, health and labour market outcomes – rose faster for more affluent social groups than for middle class or low-income households on average among OECD countries, and suggests that improvements in life expectancy and strong job creation during 1995-2007 did not compensate for widening income inequality.

A better understanding of the effects of policies on specific social groups allows policy makers to identify trade-offs and complementarities between growth and distributional objectives. For instance reducing regulatory barriers to domestic competition, trade and inward foreign direct investment can lift the incomes of the lower-middle class by more than it does GDP per capita. Conversely, a tightening of unemployment benefits for the long-term unemployed, if implemented without a strengthening of job-search support and other activation programmes, may lead to a decline in the income of the lower-middle class, even if it boosts average incomes.

These findings are reinforced by our work on the quality of jobs, defined as good pay, labour market security, and a decent working environment. There appear to be no major trade-offs between job quality and quantity but rather, potential synergies: countries that do relatively poorly with respect to job quality tend to have relatively low employment rates and vice versa.

In talking about jobs and equality, it is important to remember that the environment is not something you can think about later, once you have enough growth. Economic progress rests on ecological foundations. Natural capital – air, water, and other resources – is finite and has to be managed just as carefully as other forms of capital. More stringent environment policies, when well-designed, need not undermine productivity growth. Similarly, policies that make environmental sense can support economic growth and promote social inclusion too.

Designing a strategy to implement the SDGs comes down to answering three questions. What should economies be doing? How should they be doing it? And for whom? These questions are not new. Gro Brundtland’s answer in her 1987 report Our Common Future was economies promoting “growth that is forceful and at the same time socially and environmentally sustainable”. But after 20 years after Brundtland, we have still not managed to develop an integrated framework that combines the main objectives of well-being in a synergistic way. To do so we need to develop the best tools, but more importantly, to change habits –which is not easy- or to go against vested interests that benefit from the status quo. The political economy of reform is not going to be easy.

On the side of change, the SDGs give us not just the duty but the opportunity to advance our thinking. Let’s not waste it!

Useful links

OECD work on green growth and sustainable development

OECD work on inclusive growth

New Approaches to Economic Challenges in a Century of Cities

NAECRolf Alter, Director of the OECD Public Governance and Territorial Development Directorate @raltergov

We live in the century of cities. In OECD countries, two out of three people live in cities with 50 000 or more inhabitants. Outside the OECD, the share of urban residents is currently slightly lower, but urbanisation is progressing rapidly. While today over half of the world’s population lives in urban areas, the United Nations estimate that the global urbanisation rate will reach 60% by 2030 and 70% by 2050.

Cities are important drivers of economic performance, and their contribution can be expected to increase. Metropolitan areas with more than 500 000 inhabitants generate 55% of OECD countries’ GDP and more than 60% of their economic growth. Due to agglomeration economies and high levels of human capital, most cities have higher productivity levels than their countries as a whole. As many OECD countries have seen declining rates of productivity growth in recent years, utilising the full potential of productivity-increasing agglomeration effects can create new sources of growth.

Cities matter not only for the economic performance of a country; they also play a crucial role in determining the well-being of their residents. This is recognised prominently in Sustainable Development Goal 11, which calls for cities to be inclusive, safe, resilient and sustainable. It is also at the heart of the “New Urban Agenda”, to be launched at the UN-Habitat III Conference in October 2016 and an opportunity to reinvigorate our collective commitment to address urban policies at all levels of government.

Already today, many cities are desirable places to live and continue to attract new residents. Cities often provide better and more specialised services than rural areas. They generally have better transport connections and more diverse consumption opportunities. Most cities also offer greater cultural diversity and other amenities than rural areas.

But cities also face challenges in the form of agglomeration costs. Some are directly measurable economic costs, such as higher price levels; others primarily affect the well-being of residents and are more difficult to quantify in monetary terms. Air pollution and noise levels, for example, tend to be worse in large cities and have negative effects on the health of residents. Most commonly, agglomeration costs affect both economic performance of cities and well-being. A shortage of affordable housing, increasing congestion, long commutes and high crime rates have clear economic costs and also direct adverse effects on well-being.

Cities within the same country often have very different productivity levels and face varying degrees of agglomeration costs. This indicates that policies play an important role in influencing the performance of cities. In particular, the degree to which agglomeration costs can be avoided determines a city’s success. Cities in developing countries face some challenges that developed countries have already tackled, such as the provision of water and access to sanitation for all residents. But reducing agglomeration costs is important everywhere and can improve productivity and well-being even in the most advanced cities.

Agglomeration costs and policies to alleviate them frequently concern the same fields across developing and developed countries, albeit at very different starting points. The provision of affordable housing is a necessary condition to upgrade slums in developing countries and it is also required to make the most successful cities in developed countries more inclusive. Similarly, reducing congestion will increase productivity levels in cities in advanced countries, just as it will increase productivity levels in the least developed countries.

City governance needs to be re-evaluated

Most of the challenges that cities face are complex and multi-dimensional. The policy response requires therefore governance mechanisms which facilitate the development and implementation of complex and multi-dimensional public policies in urban areas. Running a big city requires more than just concentrating on a few specific problem areas in a piecemeal approach to policy. It requires a package of coordinated policies that produces synergies and complementarities.

Effective urban and regional policy calls for co-ordination between many different actors, an area in which until recently many countries have fallen short. In the past, national-level urban policies in OECD countries were often narrowly defined and limited to one or two issues, such as infrastructure provision or the revitalization of distressed neighbourhoods.

Yet a wide range of national policies can have a profound impact on urban development, even if national policy-makers do not view them through an “urban lens”. Better co-ordination of national policies affecting cities can eliminate tensions between various sectorally oriented policies and give clearer signals to city leaders, empowering them to work more effectively with each other, with higher levels of government, with citizens and with the private sector.

Empowering cities will in many cases require more efficient city and metropolitan governance. As administrative boundaries are typically based on historical settlement patterns that do not reflect the increasingly inter-connected socio-economic realities in large urban agglomerations, municipal fragmentation makes it difficult to coordinate policies on the local level and puts a brake on growth. OECD metropolitan areas with appropriate governance systems have not only higher productivity, but also experienced less sprawl and greater citizen satisfaction, particularly with transport systems.

Preparing cities for the future

According to the United Nations, urban populations in high-income countries are expected to increase only modestly over the next two decades, from 920 million people to just over 1 billion. Consequently, changes to cities and their urban form will be incremental.

In developing countries, by contrast, the stakes are much higher. Existing cities will need to be modified and expanded, and new cities will need to be built. The importance of actions taken today goes far beyond the 15 years’ time horizon of the SDGs. Housing and infrastructure that will be built to accommodate billions new urban residents will determine urban form for many more decades to come. This is a task that neither city authorities nor national governments can take on alone. It is therefore crucial that the mechanisms chosen to implement the SDGs and the New Urban Agenda take into consideration how choices made in cities today will affect the extent and impact of global challenges such as climate change, the ability to achieve emission reductions and the capacity to adapt to changing circumstances, such as ageing population.

Achieving inclusive growth requires co-ordination of economy-wide and local policy measures to build cities that are both environmentally sustainable and offer the opportunities for personal fulfillment that education, skills and jobs can bring. At stake are our hopes and aspirations for a fairer, more prosperous world. Let’s make sure we ‘get cities right’.

Useful links

OECD work on cities

OECD Directorate for Public Governance and Territorial Development

OECD work on Regional Development

How’s life in your region?

Africapolis: Measuring Urbanisation Dynamics in West Africa

AfricapolisSahel and West Africa Club (SWAC) Secretariat

Africa is the least urbanised continent in the world but an urban transition is very much underway. This is particularly visible in West Africa where the number of urban agglomerations increased from 152 in 1950 to almost 2000 in 2010. Between 2000 and 2010 alone, the urban population grew by over 40 million people, making towns and cities home to 41% of the region’s total population.

Cities and their inhabitants are increasingly at the centre of development processes in African countries. However, there is still little data on the actual size of West African cities, their number, location, the distances between them, where and how they form and grow.

Such information is essential for designing and implementing a wide range of development policies at the local, national, and regional level, such as urban and land planning, public service provision, infrastructure and investment strategies, decentralisation and spatial development, as well as energy and climate change. This is where Africapolis, the study of West African urban agglomerations, comes into play. Africapolis is the regional programme of the e-Geopolis project which provides comparable and comprehensive measurement of worldwide urbanisation. The Africapolis programme is split into three phases: Africapolis I (West Africa, 2008), Africapolis II (East and Central Africa, 2011) and Africapolis III (Southern Africa).

What is urban?

The Africapolis study applies a simple framework to a complex issue: measuring urbanisation. Determining the size of an urban population, the level of urbanisation or the number of urban agglomerations all depend on the chosen definition of “urban”. However, the definition of urban in West Africa, like elsewhere, varies from country to country. For example, in Guinea-Bissau, a country of fewer than 2 million inhabitants, an agglomeration with a population of 1 500 is considered urban. In Nigeria on the other hand, which is the most populous country on the African continent, the lower numerical threshold for defining urban begins at 20 000 inhabitants. And in other cases, such as in Chad, the administrative status of an agglomeration determines whether it is urban or not.

Africapolis sorts through these differences by applying a simple definition of urban agglomerations that is consistent, irrespective of national definitions. Africapolis uses two criteria to define what an urban agglomeration is. First, an agglomeration must be a continuously built-up and developed area, with less than 200 metres between two buildings. Secondly, an agglomeration is considered urban if it has a minimum of 10 000 agglomerated inhabitants.

A distinctive methodology

Defining what urban means is very useful when dealing with varying systems of measurement. Yet the fact that a country’s population increases, or that its level of urbanisation doubles, does not provide any information on the spatial redistribution that accompanies these population dynamics, such as the geographic distribution of towns, their size, their number, or the distances between them – all information which is crucial for researchers, governments and development partners to make informed analyses on the design and impact of national policies and to plan for future trends.

Africapolis addresses these concerns by applying a unique methodology to improve the geo-statistical knowledge of West African urbanisation dynamics. By combining demographic sources with satellite and aerial imagery and other cartographic sources, Africapolis can pinpoint population estimates at the level of individual agglomerations. This morphological approach helps identify the territorial transformation processes that are currently taking place in the region and which, with a few exceptions, remain little explained and poorly measured. The methodology breaks down the urbanisation dynamics of the region into several levels of agglomeration including metropolises, secondary cities, the merging of villages and the formation of conurbations (defined as one continuous agglomeration formed by the merging of at least two initially distinct urban agglomerations).

Africapolis, the 2015 Update: More and bigger cities… but not too big

While densification of the West African urban network is clearly occurring and expanding (the region counts 22 metropolises today with over one million inhabitants, as compared to 10 in 2000), “megacities” remain modest in size (compare the size of Lagos to Shanghai, for example). Secondary agglomerations (population 100 000 to 1 million) tend to be understated in national urban networks. The under representation of these medium sized cities is further emphasised by the existence of an important number of small agglomerations between 10 000 and 100 000 inhabitants.

GRA_2-4_ENG_Nombre_agglomeration_1960_1980_2010

A major contribution of the Africapolis study is the identification of cities with fewer than 100 000 inhabitants. In contrast, most databases, including that of the United Nations, only identify cities of more than 100 000 inhabitants. The 2015 Africapolis Update provides population estimates for 2 965 identified agglomerations in West Africa, of which 1 947 have more than 10 000 inhabitants. This is vital demographic information because 90% of cities in the region had fewer than 100 000 inhabitants in 2010, representing a combined population of 45 million people.

1950-2010

1950-2010-urban-network

Nigeria: Unique in Africa

Nigeria is the most populated country on the African continent and its economy dwarfs that of its immediate neighbours which are eight to seventeen times less populated. Half of West Africa’s population lives in Nigeria and the country’s urban characteristics are exceptional, accounting for half of the identified urban agglomerations and 10 of the 20 largest cities. However, the country’s demographic and urbanisation dynamics are particularly difficult to measure given the size of its population and the controversies which surround official data. Coupled with geographic and administrative sub-divisions that are specific to the country and its history, it has been difficult until now to estimate the population of Nigeria’s urban agglomerations.

Applying the Africapolis methodology, the 2015 Update provides a comprehensive analysis of population dynamics in Nigeria, including new urbanisation measurements, making it the most complete dataset on urbanisation dynamics in this country to date.

Africapolis makes it possible to map, understand and measure the dynamics throughout West Africa and compare the results to other regions on the continent and globally. The method is recognised by the international scientific community, is comparable, independent of national definitions and verifiable. Data inconsistencies and geographic and historical gaps in census coverage are a reality and remain a constraint in analysing urbanisation dynamics in the region; however Africapolis is a significant step towards closing the data gap.

Useful links

Urbanisation Dynamics in West Africa 1950–2010, Africapolis I, 2015 Update

Africapolis dataset at OECD.Stat

Africapolis I 2008

SWAC work on settlement and market dynamics and food security

What Mongolia’s Artisanal Miners Are Teaching Us: The Link Between Human Rights and Artisanal and Small-scale Mining (ASM) Formalisation

Artisanal minerPatience Singo, Project Director Sustainable Artisanal Mining (SAM) Project of the Swiss Agency for Development and Cooperation (SDC) and Estelle Levin, Founder and Director of Estelle Levin Ltd

Two years ago, we sat with artisanal gold miners in a ger at Bayankhongor, Mongolia, learning about their work. One of the miners, Mr. Byambadorj, stood up to say something we don’t often hear:

It’s been only five years since we organised into partnerships. Before, I was a wild person, with a mask and hat and I could raid an area to dig and live. All operations were disorganised and done wildly; we had a very big problem with the local government. Now we talk freely with the local government and we have an agreement with the mining company and government, which is a very big success, … this is a change that we experience in our everyday life.[1]

The transformations of Mr. Byambadorj and his colleagues into respected entrepreneurs are astounding. All the more so when we consider how often artisanal and small-scale mining (ASM) is subtlety (or explicitly) portrayed as a scourge to be fixed: the broad use of the term ‘illegal mining’; the perception of uniform criminality; the portrayal of miners as greedy, chaotic, and destructive.

The Mongolian miners’ experience provides striking contrast. Not by canonizing or idealising miners or artisanal mining – the sector has its challenges and its complexities – but by humanising them.

Artisanal mining was uniformly illegal in Mongolia since its emergence in the 1990s until 6 years ago. Today, thousands of miners have formalised[2] including through Asia’s first Fairmined ASM enterprise. Over the last 10 years, the Sustainable Artisanal Mining (SAM) Project, a bilateral cooperation between the Swiss Agency for Development and Cooperation and the Government of Mongolia, has supported the creation of an enabling regulatory and policy environment in which Mongolia’s artisanal miners are able to formalise. More than 7,000 artisanal miners[3] are now operating in the formal sector allowing them to build businesses, support their families, and advocate for and access their rights.

How has Mongolia achieved these successes? One answer is through a Human Rights Based Approach that considers ASM formalisation through the lens of rights and duties.

Rights. We began by acknowledging that ASM is not the ‘chaos’ it is usually perceived to be. There exists functional organisation, order, systems, and relationships amidst even the most informal ASM. The informal market may be black or grey, but it works efficiently – it existentially must. At the same time, although the political economics of the informal sector typically ‘work’, there are often accompanied by grave inequalities, exploitation, and abuse. On a daily basis, the most basic rights of the individuals participating in this sector are systematically being denied.

Duties. We also realised that the State, through government agencies commonly believe that their primary duty is to monitor, control, and close down mines that are not compliant with the law. This is in some cases a reactionary enforcement approach. In other cases it is a legitimate piece of a holistic approach to their mandate, which is simply the easiest to roll out. We turned this on its head, encouraging government actors to consider themselves to be first movers, or enablers. When government agents expect ASM to simply comply with ‘their duty to respect the rule of law’ regardless of whether they have the law, understand the law, or are able to comply with the law, their only tool is to hammer lawbreakers. This proves discouraging at best and futile at worst. ASM can reasonably respect the rule of law when the State first realises its duty to provide an enabling and appropriate framework and helping them do this.

In Mongolia, under the SAM Project, theory and perspective are becoming practice. Government agents are acting on their duty to deliver services to miners and thus enabling miners to understand and claim their rights. These agencies are enabled with the necessary capacity to fulfil this mandate – through resources and training. The motivation is not because governments are somehow expected to do something for ASM because ASM is ‘good’. Rather, it is because government agents are ‘public servants’, expected (and able) to deliver services to the miners as citizens and rights holders.

It’s not enough for government officers to be aware of what they ought to do. The miners have also become aware of what their own rights and duties are, and what they can expect the government to deliver to them. First and foremost, miners need to be empowered and given a voice. In Mongolia, this process began with identifying local champions from civil society or politicians and experts, who helped to advocate for the miners while gradually building the miners’ own capacity to advocate for themselves.

In doing so, instead of feeling victimised by the government, the miners were recast as ‘rights holders’ who learned how to claim and access their rights from the state. The miners became able to better organise, and were more willing to engage with the government. This enabled structures and relationships of mutual accountability between government agents and miners, as well as other citizens, to be established.

Far from being a burden, this process has proved to be empowering – even invigorating – for government agents. When given a mandate to be a public servant, to move from watchdog to duty bearer and enabler, people rise to the occasion.

The applications of the HRBA stretch far beyond Mongolia. A colleague of ours recently put this into practice in his work in the Great Lakes region. He described his experience thus:

Right after [the SAM planning exercise in Mongolia] I had an evaluation with a state inspection agency. A completely different topic in principle and approach, but at the closing workshop I tested the Human Rights Based Approach and started to talk to inspectors about not their role in inspecting, but their role to ensure their country complies with its HR obligations. Suddenly their eyes started to open, they started to smile, they started to understand that their work has a deeper meaning. They started to become proud of what they are doing. It was a short half hour exercise but what I learned from that is to trust a strategy that empowers government agents to be duty bearers. It is a strategy for how we can create pride in duty bearers that they’re not just ‘doing their job’, but contributing to a wider objective of enhancing and improving their nation’s international standing.”

The process Mongolia is going through is neither easy nor simple. It demands patience, resolve, funding, a multi-stakeholder approach, and a facilitating actor that is seen as neutral and equidistant between all interests. But formalisation is the starting point to engage with ASM on a range of social, developmental, and environmental challenges. Formalisation is also something the sector can demand of their governments so they can grasp their most basic human rights.

Formalisation can feel like the Holy Grail of the ASM sector. It is a core priority of both the Minamata Convention on Mercury (Article 7) and Appendix 1 of the Gold Supplement of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. It is the objective of millions of dollars in international aid seeking to bring about everything from good governance to sustainability to economic development in mineral sectors. This is not without reason; failure to formalise is not without consequence. If miners don’t formalise, they can’t professionalise. Without professionalisation, miners are not be able to accommodate the due diligence requirements of ‘responsible’ buyers. This exacerbates buyer disengagement. Our conversations with downstream users of precious minerals suggest avoidance of ASM sourcing is now a central part of many procurement strategies. This is not simply a lost opportunity for downstream buyers; it is a tragedy for miners and their communities who need access to responsible markets more than ever. To quote previous writers on this blog, “Whole-scale disengagement with artisanal miners almost always has harsh consequences for miners’ livelihoods”; they go on: “what’s important is promoting responsible sourcing of minerals from conflict areas, despite the challenges.[4]

There is much to learn from Mongolia’s experience, and especially the SAM project’s use of the Human Rights Based Approach. If we start to use this approach in other contexts, we may at last see a step-change in efforts to bring artisanal miners into greater formality, which would not only help unleash the developmental opportunity of ASM, but also address risks across their supply chains.

Useful links

Unlinking minerals and conflict in the Eastern Congo Hannah Koep-Andrieu of the OECD’s Responsible Business Conduct Unit on the Insights blog

Conflict minerals: demonise the criminals, not the miners Chuck Blakeman on the Insights blog

[1] Estelle Levin. 2014.

[2] An estimated 7,000 are working in over 53 formalised ASM entities (Singo, Patience 2015. “SAM Annual Report”)

[3] This accounts for about 11% of Mongolian artisanal and small-scale miners. Up scaling of formalisation still has a long road ahead.

[4] Gillard, Tyler and Nieuwenkamp, Roel. 2015. “Responsible gold also means supporting livelihoods of artisanal miners. OECD Insights Blog. http://oecdinsights.org/2015/03/24/responsible-gold-also-means-supporting-livelihoods-of-artisanal-miners/ [accessed 16 March 2016]

Environmental Policies and Economic Performance

NAECShardul Agrawala, OECD Environment Directorate and Tomasz Koźluk, OECD Economics Department

A dirty, rundown environment has quantifiable costs for the economy and the well-being of societies. For example, the welfare costs of air pollution from road transport alone are estimated to amount to around 1.7 trillion USD in OECD countries, 1.4 trillion USD in China and 0.5 trillion in India. Without adequate policy action, costs will continue to increase, and can have tangible effects on economic growth, for instance via reduced labour productivity. Similarly, the prospects for long-term growth are under stress – for example, climate change is projected to decrease global GDP by 1 to 3.3 % by 2060.

These are of course, but a microcosm of all the environmental challenges we face. Yet, action to address environmental pressures often proceeds too slowly. Policymakers have long feared that stringent environmental policies may constrain competitiveness and growth. For example, a number of studies attributed a significant part of the 1970s productivity slowdown in the United States to the tightening of environmental policies. Such fears also underlie the so-called Pollution Haven Hypothesis, which sees a flight of industrial activity and pollution leakage to countries with laxer environmental standards. Moreover, arguments against tightening of environmental policies have re-emerged in the context of an increasingly globalised world with fragmented production and mobile capital.

At the same time, there are solid indications that the future is not necessarily a race to the bottom and that environmental protection and growth are not an “either-or” dilemma. A counter argument is that more stringent environmental policies will encourage changes in behaviour by firms and households, reduce inefficiencies, and encourage the development and adoption of new technologies that may be good for the environment, and for the economy as well. After all, growth did not collapse following the implementation of numerous environmental policies over the years. Moreover, when scrutinised, the claims of negative effects of environmental policies have found little backup in the data.

Empirical evidence from the OECD clarifies this. Based on analysis of two decades of data on the stringency of a subset of environmental policies and economic outcomes in 24 OECD countries, it shows that productivity has generally not been negatively affected by the introduction of more stringent environmental policies. Yes, there have been some temporary adjustments, but these tend to disappear within a couple of years.

To be clear, there will be winners and losers  The most productive and technologically advanced firms (and industries) tend to actually gain from tighter environmental policies, an outcome likely reflecting their superior ability to grasp the new opportunities by innovating and improving their products, but also potentially by relocating part of their production abroad. In contrast, the least productive firms – which generally use their resources less efficiently – may see a temporary fall in their productivity growth, possibly as they require more investments to cope with the more stringent environmental requirements. Some of the least productive firms may cease to operate. Still, if resources are swiftly reallocated to young and expanding firms, the overall impacts will not necessarily be negative and can be positive, both for the economy and the environment, particularly if policies are in place to enable entry and exit of firms into and out of markets and to support employment.

Follow-up work on international trade and environmental policies adds another perspective to this picture. Taking a global value chain perspective on the Pollution Haven Hypothesis, OECD work finds some confirmation of the hypothesis itself. However, there is no overall loss of competitiveness of economies attributable to environmental policies. More stringent environmental policies do have significant effects on comparative advantages – countries with more stringent policies tend to lose competitive edge in more pollution-intensive activities. However, this loss is compensated by a gain in less pollution-intensive activities – hence an overall shift in specialisation patterns. Still, while significant, the effects are very small, for instance with respect to those of trade liberalisation. They are in line with other recent evidence on competitiveness effects and on the potential of affecting countries’ specialisation in so-called environmental products – a rapidly expanding global market. Increased trade in such products can spur global improvements in environmental quality. In fact, when combined with stringent, well-designed environmental policies, open trade can form a vital channel for reducing pollution and spurring growth both globally and domestically.

Economic dynamism and flexibility are crucial to ensure such positive outcomes, and the design of environmental policies can do a lot to contribute. The keywords are flexibility and competition: market-based instruments, such as green taxes, that leave the choice to the firm as to which clean technology to use, tend to have more robust positive effects on productivity. On the contrary, while rules to spur markets are important, policies that lead to excessive and unnecessary “green tape” or provide advantages to incumbents, such as laxer norms or subsidies that prop up dirty and inefficient firms, can prevent both environmental and economic progress. One of the crucial findings of recent work is that in general there is no correlation between the stringency of environmental policies in OECD countries and the regulatory burdens they impose. In other words, more stringent environmental policies can be designed while limiting the burdens such policies may impose.

Finally, countries can also do much more to align policies across many different areas, such as taxation, investment, land-use or sectoral policies, to be more consistent with environmental goals . Obviously, this is not easy, and more work linking the environment, environmental policies and economic outcomes is on the way.

Useful links

Pollution havens: Just a delusion? Christina Timiliotis, and Tomasz Kozluk, OECD Economics Department, on the OECD Ecoscope blog

Environment and trade: Do stricter environmental policies hurt export competitiveness? (Data, articles, interactive presentations)

Koźluk, T. and C. Timiliotis (2016), “Do Environmental Policies Affect Global Value Chains? A New Perspective on the Pollution Haven Hypothesis”, OECD Economics Department Working Paper N°1282

Sauvage, J. (2014), “The stringency of environmental regulations and trade in environmental goods”, OECD Trade and Environment Working Papers 2014/3