Cities – the cornerstone of development in Latin America

A brief tour through the outskirts of major Latin American cities is enough to show the large number of informal houses crammed into vulnerable neighborhoods – many of which have little or no access to basic services such as water or electricity. In more precise terms, 20% to 30% of the region’s population lives in informal settlements.

Street vendors or workers without formal employment contracts and without access to social security or any form of medical coverage are also a common sight in Mexico City, Buenos Aires, Bogota, Lima and São Paulo. Today, nearly half of the workers in Latin America have informal jobs.

If we add to this reality the age-old problem of getting around in the region’s major cities – which causes countless hours to be wasted in traffic jams – we have what experts refer to as the “triad of informality” (housing, transportation and employment), one of the main factors that explains the low rate of productivity and competitiveness in Latin America.

In fact, according to CAF’s latest Economy and Development Report (2017 RED), the situation in most Latin American cities has prevented the region from reaching the same level of development as more advanced economies.   

The good news is that the 2017 RED, titled “Urban Growth and Access to Opportunity: a challenge for Latin America,” states that it is possible to reverse this situation and acquire the economic benefits of urbanization in a region where 8 out of every 10 inhabitants live in cities. Therefore, over the next few years, Latin America must invest in creating accessible urban areas that will become drivers of growth and social inclusion. In order to achieve this goal, three specific aspects must be emphasized:

• Land use, defining where businesses and families are located in a city.
• The housing market, determining housing quality, availability and price.
• Transportation, in regards to availability and infrastructure, defining how people and goods move around in cities.

“If these three dimensions are efficiently integrated through coordinated public policy at the territorial and sectorial level within the urban environment, it should facilitate access to economic opportunities in cities, while also boosting their competitiveness,” said Pablo Sanguinetti, CAF’s chief economist and coordinator of the report.

Among the main impediments to reaping the benefits of urbanization is the condition of infrastructure, in regard to both transportation and public utilities, which is generally associated with restrictive land use regulations. The existing infrastructure has prevented cities in the region from absorbing the population influx and expanding in an orderly and sustainable manner, a fact that has favored the proliferation of informal settlements and inadequate urban transport.

Where transportation is concerned, the evidence shows that the mobility infrastructure in the region is insufficient and inapt compared with cities in developed countries, which hinders access to the better jobs that are available while at the same time preventing companies from gaining access to a better prepared workforce. According to the survey carried out by CAF for the 2017 RED, in cities such as São Paulo, Bogota, Mexico City and Lima, a quarter of the population spends at least one hour every day getting to work, while the average Latin American needs 40 minutes to get from home to work (not counting the return time). In this sense, 39% of Latin Americans use public transport to get to work, 22% private transport and 26% go on foot, in contrast to the figures for Europe where 23% use public transport, 54% private transport and 11% walk. Ninety percent of workers in the United States use their own transport.

To improve this situation, the 2017 RED calls for a public policy approach that makes people who drive cars and motorcycles responsible for the social and environmental cost of their means of transport.

Regarding housing, the 2017 RED underlines that many families in Latin America cannot afford housing. Indeed, it is estimated that it could take 30 years to pay off a 50-square-meter apartment at the average rate of earnings in several countries. The inadequacy of housing in the region can be seen, for example, in limited access to public services. The solutions proposed by the report include increasing flexibility in the real estate offer, the regulatory framework for land use, and building standards, as well as streamlining the bureaucratic processes for obtaining building permits and registering property. In addition, the demand side requires increased income generation and wider access to mortgages.

Governance

The success of measures taken in areas such as land use, transport, and the housing market depends largely on urban governance. Cities must have the institutional means to implement efficient public policy that adheres to transparent and participatory processes.

According to the 2017 RED, good urban governance is based on three pillars: Firstly, the balance between the complexity of the problems/policies to be addressed and the institutional processes designed to address them; secondly, the financial and human resources available; and thirdly, their political legitimacy (being accountable to the community).

Therefore, it is essential to strengthen institutions and the capabilities of the state in urban areas so that public policy can be properly coordinated and Latin American cities can achieve a new balance based on social inclusion and, ultimately, the well-being of the community.