World Bank financing for urban development

VA

W O R L D B A N K F I N A N C I N G F O R U R B A N

D E V E L O P M E N T

I s s u e s a n d O p t i o n s f o r S o u t h A f r i c a

P r e s e n t a t i o n t o t h e J o i n t T e c h n i c a l C o m m i t t e e , C e n t r a l

W i t w a t e r s r a n d M e t r o p o l i t a n C h a m b e r 1 16 J u l y 1992

PATRICK BOND AND IM2kRK SWILLING

IN TROD UC TION

After extensive preparation and consultation, the World Bank's Urban Mission has made a third visit to South Africa. Many exciting programmes are under consideration, as the Bank searches for a 'shopping list' of infrastructural projects to fund. But amidst euphoric predictions that South Africa will soon be reallowed full-fledged entry into international capital markets, a few hard issues and options for urban development are being ignored. This report looks briefly at some of these:

�9 What is the basis for foreign funding of 'basic needs' goods? �9 What are the implications, in terms of the costs, and the shift in control, of

such funding? �9 What is the broader environment in which the World Bank operates, and

how has it been changing? �9 What is the World Bank's record in urban projects (using Zimbabwe as a

case study)? �9 What is the World Bank's orientation on issues such as housing, land and

transport, with regard to South Africa? �9 Are there alternative funding sources that will be available once a democra-

tic system is established at the national level?

2 URBAN F O R U M 3:2, 1992

The role of the Bank in South Africa is already highly politicised, with a recent Business Day leader suggesting that as soon as interim government is confirmed, a commitment in excess of US$1 billion can be expected 2 (although in some discussions the World Bank has denied the practicality of such a large start-up loan). Taking on such a substantial amount of foreign debt may appear to be an international vindication of the struggle for non- racial democracy, yet there are serious problems that will simultaneously emerge.

T H E C E N T R A L I S S U E S

The most important issues to be addressed concern the foreign component of development finance. Consider the recent commentary of Nedcor chief economist Edward Osborn (as reported by the Financial Mail):

There are two fundamental difficulties with securing borrowings abroad: 'Firstly there is the public debt problem - foreign funding is not required to finance budgetary expenditure, but contributes to future fiscal burdens. Secondly these borrowings expose South Africa to the risk of currency depreciation, making borrowing more expensive.'... Osborn says the problem is compounded by bodies such as the DBSA and the Independent Development Trust also seeking finance abroad, when funding can be raised locally without the currency risk. 'There seems to be a mistaken view that foreign money is intrinsically better than local money."

Osborn's worries are magnified by a dire warning from Reserve Bank Governor Chris Stals, to the effect that South Africa could end up with a foreign debt of US$100 billion by the year 2000, more than five times present levels, and surpassing that of Mexico. 4 Worst of all, the effective cost of foreign debt, by Osborn's calculations (taking into account inflation, the declining rand, and weak commodity prices), is 26 per cent (as opposed to current government borrowing rates of closer to 15 per cent).

Yet for South Africa's most pressing 'basic needs' development goals, foreign financing should play a minimal role, especially if labour-intensive construction and production methods are employed. Foreign inputs are simply not necessary for a mass housing construction campaign, for example. Indeed it might be wise to gain acceptance of the principle that foreign- sourced financing should be linked directly to foreign-sourced inputs (typically advanced capital goods), and that these should be publicly reviewed and debated in order to minimise the foreign exchange component, so that Stals's prediction and Osborn's worries are not borne out.

The other central issue raised by foreign borrowing is the transfer of politi-

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cal control over an economy and indeed over basic aspects of governance. A former Bank and IMF economist, Davison Budhoo, argued as follows in his 1990 resignation letter to IMF Managing Director Michel Camdessus:

Tha t our programs, over the entire period of the Strategy, have failed so dismally to impact positively on the economic and financial conditions of developing countries is related to a simple fact that I think you would readily concede. You know, for the last five years we have been asking countries to transform themselves instantaneously, f rom what- ever they were before, to a homogenised, new packaged brand of free- wheeling capitalism, all elements of which are contained in our programs. As we implement thus our 'quickie' policy package for changing economic and political systems and ideologies in the Th i rd World, we find the following: The policy package conflicts fundamental ly not only with the financial stabilisation and economic growth objectives that we had promised to deliver through its implementation, but equal- ly importantly, and irrespective of conflict, the airy-fairy idea of changing economic and political systems overnight to suit our purposes just will not work. 5

Whether it 'works' or not, the general shift in control of a national, rural, or urban development strategy f rom the country of origin to Washington, DC, continues unabated. Unfortunately, such issues have not, to date, been openly addressed in South Africa by the World Bank or its local supporters. One reason may be the 'culture of secrecy' that permeates the Bank and IMF, according to Professor Stanley Fischer, former Bank chief economist (as reported by the Financial Times): 'The fund and bank were " immensely pow- erful" institutions which operated in developing countries "with few checks and balances. '''6

The Bank is not unaware of certain of the problems associated with its policies. An internal Bank report by the 'Wapenhans Task Force ' on portfolio performance concedes unsatisfactory project completion in 37,5 per cent of projects reviewed in 1991, up f rom 15 per cent a decade earlier. More than two out of five Water Supply and Sanitation projects, for example, were reported as having 'major problems'. In general, projects ran on average more than two years behind schedule. The Wapenhans report noted 'a sys- tematic and growing bias towards excessively optimistic rate of return expectations' when loans are appraised, and listed various other shortcomings: 'The pervasive emphasis on loan approval is not matched by equal emphasis on implementation planning and identification and assessment of major risks to project performance. Sensitivity/risk analysis is limited, and virtually no attention is given to macroeconomic risks ... There remains a bias for complexity - perhaps caused by the urge to include as many novel features as possible to secure a favorable management and Board response. ' In addition,

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the Wapenhans survey of Third World borrowers included specific criticisms of Bank staff along the following lines: '... the staff rigidly insists on as many conditions as possible, some of which reflect insensitivity about the political realities in the borrower country'; 'Bank staff know what they want from the outset and aren't open to hearing what the country has to say'; 'Consultants who aren't familiar with a country often impose technical solutions that may be inappropriate for it, reflecting the Bank's views and visions, not the country's'i 'the Bank changes its wisdom in the passage of time ... We saw the World Bank talking about import substitution in the sixties, then export promotion, then social problems, and then the environment'; 'after all the documents have been signed, the Bank can change philosophy again'; 'the Bank overpowers borrowers, and the country negotiating team often doesn't have the strength to resist'. (World Bank, Effective Implementation: Key to Development Impact. Report of the Portfolio Management Task Force, World Bank, Washington, DC, 1992, pp.ii, iii, 4; Annex. B, pp.2-4. Somehow the Bank still claims that 'The overall performance of the portfolio remains satisfactory'.)

In sum, all these kinds of problem are worth much more in-depth consideration, particularly in view of the changing international environment which has given the World Bank even more political and economic power over the past two decades.

C U R R E N T I N T E R N A T I O N A L E N V I R O N M E N T

Until 1990 the World Bank was absent from South Africa for a quarter cen- tury. 7 The intervening years witnessed an extraordinary increase in Bank power over developing nations, and a markedly changed world economic environment for Bank lending. In short, the following trends devastated many nations, leaving them at the mercy of foreign creditors:

�9 There were huge decreases in the market prices of primary commodities (minerals and agricultural output) produced by the developing world from 1974 onwards.

�9 The volume of most countries' external debt exploded in the 1970s, and although Third World indebtedness stabilised in the 1980s (as the net transfer of resources from North to South reversed on a massive scale), it remains, for the 1990s, an unbearable burden for most countries.

�9 The growth in the South's involvement in world trade slowed markedly from the early 1980s as severe protectionist measures were applied by the advanced industrialised countries.

�9 The growth in foreign direct investment in most developing countries dimin- ished dramatically during the 1980s, and in some parts of the world (such

WORLD B A N K FINANCING FOR URBAN DEVELOPMENT 5

as Africa) there was widespread multinational corporate disinvestmenc �9 Financial markets grew by leaps and bounds during the 1980s, followed by

signs of extreme fragility in the late 1980s and early 1990s. �9 What appears to be an inordinately long and debilitating global recession,

possibly depression, began in the late 1980s.

Each one of these trends has affected South Africa, some dramatically, and most (with the exception of financial market instability which raises the gold price) negatively. Some of the trends - such as rising Third World debt leading to higher levels of commodi ty exports leading to lower prices - can be traced directly to Bank policies. What , then, is a continued role for the World Bank in developing countries meant to accomplish? Promoting foreign investor confidence is, by most accounts, the pr imary reason for the Bank's and other foreign lenders being eagerly sought by the South African government, lead- hag elements of the private sector, and certain sections of the democrat ic movement.

However , such goals are questionable in the light of the history of South Africa's own development, and of the experiences of the successful East Asian countries. South Africa's economy became most balanced and diversi- fied during the period 1933-46, when international trading, investment and financial ties were at their weakest. Manufactur ing growth exceeded 8 per cent per year over the period, the fastest on record, and the black/white wage share also rose at the fastest rate recorded. 8 Import substitution policies were adopted, and a variety of goods were p roduced locally for the first time, under conditions that p romoted expanding skills, entrepreneurialism and all manner of linkages into the pr imary sector.

The same can be said of the success of the South Korean economy, which used principles of self-reliance and inward-orientation during the 1950s to build an industrial structure now envied the world over. Walden Bello and Stephanie Rosenfeld, in their widely-acclaimed work Dragons in Distress, argue that 'foreign investor confidence ' still has little or no bearing upon South Korea 's economy:

In terms of its impact on development , probably the most underesti- mated incentive has been the state's foreign investment policy ... Local enterprises were protected f rom foreign investors in those areas in which the state wanted to develop local product ion capability - in practice, nearly all areas of manufactur ing ... Korea is described by one pro-government publication as 'one of the few countries with highly reszrictive foreign invest_merit regulations.'9

There is the additional issue of global ecology, which at the recent Rio Summit attracted attention as one of the primary global trends that would adversely affect Third Wor ld development in coming decades. '~ The Bank's role was heavily criticised, partly on the basis of comments by a senior bank

6 U R B A N F O R U M 3:2, 1992

official, Lawrence Summers: 'I think the economic logic of dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that ... Under -popula ted countries in Africa are vastly under polluted. 'n

Yet another trend in the global system is the (purported) acceptance of democratic and participatory processes in development. In theory this means that the Bank is open to the viewpoints of non-governmental organisations (NGOs) and other potential critics. One Bank staffperson remarks that 'Beyond efficient management , "good governance" is the sine qua non for sustained African development ... The state in Africa must be deprivatised - and given back to the people ..,~z T h e Bank even formed an N G O - W o r l d Bank Commit tee as early as 1981, bu t the N G O Working Group side of the committee warned that development practitioners should not be fooled by rhetoric alone: 'It is one thing to make speeches and even institute new policies; it is quite another to secure institutional change.' The Group complains that

N G O s around the world continue to wimess widespread suffering too often caused by Bank-suppor ted programmes and polices that reflect little of the new rhetoric. Discussions within the Commit tee have been interesting and at times informative, but they have not been translated into basic changes in Bank operations. 13

Indeed, whether the issue is the environment or the macroeconomy, unfortunately there seems to be tittle recourse for urban opponents of Bank and I M F policies short of the ' IMF-riots ' that have shaken so many countries ' capital cities - and displaced so many governments, especially in Africa - over the past decade. TM In South Africa there is a difference at this early stage, in that the Bank teams have offered (and in some cases have arranged) to work with researchers from extra-parliamentary democrat ic organisations. However , it is not wise to have 'raised expectations ' about the medium- and long-term potential for involvement and participation in Bank programmes by civic associations, local authorities or others with interests in urban development. Tomlinson notes that the Bank's approach is towards

'citywide policy reform, institutional development, and priority investments ' which serve 'broader objectives of economic development and macroeconomic performance ' ... We should note that there is no mention of a proactive economic role for local agencies and also that community organisations are only considered in relation to the social dimensions of the relief of poverty (emphasis added).ls

Finally then, the changed international environment since the Bank last made loans in South Africa requires a hard look at 'good governance' , always a

WORLD B A N K F I N A N C I N G FOR U R B A N D E V E L O P M E N T 7

highly contested notion. T h e internal political relationships within nation- states, and between these states and their societies, have often reinforced World Bank penetration, for different reasons in different places. The macroeconomic populism of post- independence (often post-qiberation') regimes was mediated through neo-colonialism and in the process was t ransformed into authoritarian politics. The Bank's turn to 'democracy ' , after all, followed years of Bank financial support for dictators. Dictator-economics have more recently been legitimised by a free-market ideology which panders to the dis- course of international finance and the New Right global political climate. In practice, beleaguered political elites decided to 'buy' themselves out of trouble by going for (often unrealistically determined) development projects using easy borrowed money. W h e n this turned out to be a chimera, elites resorted to coercion to stay in power. (In some cases a vicious cycle emerged in which debt-financed military purchases were required to repress angry populations and hence to maintain political stability, which is in turn required to maintain a decent credit rating.)

Naturally this approach failed to resolve economic crises, and further aid and debt relief for impoverished nations were linked to 'liberalisation' in the name of ' transition to democracy ' , 'governance ' and 'participation'. T h e result of this is a new crop of 'democrat ic ' regimes caught on a t ightrope between delivering goods to their newly mobilised constituencies, and falling into austerity demanded in Bank-imposed structural adjus tment programmes. As the state slims down in the process, so new social movements and N G O s are emerging with non-statist agenda - hence the new 'civil society' debate. However, it is by no means certain whether fragile African poli- ties can withstand liberalisation, m u c h less establish democracy under conditions of sustained economic crisis. (In Africa the Bank's new political rhetoric is counterintuitive, Loxley argues, since 'the economic liberalisation advocated by both the IMF and the Bank is rarely ever accompanied by political liberalisation. Some would even go so far as to speculate that rapid economic liberalisation after years of pervasive state intervention might generate political pressures in Sub-Saharan Africa which could only be man- aged by an authoritarian state.' Loxley, J., T h e IMF, the World Bank, and Sub-Saharan Africa: Policies and Politics. In KJ . Havnevik (ed.), The I M F and the World Bank in Africa. Uppsala: Scandinavian Institute of African Studies, 1987, p.53.) And even where democracy can be established, the question remains whether the new regimes (in Latin America, for example) can extricate themselves f rom Bank prescriptions and thereby serve more than the top ten percent of the populat ion - or, more likely, whether the developmental rhetoric of the World Bank succeeds in seducing the next generation of elites into a new era of technocratic foreign exchange-driven development projects with all the pitfalls of the past. The experience f rom Zimbabwe, as one example, is not encouraging.

8 URBAN FORUM 3:2, 1992

T H E B A N K I N Z I M B A B W E

It is useful to consider at least one set of experiences of the developing world, notably from Zimbabwe, which in addition to sharing with South Africa the same leader of the Bank Urban Mission (J. Racki), also witnessed somewhat similar economic and political conditions and processes leading to independence in 1980. Indeed, some of the pitfalls of foreign-sourced development finance are most obvious in Zimbabwe's urban system, and in particular with reference to local housing, land, services and infrastructure, and transport policies adopted under pressure from the international financial community. By examining issues in urban and urban-rural segregation, as well as the urban housing programme (which is responsible for nearly 70 per cent of the Bank's forthcoming urban development work in Zimbabwe), the general themes become clear.

Most importantly, the Bank's Urban Mission underplayed the problems that would plague Zimbabwe's cities: 'Our recommendations are, indeed, quite conservative, stressing the need for adaptation or innovation where this appears necessary, and the need for alert maintenance of existing practices where such maintenance will not be at all automatic. '16 As a result, in part, of the Bank's 'quite conservative' approach to the enormous problems facing Zimbabwe at independence (problems rather similar to South Africa's), the country's urban crisis deepened. As just one example, the Bank ignored the necessity of unifying Harare and its Soweto-style satellite Chitungwiza. 17 Today, many observers are predicting 'IN[F-Riots' for Zimbabwe. TM Notably, the underlying trends preceded the current drought.

The central problem is that the Bank miscalculated the nature of the urban system itself. In its main document, the 'Urban Sector Review', the Bank claims that Zimbabwe's urban crisis is 'a stark representation of economic dualism based on historical neglect for development and on reservation of the better lands for white ownership.' (Dualism is a well-worn analytical tool of modemisation theory, used in practice in Southern Africa to attempt to suggest that poverty stems from lack of access to markets, which are usually racially- determined, and that solutions to poverty must therefore involve introduction of markets regardless of whether people have the effective demand necessary to engage in market transactions.) Yet two paragraphs later, there appears the contention that

For a country at Zimbabwe's level of development, the spatial distribution of towns is unusually favourable. All towns of 15,000 persons or more lie on a main line of rail or on relatively short branch lines, and, for the most part, the main towns are well disbursed ... The location of towns relative to the concentration of populations is also fortunate. 19


This analysis is profoundly flawed, first because there is no mention, much less incorporation, of the relationship between the commercial and peasant agricultural sectors, and hence no sense of the processes which sustain Zimbabwe's glaring urban-rural inequality. (Instead, the inequality between rich and poor sectors is supposedly based on 'dualism' and hence, in the Bank's view, lacks a mutually-reinforcing internal relationship.) Second, the analysis is flawed because it is simply incorrect to suggest that existing towns are appropriately located in population centres. It is true that the most densely concentrated areas of Zimbabwe are the crescent of good agricultural land directly north and north-east of Harare and the area just north o f Mutare, but the next most densely populated areas are far f rom major cities or even

towns of more than 2 500 people) ~ Such analytical errors have major policy ramifications:

Although there is a desire on the part of some Government officials to create new towns in the communal lands, this is unnecessary and undesirable ... The heaviest concentrations of populations in communal lands are located near the present urban axis; it will be much easier to move the people to the towns than to move the towns to the people ... from experience in one country after another, the process of trying

to build new towns, which do not arise spontaneously, is known to be very difficult, expensive, and usually ineffective. 21

Partly as a result, very little creative work on decentralisation of the economy was undertaken in Zimbabwe, = in spite of a 'strong commitment to decen-

tralised planning', according to Wekwete:

The prevailing economic crisis has meant that the central state is relatively weak itself, which in turn limits the scope for decentralisation. In most cases, pronouncements in the form of laws and directives [for decentralisation] are rarely effective because there are few resources made available to make decentralisation effective. In the case of Zimbabwe there is a commitment to provincial and district planning, but mechanisms for strengthening resource allocation and transfer to territorial levels are limited. In many countries this has become a

vicious circle of decentralised pover tyJ ~

Within urban areas, the effect of the de facto laissez-faire approach was increased rates of migration from unviable rural areas, and intensified urban crisis, particularly in housing. The Bank downplayed the problems that were

arising by the time of its 1983 report:

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Zimbabwe's cities and towns have coped successfully with the demands that have been placed on them. Housing shortages exist for lower income households, but these have for the most part been reflected in overcrowding rather than squatting or illegal subdivision... 24

Just weeks after the report was issued, the Zimbabwe central government cut housing funds by 65 per cent. Within a few months the government raided the Harare suburb of Epworth and forcibly removed 50 000 illegal shack- dwellers. According to one report, 'In late-night and dawn raids, the police and army arrested squatters throughout Harare and took them to Chikurubi Prison; their homes were burnt or bulldozed. '2s

The Zimbabwean government was at that point committed to cutting back state-constructed housing. During the 1980s, an annual average of just 1 350 low-cost homes were built by government, in comparison with an annual average of 5 200 during the previous five years of Rhodesian Front rule. 26 This was in part because from the outset the Bank's Urban Mission argued there was in fact sufficient financial capacity in Zimbabwe's private sector to meet the country's housing needs:

It is, therefore, not overly ambitious to aim at getting up to scale in the short term so that house creation equals housing needs in all urban areas. This will, however, require policies that encourage private sector savings institutions to enter the low-income housing field. '27

Such hopeful evaluations were not, however, borne out by reality. Again, the Bank's problem stemmed from a misreading of the Zimbabwean urban economy. The Bank's primary concern was clear:

The longstanding, financially sound practice of full cost recovery for housing and urban infrastructure may be endangered under the political pressure to provide subsidised housing; if such a course evolves, it could threaten the programme's viability and ability to expand. Therefore, a housing policy which preserves the tradition of cost recovery must be designed quickly. 28

The lead role of private sector building societies for low-income housing, and with cost recovery (no subsidies), reflected early 1980s macroeconomic conditions in which the societies had high levels of liquidity: 'A case could also be made for involving the building societies in low-cost housing simply to preserve their dynamism during the period of a depressed upper-income housing market. '29

There were far too few people, however, who could afford the formal housing built in Zimbabwe during the 1980s. The Bank solution was to pro-

W O R L D B A N K F I N A N C I N G F O R U R B A N D E V E L O P M E N T 11

mote site and service schemes in a manner orientated to increasing building society involvement in high density areas. 3~ The Bank was particularly inter- ested in a self-help site and service scheme at Glenview, a distant south-east- erly suburb of Harare, which was begun in 1978 by the Rhodesian Front government and entailed the provision of minimal services to 8 000 plots. The Bank judged Glenview 'very successful', with the reservation that the municipality financed too much of it, namely the full cost of infrastructure (a Z$1 000 loan was provided to residents for building a house).31

In contrast, in subsequent Bank schemes involving the City of Harare, full cost recovery principles were applied. Eligibility in these schemes, which began in 1985, was originally limited to persons with monthly incomes of less than Z$400 per month (with 70 per cent allocated to those earning less than Z$200 per month).32 A year later, facing the reality that the poor had no way to pay for even a basic site, this was adjusted to a target group between Z$190 and Z$400 per month. 33

In early 1986 the first sites of the new scheme were readied, again in a high density suburb on the far south-western periphery of Harare (Glen Norah).34 In any case, Beverley was the only building society participating a t the early stages, and although it was expected to approve 112 applications per month, after four months had still not approved a single one) 5 In fact, the building societies ultimately required a huge government subsidy to achieve higher participation levels, and these ultimately came in the form of the tax-free 'Paid-Up Permanent Shares' which government allowed the societies to offer depositors from late 1986. 56 But by then the societies were unable to provide loans to borrowers earning less than Z$250 per month (because of rising construction costs).

The societies' front-end charges also proved excessive for many purchasers with meagre savings. And their stipulation that a formal transfer of property title precede disbursal of the loan funds caused further bureaucratic delays. As the city's housing director concluded,

These problems are magnified when beneficiaries are mostly full-time workers from the lower income group, who lack the time or the sophis- tication to fmd their way through the complex Municipal Building Society and conveyancing procedures. Even after the mortgages are eventually registered, beneficiaries have difficulty in constructing their houses because the largest building society insists that mortgage draw- downs can only be made after progress in construction.

k is apparent that building societies have overestimated their capacity to handle high density housing on a large scale. While the experi- ment has not failed, it has highlighted the need to vigorously explore ways of simplifying the mortgage processes to meet the needs of the low-income target g r o u p . 37

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Yet even that target group soon came under pressure, and gave way to higher- income raiding:

The average mortgage loan of Z$6,384 is now clearly insufficient to enable a beneficiary to pay for his stand and erect a four-roomed house within eighteen months. If the objective is to have as many houses built in the shortest time then a more flexible approach to the present income ceiling is requiredY

Similar schemes supported by United States AID and the United Nations Development Programme were attempted in the mid 1980s in Kwekwe and Gum, again using Beverley Building Society. But as Rakodi and Mutizwa- Mangiza report, 'The housing finance component of the project had a number of teething problems, as mechanisms were devised to satisfy the building society's administrative and collateral requirements. '39 The World Bank also used Z$9,6 million from the Commonwealth Development Corporation to sweeten the pot for further involvement by the reluctant building societies.

In sum, while there were rather marginal improvements in some sectors of housing supply through the international agencies' programmes, in part because of innovations and fairly extensive government intervention in the financial markets, these fell far short of meeting needs, for they consistently failed to confront the market as a barrier to housing delivery.

In May 1989, the World Bank issued its second urban project plan, an enormous project ultimately costing an estimated US$580 million, of which US$248,3 million would go towards housing finance. The Bank aims to contribute US$80 million in loans to the project, joined by a host of other international development finance agencies including those of the United States, Britain, Sweden and the Commonwealth.

In addition, the Zimbabwe government is expected to contribute US$234 million, and building societies US$242 million (earned through the tax-free accounts), the latter two in local currency. Ignoring the subsidy to the building societies, the project would purportedly be on a full cost-recovery basis.

The proposed project would reduce the need for central government resource transfers to local governments by replacing public with private sector sourced housing finance and by improving local authority financial management, as well as by investing in social and economic infrastructure targeted on poverty alleviation and equality. This is evident in the nearly 70 per cent of total project costs allocated for the development and financing of housing and housing-related infrastructure, which, it is estimated, will benefit approximately 500,000 people under the project (about 65 per cent of all new urban residents during the project period) of whom 50 per cent will be at or below the urban poverty threshold. In addition, 70 per cent of the housing supplied under the


sector program would be affordable to households at or below the 30th percentile of the income distribution of urban residents (emphasis added) .40

In addition to disempowering local authorities, the main forms of condition- ality in the deal were more audits, a new revolving fund to link incoming funds to their end-sources, and new procedures for monitoring the capacity of the building societies to provide the required mortgage finance. T he latter item provided an appropriate requiem to what is seen by many practitioners in Zimbabwe as a hopelessly grandiose and overblown scheme. With the claim that housing delivery through such market-orientated mechanisms will reach the 30th percentile, the Bank raises expectations in a manner reminis- cent of its earlier claims that the backlog of housing could be addressed through the building societies.

The plan is especially unrealistic considering the Bank's simultaneous insistence that in terms of a new Economic Structural Adjustment Programme, Zimbabwe must seek to maintain positive real interest rates. Following a February 1991 interest rate increase, the building societies sharply restricted mortgage lending, and one society simply refused to take new applications. Before the year was out, a Z$200 million backlog in applications had developed. As the chairperson of the Association of Building Societies pu t it:

The measures are having the effect of substantially reducing the avail- ability of funds for home ownership at a time when the building societies were to play a major part in the provision of finance for low- income housing under the second World Bank urban development project. ,41

In other words, what the Bank was doing at a macroeconomic level under- mined its work at the microeconomic level. 42 The Bank macroeconomic programme itself came under extreme criticism, even by the Bank's own consultants. 43 Even Zimbabwe 's financial markets - which were ultimately meant to support urban housing finance through securitised loan pools designed by United States A I D 44 - - were thrown into disarray in late 1991 by the Bank. The Zimbabwe Stock Exchange crashed by 65 per cent between September 1991 and March 1992. By all accounts, the proximate cause was a new round of Bank-inspired interest rate hikes. According to the Financial Gazette,

Added to [the interest rate increase] was the World Bank's insistence that the Zimbabwe dollar was still over-valued and that the country should act accordingly. The Reserve Bank duly obliged with a quick succession of lower exchange rate f i x e s . 45

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This reinforces the earlier comments that it is impossible to consider the role of the Wor ld Bank in urban development without also understanding the general approach to structural adjustment, and its implications for urban social and political unrestr 6

T H E U R B A N M I S S I O N S T O S O U T H A F R I C A

Several Bank staff members and leading international consultants comprising 'Urban Missions' spent time in South Africa in April and N o v e m b e r 1991 (as well as July 1992), and produced the voluminous Urban Aides Memoire setting out research tasks and hinting at likely areas of future Bank involvement.

In general, the Aides Memoire exhibit the characteristics of the market-led approach to urban development so evident in the Z imbabwe case. T o repeat, that approach is a dualistic one, in that it asserts the need to introduce market mechanisms to what are currently non-market determinations of resource allocation. Since the late 1970s, the South African government has also perceived the growing urban housing crisis in dualistic terms, and to repent for past biases has set in mot ion a series of programmes aimed at inserting market rationality into apartheid residential l o c a t i o n . 47

Yet it would be a mistake to brand the Wor ld Bank programme as unidi- mensional, promoting free-market economics with no regard for historical circumstances. As the Bank comments in its second Urban Sector Aide Memoire,

It is critical to recognise the importance of dealing as directly and forcefully as possible to remove the vestiges of apartheid as it has influ- enced the performance of the housing sector, so as to bring about the goal o f a well-functioning, non-racial society and economy. This will involve more than just changing the overt mechanisms o f apartheid and then 'levting the market work'. It requires an active role for government to help markets to work in the interests of all citizens and when, as is likely to be the case for some time, markets are unable to provide for the needs and best interests of the most disadvantaged, it requires active intervention in the form of well-designed systems of transfers J*

Nevertheless, the Bank is geared to a profoundly market-orientated analysis, 49 and suggests that the rote of government is 'primarily of enabling and facili- taring the activities of the private sector 'J ~ T he Bank immediately frames the question of what is wrong in the urban South Africa issue in its own market- orientated terms: 'The story of the urban sector that is emerging is one char-

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acterised by significant inefficiencies across a broad spectrum of the urban economy.' 51

Thus the Bank sets out to identify and, through market policies, eradicate apartheid inefficiencies. Some policies promoted in the ftrst Urban Sector Aide Memoire, for example, include making private sector financial institutions 'the primary providers of mortgage lending'; cities should develop without depending on fiscal transfers from the central state; and electricity and water supply must be decentralised. 52 Urban migration should not be regulated, nor should decentralisation to poorer regions and rural areas be encouraged. 53 (The environmental implications of these policies are ignored.)

One gets the sense that formal apartheid and its legacy is in fact all that is wrong in urban South Africa: 'Effective demand is low for the black population because of the effects of a variety of apartheid policies that have squeezed household budgets and quashed incentives to spend voluntarily on housing improvements.' 54 The attention to the legacy of apartheid (and its distorting effects on markets) is welcomed, but it is beyond comprehension that structural effective demand problems can be so easily dismissed. The dreadful state of South Africa's economy - the present depression (amount- ing to the longest downturn since the early 1900s), its uneven impact on rural and urban people, and the likelihood of further massive retrenchments in the years to come - goes unmentioned as contributing to lack of effective demand: 5 The implications of this approach extend throughout the urban sector. We begin by examining the Bank's report on housing.

H O U S I N G

The key feature of urban housing, according to the Bank, is the spatial segregation of different racial groups within cities, rather than the absolute shortage of decent urban housing or other specific income and occupational class- related factors currently disempowering black consumers. The Bank makes note of the important link between macro-economic growth and the housing sector, correctly emphasised as being part and parcel of the objective of housing policy reform. Yet the Bank suggests that 'possibly too much is being made of the possibility of a "kick-start" of the economy based on leveraging public capital with private capital to provide housing to the poor'. 56 Furthermore, the Bank argues that the optimal macro-economic impacts can only be made if housing policy reform takes place in the context of a strategy to concentrate development in the cities. The implications for rural and non- metropolitan regional development are ominous.

The Bank makes useful comparisons with the housing situations of other countries which are said to be 'at a similar stage of development to South Africa'. The South African housing situation is then critiqued for being 'out of sync' with what is assumed to be 'normal housing processes' in these other


countries. The assumption of 'normality' elsewhere is not justified or demon- st_rated in the report, and reveals some of the value considerations of the authors. Thus , while the comparative data are useful, they have not been coherently worked up into an analysis which could inform rigorous policy research.

Indeed the Bank defines away a good part of the South African housing crisis, namely the 'backlog' of housing which in urban areas alone is estimated by the CSIR (in mid-1991) to be in the order of 2 million units (two- thirds current shack-dwellers, one-third current hostel dwellers). T h e Bank says:

to use such figures as the basis for establishing numerical targets for housing policy can be extremely misleading. Defining shortfalls in terms of inadequate basic services, insecure tenure, and a limited range of spatial choice is likely to come closer to addressing the mos t pressing housing needs of the majority of South Africans at the present t i m e . 57

The Bank's arguments are that for blacks, ' low rents, and low willingness to pay for housing, are contributing factors to the comparatively low ratio of housing investment to G N P ' . 58 However , the definition of 'low' rent payments cannot be made purely on quantitative terms, as the Bank does, in view of the extremely poor social and environmental conditions (from political violence to the rampant spread of preventable diseases) which township residents must suffer. Such conditions are not taken into account in the Bank's calculations of 'low' rents, calculations made on the basis o f the atom- istic consumer in an ideal-type dwelling isolated from the social process. Moreover, the Bank's argument that blacks exhibit ' low willingness' to pay more for better housing is a moral judgement that is neither calibrated to residents' capacity to pay, nor to what is actually available in an affordable price range.

Moreover , the Bank explicitly attacks state regulation of the black rental housing sector, and also assumes that the black populat ion has contr ibuted minimally to home improvements. Both these points o f departure are questionable. It is c o m m o n cause amongst housing practitioners that a large state- owned or regulated rental housing componen t has been, and will be, a crucial feature of housing for blacks and whites. Such logic threatens, for example, the right of the municipalities of the Central Witwatersrand to develop their own rental stock, as well as to regulate rent levels (for example, Johannesburg rent control, a policy adopted to suppor t returnees f rom World War II). Fur thermore the level of home improvements on rental proper ty in South African townships is known, in qualitative terms, to be very high, notwithstanding the lack of secure tenure.

The Bank wants blacks to pay more for housing, yet argues against redis-


tribution of investment funds through any non-market mechanisms. In fact, the best hope that disadvantaged communities have to get hold of financing for large-scale development is aggressive post-apartheid state action against institutional investors who are currently using hundreds of billions of rands in the 'paper-chasing-paper' phenomenon. But the Bank argues that 'it makes little sense to think of so-called "prescribed investments" in housing', because, in part, 'it is likely to be unnecessary'. 59

To prove this, the Bank cites a number of market-orientated efforts that are helpful in putting conventional single-family mortgage bonds into the hands of township residents. These include innovative pricing mechanisms which load the back end of the loan payment, securitisation of bonds, col- lateralising bonds through pensions, group credit schemes, privatisation of publicly-owned housing, and community-based financial institutions.

In fact, with the exception of the last, all have been already tried in South Africa, and as a result, given their failure, do not represent anything approaching a 'solution' for any but those who should, in theory, already qualify for conventional bonds. The Bank's ftrst Aide Memoire advocated 'making greater efforts to persuade the private financial community to extend mortgage financing to well-located housing for the upper end of the black market, with which the private financial community, and especially the Perm, has had genuine success in mortgage lending'. 6~ A more realistic view was expressed in the second Aide Memoire, in which the Bank openly acknow- ledges that under present circumstances, 'even the existence of a Mortgage Loan Guarantee Fund, which can ensure 30 percent of potential loan losses, is ineffectual in inducing banks to lend for housing'. 6~

In contrast, community-based banking is one approach which should gain support from serious housing practitioners and policy-makers (though there is no need whatsoever for foreign sources of finance given the liquidity of the financial markets). The Bank, however, does not provide any ideas on financing such a bank in an economically-viable manner. 62

The primary area where the Bank could have provided information and advice on innovative housing finance mechanisms would have been for women and women-headed households, who could be immensely supported through even simple changes in discriminatory institutional arrangements (legal status and access to credit). But the Bank completely ignores women in its analysis.

Notwithstanding some rhetorical commitment to community participation in urban policy design, the 'community' is ignored as a 'key participant in the housing sector' and, tellingly, replaced by 'consumer'. 63 Yet in acknowledging that banks have turned off the supply of credit to townships (in spite of South African arrears rates in November 1991 'lower than the reported mortgage arrears rate in either Thai or Malaysian banks, where profitability is considerable ...'), the Bank then calls for community support of the sort that Civic Associations of the Transvaal began last year: 'agreements between


lending institutions and communi ty members of the townships' which will include greater communi ty 'presence and provision of collateral services to borrowers than is now the case, in exchange for banks being able to enforce provisions of lending agreements ' . 64 (What the communi ty group gets out of the deal is left to our imagination.)

At a national level, the document sets out the need for clear policy goals, and includes as one of them the need to design 'systems of transfers' to deal with market failure. The Bank does not specify precisely what is mean t by this term, but clearly sees it as a form of intervention in the market. The Bank's pr imary goal is economic - 'enabling markets to work' - and while this is not objectionable for those markets that can provide basic goods to those who need them, the housing market is simply failing in that task at present. Thus the Bank's strategic approach is notable for the complete absence of social goals for its housing policy position.

T h e report emphasises the importance of the location of housing (vis-d-vis jobs), as well as of increased degree of choice, transferability of property rights, and so forth. However, the emphasis on the collateral value of housing tapped by households in order to generate income and employment is, in the current context, far too a simplistic view and ignores some very real con- straints faced by the poor. This latter point raises questions about how the Bank sees the housing policy stimulating economic growth. It appears that is to be largely through a greater financial contribution of the urban poor to investment in this sector, which given the existing effective demand con- straints, is somewhat unrealistic.

In sum, recommendat ions for extending private tenure as broadly as possible fail to deal with the prima facie evidence that this might not be the most appropriate tenure from which to construct a sustainable residential and development process for the poor. This is nowhere more clear than the Bank's t reatment of housing subsidies. T h e Bank adopted a position in the first Aide Memoire that the I D T R7 500 subsidy scheme for site-and-service development was flawed on grounds that 'Proposed levels associated with them appear to be higher than would be desirable if the goal is to reach the broadest population of eligible households' . 65 (Progressives have criticised the I D T on opposite grounds, namely that electricity should have been provided as a basic 'right' alongside other services, and that more funding should have been made available for housing consolidation.) In ha rmony with progressive concerns, however, the Bank also criticised the I D T for the potential it creates for private sector misuse of land and even graft (using Indonesia as an example). In the second Urban Sector Aide Memoire, this criticism is markedly toned down in the interests of finding a more 'flexible' subsidy: 'one might consider a subsidy enti t lement of either a smaller amount , or even a larger amount payable over an extended period of t i m e ' . 66 But the flexibility is aimed at subjecting the capital subsidy to even more market- orientated outcomes (a so-called 'housing account').67

WORLD B A N K FINANCING FOR URBAN DEVELOPMENT 1 9

What about the supply of housing? The Bank report notes that the housing supply system should be flexible in responding to changes in demand, i.e. 'housing supply elasticities' should be high. The report also makes the point that in economies where the market is the primary distribution mechanism, and where state intervention is peripheral to the distribution and supply processes, housing supply has been shown to be flexible and consequently housing prices have been low relative to incomes. The corollary is that in cases with a high intervention by government (in enforcing standards, land use, finance, etc), supply has been relatively inflexible and prices have been relatively high. But the argument does not explain how, in the case of South Africa's almost unregulated black housing market, prices have remained astronomically high, standards and workmanship have fallen, and consumer protection is at an all time low.

To the Bank's credit, there is attention given to the building materials industry's much-maligned competitiveness and responsiveness. While the Bank correctly pinpoints building materials concentration as a major factor inhibiting competition, the conclusion that this can be reduced to over-regulated markets is simplistic. While there is a proposal that it might be necessary to 'break up' building materials cartels, this proposal is simply tacked on at the end of this section. Given the Bank's stated intention of avoiding too much state intervention in the market, it is unclear as to precisely how the break-up process would take place.

Ultimately, the Bank report is short on ideas as to improvement of housing supply and delivery. There is no mention of the need to examine the nature of the existing delivery institutions with the intention of stimulating the emer- gence of new, more appropriate ones. This is hardly surprising, however, given that the Bank has implicitly accepted the site-and-service product and the private tenurial systems as given, cast-in-concrete goals.

The Bank also has a set of proposals for an 'appropriate institutional framework'. While the Bank's proposal for a single, ministry of housing is to be welcomed, absent is any institutional structure through which local communities can exercise some say over the steering of policy in their areas. Given South Africa's growing (if somewhat contradictory) experience with CDTs, this is indeed a glaring omission.

In sum, the Bank vision of post-apartheid housing is seriously flawed in many key respects, and this is particularly worrisome in view of its influence over the De Loor Task Force Report. 68 The Bank's is an economistic rather than a humanistic view of housing. Indeed, for the urban poor, the Bank implies that the best policy is simply to create incentives to spend more on housing than their current levels. While the Bank continually stresses the need to develop clear policy goals and principles, it nowhere mentions that housing should be a human right. Nor does the Bank adequately confront decentralised towns, outlying regions and rural areas, whose own crises have much to do with the pressure that cities are presently under.


L A N D

The Bank's arguments on urban land are also biased towards efficiency as the primary criterion. The Bank argues that poor people are situated on the periphery, far f rom work opportunities, which leads to high transport costs and long commuting times. Expenditure on housing and urban services is therefore reduced and poverty is entrenched. The unemployed are often unable to afford the transport necessary to find employment . High commut - ing time reduces the time available for part-t ime or evening studies as well as family time. The viability of informal trade is reduced as distance f rom more affluent areas means that there are fewer income-generating opportunities. Transpor t costs incurred on the periphery offset the saving of obtaining cheaper land. High transport subsidies continue given inefficient land-use policies. Fragmented and dispersed urban areas do not maximise the use of bulk infrastructure. It would be more cost effective to tap into existing under- utilised service systems than to expand the system on the urban fringe.

This part of the analysis is correct, no doubt. Yet while much o f the information provided by the World Bank team is useful in technical terms, the realities of underdeveloped areas seem to escape the Bank. 'Western ' planning school practices are applied to many of the urban mismanagement problems. The underlying principle remains to promote an efficient urban structure, and as a result the Bank does not deal adequately - or in some cases, at all - with retribution for the legacy of apartheid injustices such as:

�9 Discrimination against people who could have long ago afforded proper ty or rented proper ty in areas which they were forbidden to live.

�9 Forced removals of people living in the 'wrong' Group Areas. �9 Prohibition from participating in the housing market. �9 Prohibition from participating in business in white Group Areas where

most economic activity was occurring.

But beyond apartheid, there are any number of problems in urban land use that must be raised. Unfortunately, the Bank attributes causes for the present residential land shortage to the state alone. There is no mention of the power of developers and financiers to 'overbuild' the office rental sector. (Much of the land now used for currently vacant office buildings could have been utilised for low-cost housing or multi-storey walk-ups, had the market not intervened.)

As a result, the Bank does not offer a full-fledged densification strategy. Low density suburbs are given short shrift, as the Bank deals only with city centres for redevelopment. The planning concepts used by the Bank, drawn from classical central place theory, steer the Bank towards the south and central parts of Johannesburg as sites for densification, as opposed to other parts of the metropolitan area where land underutilisation has been identified. T he


Bank's town planning language is unclear in the South African context, for it is questionable whether densities are really high in township areas. African townships are not considered for appropriate forms of redevelopment or den- siflcation, even though the legacy of one unit per plot in South African townships has been a major contributing factor to urban sprawl and an inefficient city structure.

T R A N S P O R T

Meshack Khosa, whose recent Oxford doctoral thesis analyses the taxi industry, records three general critiques of the Wor ld Bank study. First, there are numerous articles, papers and theses that were not used in the transport report, and those that were - especially government reports and market research commissioned by the transport industry - were written for a particular audience. As Khosa argues, the need for 'a careful reading of this litera- ture cannot be overemphasised' . Khosa continues:

The second criticism is related to its philosophic assumptions. Free market enterprise is uncritically accepted as an agent for urban change and societal transformation. On the other hand, the central state is seen as obstructionist. Although the document is filled with populist phrases such as 'public participation', ' empowerment ' , etc., such terms should be scrufinised. Is this genuine or just a colonisafion of the populist language? ...

The third criticism relates to gender and racial bias. T he Wor ld Bank's report is silent on how the needs of marginalised groups, e.g., women, the elderly and the handicapped, can be met ...69

Khosa applauds the Bank's recognition that 'privatisation, deregulation, devo- lution as suggested by the state cannot address the transport crisis '] ~ However , he takes aim at Bank ideas for ' reducing the need for subsidies' on the grounds that 'Cutt ing subsidies without regard to wage levels, inflation, etc. will be to court disaster'. 71

Khosa welcomes the Bank's invitation for a ' transportation forum' but argues that 'The challenge facing planners and politicians is to recognise the contradictory function of t ransport as a commodity, reproducer of labour power, social control mechanism, and restructurer of space'. 72 By treating urban transport merely as a commodi ty , the Bank leaves the other functions to the whims of the market. As the market shrinks in size - there are currently significant declines now under way in the taxi industry, automobile industry, public subsidy system, rail t ransport safety and public use, and bus transport - it would appear that the other functions (and progressive possibilities) of transport too will also be allowed to shrink.


One example of the dangers of treating transport as a free-market good is in the taxi industry, which exhibits signs of 'externalities' such as chronic dri- ver speed-up and even taxi-wars over turf. T h e Bank recognises this, but there is no guarantee that it will a t tempt seriously to address the phenomenon of externalities except through limited forms of regulation.

T h e Bank also seems infatuated with ' empowerment of black entrepreneurs'. Khosa's response: 'Glib support for "economic empowerment" should be countered with the fact that the capacity for black entrepreneurs to expand is severely curtailed by monopoly capitalism and the legacy of apartheid trading ... T h e taxi industry provides ample evidence that attracting black entrepreneurs into a contradictory and crisis-ridden system often draws them into conflictual relationships with other members of the communi ty . ' He cites

low returns on investment, low levels of liquidity, steady build-up of debts, defaults on payments, and an increasing rate of repossessions. The World Bank suggests two actions. First, that the level of supply within a given area be controlled (by whom? - some taxilords are already doing this unscrupulously of course!) and secondly, that new markets be found for the kombi taxi service (diversification and for- malisation of the taxi business).73

Khosa concludes his review of the Bank urban transport philosophy by predicting the likely outcome of the Bank's suggested policies:

Within the taxi industry, two features are likely to be reinforced. First, the practice of 'redlining': there is evidence that some financial institutions are already encircling the taxi industry (in places like Soweto) as undesirable and risky to support. Minibus sales have virtually come to a standstill in some areas, f rom some 600 per month three years ago to less than two dozen per month this year. Secondly, financial institutions and speculators might have material interests in devaluation which is linked to redlining and repossessions of vehicles. Repossessed vehicles, whether surrendered or forcibly retrieved, are refurbished and sold by other would-be operators, often at inflated prices. TM

Khosa's own recommendat ions for the taxi industry - 'establishing co-opera- tive taxi systems and lift clubs which might allow communi ty control of capital' as the beginning of a real solution to the transport problems facing black South Africans 75 - are not the sort of ideas we would find in the World Bank report, and the latter is impoverished as a result.


L O C A L GO V E R N M E N T A N D S E R VICES 76

Three components of the most recent World Bank Urban Aide Memoire are relevant to this part of the review: municipal services, municipal finance and institutional/structural aspects of local government. South Africa's political transition comes at a time when the Bank's urban policy focus has shifted in two ways: there is a move away from isolated projects unconnec ted to wider urban systems; and the cities rather than the rural areas are now being seen as the primary arenas of intervention and economic productivity for reasons related to the massive urbanisation rates over the next twenty years.

As argued earlier, the Urban Mission was established to assess the urban system, focusing in particular on a) the areas of greatest need, b) the avenues through which lending can take place, and c) the financial capacity (institutional and potential sources) in the urban system required to sustain a debt financed development programme.

The municipal services chapter of the Aide Memoire set out to answer three questions: What level of service might be provided? H o w might such services be fmanced? H o w might such services be delivered and maintained? However, before answering these questions, two fundamental assumptions are laid down with far-reaching social and economic implications.

Firstly, it is argued, bulk service agencies should aim to become fmancially self-sufficient so that they do not have to rely on central government subsidies that may not be sustainable. This means charging the end user the full economic cost of the service. The level of service provided must then be determined by affordability. In other words, the communi ty demand for a standardised minimal service level can only be provided if there are sufficient surpluses at city level to suppor t substantial cross-subsidisation. I f not, then unsubdisidised services become the norm.

Secondly, existing racially divided service areas should be integrated into single service areas. Here the popular demand for 'one city, one tax base' is fully supported. The services investigated include water supply, sanitation/sewerage/sewage disposal, solid waste management , roads, drainage, electricity distribution and street lighting. T he Bank's research exercise was reduced to determining existing service deficiencies with respect to these services, the cost of eliminating these deficiencies, possible development programmes to address the deficiencies, and a national policy framework that would be appropriate for guiding this development programme and determining the financial basis of the programme. The development p rogramme and policy framework will rest on the founding assumption of financial self- sufficiency, economic costs to the end user and levels of service determined by affordability.

(The primary sources of information the Bank used to assess such factors will be those that already exist. Mos t of this has already been collected and collated by the major service agencies, state authorities and professional agen-

24 URBAN F O R U M 3:2, 1992

cies. What the Wor ld Bank benefits f rom in this process is the ability to acquire information from sources which would otherwise be reluctant to give up information to perceived rivals.)

The main research objective of the municipal finance section of the Mission is to conduct an extensive survey of the financial structure of existing local governments, The main concern is to assess whether future non- racial local governments will have the capacity to finance 'an expanded infrastructure investment programme' without having to rely on central government transfers.

The survey of local governments will be conducted via a questionnaire. The categories of information required have already been formulated and are included in the report. As far as the analysis o f revenue sources is concerned, the property tax will be the pr imary focus of the study. In this regard, a detailed list of questions has also been compiled.

Initial indications are that the mission's findings will suppor t the view that South Africa's major metropolitan centres are 'under-borrowed ' and that debt financing serviced by the income from R S C levies will be sufficient to finance an adequate infrastructure investment programme without bringing in large amounts of Central Government finance. In short, using land models to ensure that these investments suppor t a ' compact city' ou tcome and a range of possible min imum service levels at cost, the municipal finance section is beginning to reveal what it will take to finance a basic-needs programme of some sort.

Given that the security of foreign lending in the urban infrastructure sphere will be heavily dependent upon the nature of the urban management system, and given that the stability of urban management will depend on what constitutional models will be implemented at local government level, the Urban Mission not surprisingly set out to investigate what institutional forms South Africans have in mind for the local government level.

The writer of this section of the mission's report notes that the 'one city, one tax base' slogan 'concisely sums up a fundamental principle' at the centre of an emerging consensus on local government. However , the writer also found that the future structure of local government was a highly sensitive political issue, that the pr imary focus of existing debate is on interim arrangements, that the various parties involved in negotiations do not have equal access to technical expertise and that, most importantly, there is an 'absence of a common analytical framework for assessing alternative urban government structures, functions, and boundaries ...'. The Urban Mission's emphasis on the absence of a common analytical framework for local government - which could be read in less technicist terms as evidence of fundamental dif- ferences between stakeholders about the nature of state power and the structure of democratic procedures - clearly reveals the mission's assumption that urban development will be impossible until a political settlement is in place. However , by defining the problem in technical terms, the World Bank's rep-

WORLD BANK FINANCING FOR URBAN DEVELOPMENT 25

resentatives are clearly opening up a space for their own inputs to be made on what the c o m m o n analytical f ramework should be. T he first indications of what the World Bank would regard as an acceptable local government system are present in the report. On the whole, the ideas are competent ly conventional for most South Africans, bu t with a clear preference for federalism, limited forms of direct participatory democracy and virtually no references to the role local government can play in economic development.

The problem with a conventional liberal democrat ic concept ion of local government is that it cannot cope with the realities of a well developed system of democrat ic corporat ism that exists at local and regional level in South Africa. Transforming the current local-level negotiation process be tween corporate stakeholders into a system of power mediated exclusively by an indi- vidual-centred electoral system could result in a mismatch be tween the new government institutions and the process of corporate organisation and representation that the urban poor via the civics, urban business via the chambers of business, and labour via the unions have developed. Innovative mechanisms will be required that may well give an entirely new meaning to the concept of communi ty participation and this could, in turn, redefine the nature of the state-society interface. N o n e of this complexity seems to have made much of an impression on the mission. And when all this is overlaid with the requirements of legitimising a new democratic state when South African society has no pre-existing conceptions of what a legitimate state is, then the World Bank technocrats are most certainly out of their depth.

Taken together, the three issues that concern the World Bank reveal an overriding interest in the fiscal and institutional viability of the local government structures that will manage the cities and the debt f inanced development programmes. On the whole, the conclusion emerging from the Bank is that South African cities could potentially be very good borrowers without forcing the cities into a heavy dependence on central government finance and all the centralising political tendencies this will involve. Although the land, housing and transport (as well as infrastructural services) issues are important for the Wor ld Bank, it seems that these sections only provide a larger policy context within which the core issues of infrastructural investments in urban services and their financing can be addressed. The precise nature of the link between these investments and the creation of democratically durable local government institutions capable of effectively representing local communities was not made.

A L T E R N A TIVE F I N A N C I N G S 0 UR CES

At this stage, a number of researchers - including some involved in the most recent 1992 Wor ld Bank mission - are coming to the conclusion that the

26 URBAN F O R U M 3:2, ! 992

South African capital market and the fiscal system under a new tax regime could relatively easily generate the finance required to meet the basic needs of our cities. Because of the enormous number of overlapping state financing agencies and the extremely poor state of record-keeping, it is not possible to accurately and conclusively document the amount of government resources currently being used for housing and communi ty development. Some rough estimates will be provided, however, which show the South African financial markets easily overshadow an anticipated contribution of several billion rand in expensive hard currency from the Bank.

Beginning with current expenditure on housing, in aggregate the Reserve Bank records residential building expenditure (as part of gross domestic fixed investment) for 1991 at R6,533 billion for the economy as a whole, with public authorities responsible for R932 million and public corporations for R224 million. In real terms (measured in 1985 rands), this represents an enormous decrease and potential unutilised fmancial capacity. In 1984, for example, government spent R1,029 billion on residential buildings (in R1985) , as opposed to R527 million (in R1985) in 1991. 77 Private sector spending declined in somewhat less extreme proportions. What this means, in effect, is that the government is spending effectively half of what it did in the mid-1980s. TM

In contrast, the government will be spending R101 billion on total goods and services in 1992/93, a substantial real increase over previous periods. Under an optimal system of rationalised and efficient expenditures, the amount of government budget expenditure on housing and related infrastructural provision would be several times more than the present R2-R3 billion in total on-and-off budget spending. There are only crude comparat ive international measures to judge this sort of spending, and these do not account for the enormous complications that many decades of irrational spatial planning in South Africa impose. Moreover , the variance in such a measure can be extreme. In 1990 the government of Uruguay, for example, allocated 50 per cent of its expenditures to 'housing, amenities, social security and welfare' (the World Bank category for uppe r middle- income countries that includes housing), in contrast to the governments of Mexico and Yugoslavia, which spent, respectively, only 13 per cent and 6 per cent of state resources on this category (comparable figures for South Africa were not available).

Notwithstanding a recent I M F report to the contrary, South Africa's own fiscus can be geared up for far greater housing expenditures. Professor Dennis Davies of the University of the Witwatersrand Centre for Applied Legal Studies has estimated that R8 billion per year could be added to government revenue through a rationalisation and reorganisation of the tax system, in addition to better tax collections, without increasing the actual tax burden. Labour Research Services argue that a ten-year 5 per cent 'wealth tax' on all net wealth in excess of R1 million would raise billions of rands (the top twenty families alone would pay R500 million a year). Dr Neva


Makgeda Seidman of the University of the Witwatersrand Economics Department estimates that a 3 per cent wealth tax on wealth over R200 000 (about 10 per cent of the population) would raise R4,5 billion per year.

In addition there are substantial private sector resources that could be diverted from current unproductive uses into housing and infrastructural development if mechanisms, affordability enhancements and political will existed. The Reserve Bank records R5,377 billion spent on residential buildings (as part of gross domestic fixed investment) built by the private sector in 1991. In real terms (measured in 1985 rands), this is R2,425 billion, which in comparison with R3,567 billion in real residential building in 1984 (1985 rands), is a shocking decline. In comparison, the private sector spent R5,100 billion on non-residential buildings in 1991, which in 1985 rand is R2,235 billion, in contrast to 1984 figures of just R2,145 billion (in 1985 rands).

There are several important private sector providers of finance for housing, including commercial banks and (former) building societies. S~ In addition, there are enormous supplies of 'wholesale' finance currently being utilised mainly for stock market and commercial real estate investment. The main sources of such funds are the insurers. At year-end 1991 long-term insurers had available R136 billion in assets, of which R57 billion was in the stock market and R15 billion in commercial fixed property (the remaining R64 billion was divided into bank deposits, commercial loans, and other assets). Short-term insurers have available a further R13 billion in assets, most of which is currently invested as bank deposits and stock market shares. Finally, independent pension and provident funds hold R62 billion in assets, of which R21 billion is invested with insurers. The rest is mainly stock market shares (R25 billion), bank deposits (RI0 billion), and fixed property (R6 billion). ,1 Other potential sources of funds within private sector financial institutions might include finance companies, unit trusts, and participation mortgage bond schemes. The task for creative financing experts is to estimate the feas- ible rate of return that can be gained by funnelling such moneys into housing and community development investments through blending with state- subsidy sources of various types - in contrast to the probable negative returns that wilt be experienced by further speculative investment in the JSE (which in July 1992 was 40 per cent overvalued in PFE ratio terms) and over- built commercial real estate.

An example of creative financing is being undertaken by the Central Witwatersrand Metropolitan Chamber, with the establishment of a Metropolitan Urban Development Fund that could leverage up to R500 million from the capital market to be spent on a grant or soft loan basis at project level and then be repaid from revenue generated from RSC-type levies on the region's businesses. This, it has been calculated, could generate a revolving fund to finance a holistic land/services/high density housing concept delivered via community-based housing corporations that could generate far greater returns than the current state subsidies for infrastructure that in the

28 URBAN F O R U M 3:2, 1992

end subsidise the private sector housing companies. What was a portion of the private sector's profit margin in the old system could become the surplus in a revolving fund in a new system. Precisely such creative financing alterna- tives are crucial to avoid the types of uncreative (and unsuccessful) market- based financing and foreign deficit problems associated with the World Bank's urban programmes in other developing countries.

C O N C L U S I O N

The above discussion suggests that the role of the World Bank in a future non-racial and democratic South Africa needs to be assessed from two points of view:

�9 Whether borrowed foreign currency is the best kind of money to use to finance the dismantling of the apartheid city and the building of new post- apartheid urban systems

�9 Whether the World Bank's understanding of the urban system is empirically and conceptually appropriate and adequate

The argument in this paper is that foreign currency is probably not the best way to pay for all our urban service infrastructure investments (although possible back-to-back linkages between the imports of some foreign technology and the use of foreign exchange may be useful and may avoid the counterproductive consequences of rising levels of debt).

On the basis of the World Bank's intellectual output measured against its record in Zimbabwe, we are of the view that the Bank's analysis is empirically and conceptually inappropriate for the South African context primarily because the World Bank missions use the instruments of pre-structured paradigms to 'grasp' the complexity of the South African situation, and Bank researchers do this during the course of whirlwind tours through the country.

These conclusions raise at least four questions for future urban policy analysis. First, how can we better utilise alternative sources of finance within the S o u ~ African financiaI system? There appear to be tens of billions of rands in untapped sources that could easily pay for the required programmes with no foreign currency risk and dependency relations, but extensive work needs to be done in order to persuade the powers that be that such funding should be rechannelled from present unproductive and self-destructive out- lets.

The second question is how the South African research community relates to the considerable technical competence of foreign researchers who are financed by the World Bank and who use conceptual paradigms that do not emerge out of South Africa's own rich intellectual traditions. Why is it possible for World Bank researchers to whip through the country and come up

WORLD B A N K FINANCING FOR U R B A N D E V E L O P M E N T 29

with such clean looking analyses in such a short space of time? In reality, when local researchers write policy and publish analyses they are also negotiating a complex set of power relations that reflect their specific positions in the urban debate. Consequently, paradigms and information sources are highly contested and every issue that is addressed is related to a host of related issues with their own histories of debate.

The World Bank researchers plunge into these debates and with surgical precision cut into the subject knowing exactly what they are looking for, drawing only that information into their paradigms that they require. Wha t is ignored (such as the legacy of communi ty struggles for land, housing, services and democratic government) is irrelevant to them as professionals - they have done the job required, departed and left behind a trail of disturbed power relations of which they are virtually unaware. We, in turn, are left with the deadweight Aide Memoire product that needs to be read, analysed, absorbed and written about - on top of everything else that needs to be done!

However, given all the associated global and domestic implications, under - standing and analysing the Aide Memoire is a task that must be forthrightly addressed. T h e only question is how well we do it and with what level of critical inquisition. Too often one hears these days that intellectuals should accept the inevitable realities of the global economy and the central role of the World Bank and that criticism is naive and idealistic. Will we find our- selves being judged by our views on the World Bank? Is this attitude already prevalent and is it not the thin end of a very dangerous authoritarian wedge?

The third question relates to future relations with the World Bank. Recent practice whereby the A N C has appointed researchers to accompany World Bank missions has both positive and negative consequences. On the positive side, access to information and skills development are clearly the results. On the negative side, the missions are legitimised, thus preventing serious critical comment during the meetings with World Bank Missions and it is not clear who it is that one is really criticising when the Aides Memoires are released.

Finally, local researchers must seriously question whether dependence on such foreign expertise is going to benefit the policy research community . Given that on most topics there is adequate research and technical expertise within the country, and given the rapidly rising number of black researchers, it seems counterproductive to depend on foreign researchers to do our work for us. In many developing countries, national decision-makers bring in foreign experts to save their having to negotiate the power relations that local researchers are inevitably part of parcel of. Is this going to be a t rend in South Africa, or will we be able to support and build the (especially black) South African research communi ty by depending on them to develop policy options?

In the final analysis, the World Bank is with us and there is apparently very little that can be done about that. What we can do is conceptualise the

30 URBAN F O R U M 3:2, 1992

terms of the future relationship between a democratic South Africa and the World Bank and operate in a way that aims at ensuring that it is South Africans that are empowered by these relationships and not the World Bank. This may be naive, but it certainly could save South Africa from a fate that many developing countries have suffered. On the basis of discussions - and an overwhelming supply of indisputable evidence - even the World Bank would agree with this statement.

N O T E S

1. This paper benefited from the direct contributions of Planact staff Paul Hendler (housing), Tony Wolfson and Lauren Royston (land), and Dr. Meshack Khosa of the University of Natal/Durban (transport).

2. Business Day 22 May 1992; confirmed on a visit by one of the authors to the World Bank in June 1992.

3. Financial Mail 26 June 1992. Osborn is not impressed with the argument that South Africa is 'underborrowed': 'It is a meaningless, self-jus- tifying word. Current overseas borrowings may not be anywhere near the levels of the early seventies or early eighties, but those periods saw to an enormous run-up of long-term borrowings and an acute exposure to short-term liabilities.'

4. Business Day I July 1992. 5. Budhoo, D. Enough is Enough. New York: New Horizons Press, 1990,

p.t07. 6. Financial Times 29 Oct. 1991. 7. It should be remembered that the Bank's fraternal institution, the

International Monetary Fund, provided US$2 billion in loans to South Africa between 1976 and 1983, and that during the worst years of apartheid the IMF continued to monitor and proffer advice on the South African economy, to the extent of designing the controversial Value Added Tax system in 1991.

8. Nattrass, J. The South African Economy. Cape Town: Oxford University Press, 1981 (repr. 1988), p.185.

9. Bello, W. and Rosenfeld, S. Dragons in Distress, San Francisco: Institute for Food and Development Policy, 1990, p.54.

10. The Bank is notoriously abusive of the environment. Contrary to a bar- rage of publicity, the 'greening' of the Bank is not happening, according to environmental experts. For example, the Bank has invested US$450 million in 'Sardar Sarovar Dam', the world's biggest irrigation project (Narmada River, India). A recent report by an independent commission (led by a former head of the United Nations Development Programme) concluded that the Bank failed to appraise the project correctly, and


11.

12.

13.

14.

15.

16.

17.

failed to follow internationally-accepted standards on resettlement, environmental conservation and disease prevention. The Guardian (19 June 1992) explains:

Some senior bank officials are understood to have put pressure on the chairman of the commission, Brad Morse, and his deputy, Thomas Berger, to tone down their conclusions ... The report says both the bank and the Indian government seemed prepared to bend, or even disregard, bank policy and national regulations and procedures dealing with reset- flement and environmental protection. Mr Morse and Mr Berger warned the World Bank's president, Lewis Preston, that the project is likely to bring 'malaria to the doorsteps of the villagers' because no pre- ventive measures are being taken to stop mosquito breeding in canals ... Mr Preston admitted the review identified 'a number of deficiencies in the bank's appraisal of the projects', but he said continued support for the dam was justified. The quotes, made in an internal Bank memo in December 1991, are drawn from extensive reporting in Bank Check, Winter 1992, which also contains a set of rebuttals to Summers's logic from environmental experts. Wei, D., Governance and the Development Crisis in Sub-Saharan Africa. Mimeo, 1990, p.30. To be published in D. Apter and C. Rosberg (eds), Political Development and the New Realism in Sub- Saharan Africa. NGO Working Group on the World Bank, Position Paper of the NGO Working Group, Washington, DC, 1989, p.i. Walton, J., Urban Protest and the Global Political Economy: The IMF Riots. In M.P.Smith and J. Feigin (eds), The Capitalist City. Oxford: Basil Blackwell, 1987. Tomlinson, R., 'Competing Urban Agendas in South Africa,' Unpublished paper, Brookings Institute, Washington, DC, 1992, p. 12. World Bank, Zimbabwe: Urban Sector Review. Water Supply and Urban Development Division, Eastern Africa Projects Department, Report #4171-ZIM, 3 June 1983. Chitungwiza remained as a separate, self-sustaining municipality in spite of the fact that its employment and consumer tax base were structurally depleted by its dormitory status (Harare employers and retailers paid taxes to the Harare Council on earnings taken from Chitungwiza residents). The Bank argued both that, 'The transition to unitary city councils appears to have proceeded reasonably smoothly in Harare', and that, 'low- and high-density areas are still administered separately' (Urban Sector Review, pp.33-34). The Urban Sector Review did not recommend the merger of Harare and Chitungwiza. Moreover, during his trip to Zimbabwe in November 1989, the then Bank President Barber Conable

32 U R B A N F O R U M 3:2, 1992

conclusively ended a local initiative to build a desperately needed light rail system between Harare and Chitungwiza. Such policies did not escape the attention of Chitungwiza residents, for as one complained, 'The donor community, eg the World Bank, which has funded many housing schemes in other towns and cities, seems to be shunning Chitungwiza like a leper.' (Sunday Mail 17 March 1991.)

18. See, for example, Financial Gazette, 5 Sept. 1991. 19. World Bank, Urban Sector Review, pp.13-14. The only Bank statement

that begins to approach a critique of the Rhodesian urban spatial system is based on the fact that 'cities are structured inefficiently, with segregated areas for blacks which impose transport costs that are higher than necessary' (Urban Sector Review, p.4).

20. See Urban Sector Review, p.14. The long distances and lack of roads and transport in Manicaland and Masvingo provinces (in eastern and central Zimbabwe, respectively) make mockery of the suggestion that the colo- nial location of towns is 'fortunate'. While Mashonaland East and North could claim an urbanisation rate of 57 per cent and 53 per cent respectively, the rate for highly-populated Masvingo province was just 6 per cent and Manicaland just 24 per cent. Notwithstanding the adverse effects of war, there were few major changes in this pattern of distribution between censuses in 1969 and 1982.

21. World Bank, Urban Sector Review, p. 15. 22. What little there was followed rather directly the P, hodesian predeces-

sors' 1978 'Integrated Plan for Rural Development'. According to Heath, 'Official thinking appears to be that if "growth points" can be created in the Tribal Trust Lands (TTLs), regional disparity will be lessened and the economic development of the problem areas will be boosted.' Basic services to be offered to the growth points included town planning, infrastructure development, building and housing construction, and business promotion. The aim was to promote a core concentration of 1 000 residential and 100 commercial/industrial stands, enough to support a population of 5 000 within five years. All told, under Rhodesian rule this would have amounted to 3 per cent of all investment in development (road construction in TTLs, in contrast, was to receive 13 per cent). It was too little, too late, and with no community consultation, participation or control. Moreover, the plan was developed during the worst period of Rhodesia's economic crisis. For more information see Heath, R.A., Service Centres and Service Regions in Rhodesia, Harare: University of Zimbabwe, 1978 (repr. 1990).

23. Wekwete, K., Decentralized Planning in Zimbabwe: A Review of Provincial, Urban and District Development Planning in Post- Independence Zimbabwe. In A.H.J. Helmsing et al. (eds), Limits to Decentralization in Zimbabwe, The Hague: Institute of Social Studies, 1991, p.176. It should be noted that the World Bank had much to do

WORLD BANK FINANCING FOR URBAN DEVELOPMENT 33

with the limitations on state resource mobilisation in Zimbabwe, and indeed with the economic crisis itself (see for example, Mandaza, I. (ed.), Zimbabwe: The Political Economy of Transition. Dakar: CODESRIA, 1986).

24. Urban Sector Review p.2. 25. Patel, D., Housing the Urban Poor in the Socialist Transformation of

Zimbabwe. In M. Schatzberg (ed.), The Political Economy of Zimbabwe, New York: Praeger, 1984, p.192.

26. Central Statistical Office, Digest of Statistics. 27. Urban Sector Review pp.4-5. 28. Ibid. p.57. 29. Ibid. p.81. 30. The Bank conceded that:

a serviced site constitutes a housing opportunity rather than a housing option, until at least a minimal superstructure has been built ... For the poorest households, development will be slow and the final product may approximate core housing or worse. However, government is not put in the position of building mass housing of a type perceived to be inferior; they can simply allow development to take place that is appropriate to the householder's ability to pay as he sees fit. (Urban Sector Review p.65)

For a critique of self-help housing, see the work of Rod Burgess: Petty commodity housing or dweller control? A critique of John Turner's views on housing policy. World Development, 6 (1978), 9-10; and The limits of state self-help housing prograrnmes. Development and Change, 16 (1985).

31. Urban Sector Review p.77. 32. City of Harare, Annual Report of the Director of Housing and

Community Services for the Year Ended 30 June, 1985. Harare, 1985, p.15.

33. City of Harare, Annual Report of the Director of Housing and Community Services for the Year Ended 30 June, 1986. Harare, 1986, p.2.

34. Because of the increasing land prices - an issue the Bank generally did not view appropriate for government intervention - the bulk of the Bank's housing initiatives were geared to peripheral locations which exacerbated the existing apartheid-style planning framework.

35. The scheme did not work as planned. Age discrimination may have been a factor in the initial stages, since many people on the City of Harare's housing waiting list had been there for decades, were over 55 years of age, and would not meet building society specifications.

36. At the time, the 'Class C' accounts (PUPS) paid, at the time, 9 per cent to the depositor. A quarter of the funds raised had to go towards low-


income housing fmance, a ratio easily met by the high level of demand. Although a substantial government subsidy is involved in the scheme (contrary to Bank principles), most loans go to self-help builders, a mainstay of Bank housing philosophy. The minimal collateral is some proof of income. Some 2 000 loans were made by building societies in the ftrst four years of the Class C scheme, up to 1990, worth Z$200 million. Default rates were said to be extremely high although no figures have been made available.

37. City of Harare, Annual Report of the Director of Housing and Communi ty Services for the Year Ended 30 June, 1987. Harare, 1987, p.14.

38. City of Harare, Annual Report, 1987, p.15. 39. Rakodi, C. and Mutizwa Mangiza N. D., Housing Policy, Production and

Consumption: A Case Study of Harare. Teaching Paper 3, Depar tment of Rural and Urban Planning, University of Zimbabwe, Harare, 1989, p.35.

40. World Bank, M e m o r a n d u m and Recommendat ion of the President of the International Bank for Reconstruction and Development to the Executive Directors on a Proposed Loan of US$80 Million Equivalent to Zimbabwe for an Urban Sector and Regional Development Project. Report # P-4996-ZIM, 8 May 1989, p.3.

41. Financial Gazette 20 June 1991. 42. This was not the first or only time this was noted. By 1991 the frustrat-

ed Zimbabwe Electricity Supply Authority publicly complained of Bank bias towards thermal (as opposed to hydro) power, and 'the apparent inability of the Bank to carry out timely reviews and decisions on ZESA's investment programmes' .

It is also a requirement for ZESA to finance 40 per cent of its capital investments from internally generated funds, which is an extremely onerous condition as it imposes high tariffs on consumers, with negative consequences on the economy ... The World Bank's influence and policies in the electricity sector are therefore inconsistent with the Bank's supposed support for the country's economic structural adjustment programme (origi- nal emphasis). (Energy and Communications, (March 1991), 10)

43. These include Colin Stoneman, editor of the Economist Intelligence Unit for Zimbabwe (see his 1988 edited collection, Zimbabwe's Prospects. London: Macmillan), and former chief economist of the Confederation of Zimbabwe Industries Roger RiddeR, who argued that there would be a major loss of control of major aspects of the economy, making planning for the future direction more difficult and increasing external vul- nerability. Second, [new foreign borrowing to pay for imported capital goods] would have adverse implications for debt servicing just at the time when the country's dangerously high debt-servicing ratio would be


falling. Third, the World Bank's own estimates suggest that their proposed 20 per cent devaluation would induce a 6 per cent fall in real wages while the price increases of the parastatals would be expected to add a further 2 per cent to the cost of living of low-income groups ... It therefore needs to be asked whether the marginal changes predicted would be worth the extremely high level of risk involved. (Africa South March 1991)

44. Financial Gazette 24 Oct. 1991. 45. Financial Gazette 12 Dec. 1991. 46. The disastrous effects of Bank and IMF policies on social welfare are

outlined in Davies, R. and Sanders D., Stabilization policies and the effect on child health in Zimbabwe, Review of African Political Economy, 38, 1987. See also Bond, P. Geopolitics, International finance and national capital accumulation: Zimbabwe in the 1980s and 1990s, Tijdschrift voor Economische en Sociale Geografie, 82:5 (1991).

47. This has culminated in the official April 1992 De Loor Commission report on housing which concedes a substantial subsidy role for the state, but one largely geared through private sector financiers and developers, and aimed at assuring individually-titled site and service with no protections against downward raiding, landlordism, and other forms of speculation. The De Loor report borrows heavily, though not entirely, from Bank thinking revealed in World Bank (1991), Urban Sector Aide Memoire (May), Washington, DC: World Bank, Southern African Department, 1991.

48. Urban Sector Aide Memoire (Dec.), Section II, pp.5,7. 49. The Bank's approach is clearly laid out in the following passage, which

directly equates apartheid with socialism:

The legacy of apartheid policies is felt in terms of both macroeconomic distortions, similar to those experienced in a number of Eastern European countries, and in underperformance of the housing sector ... One of the most evident features of housing policies for non-whites in South Africa has been their resemblance to the housing policies of the command economies of Eastern Europe and other socialist countries. In such countries, an ironic consequence of the determination that housing was a 'right' rather than a commodity, and, as such, a product confined to the 'non-material' and 'non-productive' sphere of economic activity was that housing markets were not permitted to develop.(Urban Sector Aide Memoire May, Section CC, p. 11.)

50. Urban Sector Aide Memoire (Dec.), Section II, p.6. 51 Ibid., Section I, p.3. 52. Urban Sector Aide Memoire (May), pp.4,11. 53. The Bank does not appear to have tackled the issue of circular migra-

tion to urban areas, and whether or not people actually have the desire


to seek permanent residence in cities. Unders tanding this issue will be crucial in any housing or land planning in South African urban areas.

54. Urban Sector Aide Memoire (Dec.), pp.3,5. 55. The case of Zimbabwe should prove that the antidote to the problem

the Bank identifies - ie, lifting apartheid policies - does very l i n e in fact to stimulate effective demand under conditions of global economic stress. Moreover, the affirmative stimulants to effective demand that were tried in Zimbabwe (especially government spending on civil service expansion, health and education) very soon came under immense pressure precisely from the World Bank and IMF (see, for example, Mandaza, I. (ed), Zimbabwe: The Political Economy of Transition. Dakar: CODESRIA, 1986; Stoneman, C. (ed), Zimbabwe's Prospects. London: Macmillan, 1988).

56. Urban Sector Aide Memoire (May), Section C, p.25. 57. Urban Sector Aide Memoire (Dec.), p.6 58. Ibid., p.4. 59. Ibid., p.8. The Bank fails to acknowledge the present disarray of finan-

cial markets, which in 1991 provided institutional investors an untenable return of 51 per cent on investments in Johannesburg Stock Exchange industrial shares. Under such conditions of speculative profit-seeking, prescribed asset ratios are in reality one of the few sensible approaches to inserting some rationality into investment decisions.

60. Urban Sector Aide Memoire (May), Section CC, pp.25-26. 61. Ibid., p.7. 62. Given that to date such an institution has not sprung up, it is fair to

assume that enormous subsidies will be required to pay initial operating costs and to permit lending at affordable levels. Such subsidies appear outside the realm of what the Bank would permit (especially in light of Bank opposition to interest rate subsidies (Urban Sector Aide Memoire (Dec.), p.9).

63. Ibid., p.5. 64. Ibid., pp.7-8. T h e Bank continues by citing the Pe rm and South African

Housing Trus t as 'more responsive ... to interacting on the g round with black township borrowers' , but fails to mention that in the case of the SAHT, this has led to at least eight major bond boycotts and the threat- ened bankruptcy of their mortgage lending arm.

65. Urban Sector Aide Memoire (May), Section C, p.34. 66. Urban SectorAide Memoire (Dec.), Section II, p.10. 67. In contrast, the I D T has come under attack - and agreed to change its

policy - in at least one instance (Wattville township in the East Rand) where the communi ty rejected the capital subsidy principle in order to develop their own development fund to grant below-market rate loans aimed at borrower affordability and communi ty control of capital. Such principles are far beyond the realm of what the Bank considers 'flexible'.

WORLD B A N K F I N A N C I N G FOR URBAN D E V E L O P M E N T 37

68. The Task Group on National Housing Policy and Strategy, Housing in South Africa: Proposals on a Policy and Strategy. Pretoria: Government Printer, April 1992.

69. Khosa, M., A Review of the World Bank's Urban Transport Report. Unpublished mimeo, Department of Geography, University of Natal, Durban, 14 July 1992, p.1.

70. Ibid., p.2. 71. Khosa continues: 'Transport subsidies facilitated the spatial reorganisa-

tion of urban areas and were strongly associated with the geographical dislocation of black communities from the urban areas to the periphery ... Subsidisation of transport is a contentious issue which will hopefully be resolved only after the transformation of the present political and economic social order has seen its course. Then it might be a plain policy to combat poverty' (p.3).

72. Ibid., p.5. 73. Ibid. 74. Ibid. 75. Khosa, M., Capital Accumulation, the Apartheid State and the Rise of

the Black Taxi Industry. Doctoral thesis, School of Geography, Oxford University, 1992, p.375.

76. Citations are from the December 1991 Urban Aide Memoire. 77. South African Reserve Bank, Quarterly Bulletin. Pretoria: SARB,1992. 78. There are a few means by which a breakdown of such rough estimates

can be attempted, using data from 1990/91. The April 1992 Task Group on National Housing Policy and Strategy (the 'De Loor Task Force') estimated that the available public sector resources for housing and housing-related purposes during 1990/91 was close to R3 billion:

Central government departments Housing Funds Local Authorities Loans Fund South African Development Trust Fundl Provincial Administrations Self-governing Territories BVC States South African Housing Trust Development Bank of Southern Africa RSCs/JSBs T O T A L

R 224 million 887 million 103 million

75 million 30 million

145 million 247 million 195 million 258 million 590 million

R2 854 million

These estimates comprise the most generous possible statement of government spending on housing, and do not account for the fact that the National Housing Fund was used not for housing expenditure, but to bolster bankrupt Black Local Authorities. Indeed, only R1,6 billion was appropriated for housing support in the 1990/91 budget, and was aug-


mented by another R1,3 billion by means of repayments on past loans, utilisation of other sources of income, and borrowing from the capital markets.

79. World Bank, World Development Report 1992. Washington, DC: World Bank, 1992.

80. Latest estimates for the property loans carried by the five major banks are as follows:

Bank Amalgamated Banks of SA Nedcor Bank Standard Bank First National Bank NBS Bank Saambou Bank T O T A L

Property loans (per cent of total assets) R29,0 billion (36 per cent) R13,4 R 9,2 R 7,2 R 6,2 R 2,7

(Financial

billion (35 per cent) billion (20 per cent) billion (17 per cent) billion (66 per cent) billion (66 per cent)

R67,7 billion Mail 21 Aug. 1992)

Note that these are the outstanding bonds, and that this figure (and bank asset growth generally) has been increasing at a rate far greater than the 15 per cent inflation rate in recent years. Increases in the late 1980s were above 30 per cent per annum, although the current rate of increase is today below 10 per cent. If banks were to increase their net bond portfolios by, say, 20 per cent, R13,5 billion would be made in net new funds for property, especially new housing in light of the current massive oversupply of commercial and industrial property. Already, housing credit makes up 39 per cent of all credit in the economy, according to the World Bank, but the banks' traditional reliance upon an extremely skewed distribution of credit is probably more of a barrier to low-income lending than a help. In contrast, Tunisia spends 7,4 per cent of its GDP on housing, yet housing credit is just 8,4 per cent of all credit. Malaysia spends 8,5 per cent of GDP on housing, yet housing credit is 22 per cent of all credit.

81. South African Reserve Bank, Quarterly Bulletin.

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