Post by Brindley on Aug 9, 2016 21:34:30 GMT 2
www.zurich.com/en/knowledge/articles/2015/01/the-risks-of-rapid-urbanization-in-developing-countries
The Risks of Rapid Urbanization in Developing Countries
It is estimated that by 2050 more than two thirds of the world’s population will live in cities, up from about 54 percent today. While the many benefits of organized and efficient cities are well understood, we need to recognize that this rapid, often unplanned urbanization brings risks of profound social instability, risks to critical infrastructure, potential water crises and the potential for devastating spread of disease. These risks can only be further exacerbated as this unprecedented transition from rural to urban areas continues.
How effectively these risks can be addressed will increasingly be determined by how well cities are governed. The increased concentration of people, physical assets, infrastructure and economic activities mean that the risks materializing at the city level will have far greater potential to disrupt society than ever before.
Urbanization is by no means bad per se. It brings important benefits for economic, cultural and societal development. Well managed cities are both efficient and effective, enabling economies of scale and network effects while reducing the impact on climate of transportation. As such, an urban model can make economic activity more environmentally-friendly. Further, the proximity and diversity of people can spark innovation and create employment as exchanging ideas breeds new ideas.
But these utopian concepts are threatened by some of the factors driving rapid urbanization. For example, one of the main factors is rural-urban migration, driven by the prospect of greater employment opportunities and the hope of a better life in cities. But rapidly increasing population density can create severe problems, especially if planning efforts are not sufficient to cope with the influx of new inhabitants. The result may, in extreme cases, be widespread poverty. Estimates suggest that 40% of the world’s urban expansion is taking place in slums, exacerbating socio-economic disparities and creating unsanitary conditions that facilitate the spread of disease.
The Global Risks 2015 Report looks at four areas that face particularly daunting challenges in the face of rapid and unplanned urbanization: infrastructure, health, climate change, and social instability. In each of these areas we find new risks that can best be managed or, in some cases, transferred through the mechanism of insurance.
Infrastructure
The quality of a city’s infrastructure is central to the residents’ quality of life, social inclusion and economic opportunities. It also determines the city’s resilience to a number of global risks, in particular environmental, social and health-related risks, but also economic risks such as unemployment. The availability and quality of infrastructure are at the core of many of the challenges faced by rapidly urbanizing cities in developing countries, while underinvestment is posing similar challenges in most developed economies (WEF data.)
Infrastructure investments in most developed economies are insufficient to maintain the quality of infrastructure (WEF and OECD data): Transportation infrastructure (roads, railroad, airports, ports)
Electric power supply and distribution
Water supply and sewage
Communications infrastructure
This underinvestment is particularly notable in the U.S., UK and Germany.
Infrastructure failure would have significant implications for property and business continuity for city authorities as well as local and central Government bodies. Insurers can help in these areas in terms of risk engineering advice on infrastructure maintenance and also appropriate levels of insurance property damage and business interruption coverage.
As cities expand rapidly, there is a risk that infrastructure will not keep pace with their growth or the increased expectations of their populations. Action is urgently needed to close the infrastructure gap and reduce the potential for risks to have catastrophic cascading effects. The OECD estimates that governments will have to spend approximately USD 71 trillion by 2030 to provide adequate global infrastructure for electricity, road and rail transport, telecommunications, and water.
This level of financing may not be achievable given that many governments are under tight budget constraints and that many developing countries allocate much of their national income to meeting the basic needs of their population.
Consequently, cities are looking for public-private collaboration to involve the private sector in the design, construction and maintenance of infrastructure. Zurich addressed this issue recently in “Long-term investments, risks and regulation: an insurance perspective”.
www.zurich.com/en/knowledge/articles/2014/11/long-term-investments-risks-and-regulation-an-insurance-perspective
Health
Throughout the 20th century, the health of city dwellers increasingly benefited from better access to education and healthcare, better living conditions, and targeted public-health interventions. In advanced economics, emergency medical care can be accessed within hours and advanced facilities for longer term treatments are readily accessible. However, when urbanization is rapid and unplanned, a combination of high population density, poverty and lack of infrastructure can have the opposite effect, fostering conditions for communicable diseases to flourish.
It is striking that, today, almost 700 million urban dwellers lack adequate sanitation. The problem is particularly acute in sub-Saharan Africa and south-central Asia, where 62 percent and 43 percent, respectively, of the urban population live in slums and are faced with unacceptable levels of risk to illnesses, worm infections, cholera and diarrhea.
Most worryingly, in today’s hyper connected world, it is easier for pathogens to be carried from one city to another with potential for large scale outbreaks.
The economic impact of Ebola is enormous for the affected countries and neighboring states. The World Bank Group estimates the economic cost of Ebola to be approximately USD 32 billion, in the worst-case scenario. One of the key aggravating factors to the Ebola crisis was the lack of a governance mechanism that would allow an effective link between what was being observed at the country and city levels and the alert mechanisms needed to trigger an emergency response.
Climate Change
Rapid, inadequate and poorly planned expansion of cities can also leave urban populations highly exposed to the effects of climate change. The migration from rural areas to cities is at least partially driven by the increasing prevalence of extreme weather; however cities tend to be located near the sea or natural waterways, where they are at more risk of flooding. Fifteen of the world’s twenty megacities – those with over 10 million inhabitants – are located in coastal zones threatened by sea-level rise and storm surges. Making cities more resilient to extreme weather events should be a priority for both local governments and the private sector.
The insurance industry has a lot to offer in terms of risk management advice, products and services (i.e., property insurance) regarding the management of flooding (https://www.zurich.com/en/industry-knowledge/flood-resilience).
A point in case is Zurich’s UK post event flood paper which was produced as part of Zurich’s flood resilience program – Post Event Review Capability (PERC). It provides an overview and key insights into the flooding (i.e., Xaver event) that took place in 2013. The paper draws on public information and provides Zurich’s perspective as result of its own experience as an insurer in the affected areas.
Social Instability
Cities’ capacity to generate prosperity already largely determines global growth: just over half the world’s population lives in cities, but they generate more than 80% of global GDP. Ultimately, new migrants in cities are expected to create greater economic value than they would have in the countryside. This in turn has the potential to drive greater personal wealth and the desire to protect personal assets and income, offering another role for the insurance industry. However, even when cities are successful, the process of absorbing migrants into urban economies is not necessarily smooth. While moving to a city offers individuals more opportunities to improve their living conditions, the high cost of living and competition for livelihoods can also trap people in poverty.
Rapid and unplanned urbanization can also quickly lead to urban violence and social unrest. Widening inequalities also tend to be more starkly visible in urban than rural areas. The combination of inequality, competition for scarce resources such as land, impunity from the law and weak city governance increases the risk of violence and potential breakdowns in law and order. Some cities in developing countries are already extremely dangerous, for example San Pedro Sula in Honduras suffered 169 killings per 100,000 residents in 2011.
Urbanization can also create connected and cascading effects. For example, high population density fuels property bubbles while a shortage of affordable housing contributes to social exclusion, with this combination threatening to destabilize the wider economy and increase social instability.
Ultimately, urbanization creates opportunities but also exacerbates risks, and the speed at which it is happening challenges our capacity to plan and adapt. This is particularly true in developing economies. For rapid urbanization to provide opportunities to all, carefully considered urban planning and good governance with effective regulatory frameworks are required.
The inability of governments to provide appropriate infrastructure and public services is at the core of many urban challenges in developing countries.
What is more, as the world continues to urbanize, power will increasingly be concentrated in cities. This power – ranging from economic to social – not only makes cities the center of gravity, but offers greater scope to find practical solutions to the most pressing challenges. Indeed, many observers and organizations are now focusing on cities and the connections between them rather than directing their attention at the national level. The strength of city-level institutions in addition to national institutions – their capacity to be flexible, innovative and dynamic, and effectively involve multiple stakeholders in governance – will largely determine whether urbanization makes the world more resilient or more vulnerable in the face of global risks.
As these risks are interconnected, a holistic view and approach is key to mitigating them. They can affect all of us in unpredictable ways, and they are your concern as well as ours. As with all risk management, the very first step is awareness – so it is necessary to highlight and discuss the challenge of interconnected risks on a broader level to ensure adequate levels of public awareness. Close contact between business, governments, communities, city councils, and academic institutions is essential in reaching effective solutions as this will foster an environment where innovative public private partnerships can develop. At Zurich, we see the big picture of interconnected risks and we collaborate with those who care about them. (https://www.zurich.com/en/knowledge) Whether its technological developments for smart traffic control or risk management of critical infrastructure, it has never been so important to ensure that our cities are both efficient and resilient.
It is estimated that by 2050 more than two thirds of the world’s population will live in cities, up from about 54 percent today. While the many benefits of organized and efficient cities are well understood, we need to recognize that this rapid, often unplanned urbanization brings risks of profound social instability, risks to critical infrastructure, potential water crises and the potential for devastating spread of disease. These risks can only be further exacerbated as this unprecedented transition from rural to urban areas continues.
How effectively these risks can be addressed will increasingly be determined by how well cities are governed. The increased concentration of people, physical assets, infrastructure and economic activities mean that the risks materializing at the city level will have far greater potential to disrupt society than ever before.
Urbanization is by no means bad per se. It brings important benefits for economic, cultural and societal development. Well managed cities are both efficient and effective, enabling economies of scale and network effects while reducing the impact on climate of transportation. As such, an urban model can make economic activity more environmentally-friendly. Further, the proximity and diversity of people can spark innovation and create employment as exchanging ideas breeds new ideas.
But these utopian concepts are threatened by some of the factors driving rapid urbanization. For example, one of the main factors is rural-urban migration, driven by the prospect of greater employment opportunities and the hope of a better life in cities. But rapidly increasing population density can create severe problems, especially if planning efforts are not sufficient to cope with the influx of new inhabitants. The result may, in extreme cases, be widespread poverty. Estimates suggest that 40% of the world’s urban expansion is taking place in slums, exacerbating socio-economic disparities and creating unsanitary conditions that facilitate the spread of disease.
The Global Risks 2015 Report looks at four areas that face particularly daunting challenges in the face of rapid and unplanned urbanization: infrastructure, health, climate change, and social instability. In each of these areas we find new risks that can best be managed or, in some cases, transferred through the mechanism of insurance.
Infrastructure
The quality of a city’s infrastructure is central to the residents’ quality of life, social inclusion and economic opportunities. It also determines the city’s resilience to a number of global risks, in particular environmental, social and health-related risks, but also economic risks such as unemployment. The availability and quality of infrastructure are at the core of many of the challenges faced by rapidly urbanizing cities in developing countries, while underinvestment is posing similar challenges in most developed economies (WEF data.)
Infrastructure investments in most developed economies are insufficient to maintain the quality of infrastructure (WEF and OECD data): Transportation infrastructure (roads, railroad, airports, ports)
Electric power supply and distribution
Water supply and sewage
Communications infrastructure
This underinvestment is particularly notable in the U.S., UK and Germany.
Infrastructure failure would have significant implications for property and business continuity for city authorities as well as local and central Government bodies. Insurers can help in these areas in terms of risk engineering advice on infrastructure maintenance and also appropriate levels of insurance property damage and business interruption coverage.
As cities expand rapidly, there is a risk that infrastructure will not keep pace with their growth or the increased expectations of their populations. Action is urgently needed to close the infrastructure gap and reduce the potential for risks to have catastrophic cascading effects. The OECD estimates that governments will have to spend approximately USD 71 trillion by 2030 to provide adequate global infrastructure for electricity, road and rail transport, telecommunications, and water.
This level of financing may not be achievable given that many governments are under tight budget constraints and that many developing countries allocate much of their national income to meeting the basic needs of their population.
Consequently, cities are looking for public-private collaboration to involve the private sector in the design, construction and maintenance of infrastructure. Zurich addressed this issue recently in “Long-term investments, risks and regulation: an insurance perspective”.
www.zurich.com/en/knowledge/articles/2014/11/long-term-investments-risks-and-regulation-an-insurance-perspective
Health
Throughout the 20th century, the health of city dwellers increasingly benefited from better access to education and healthcare, better living conditions, and targeted public-health interventions. In advanced economics, emergency medical care can be accessed within hours and advanced facilities for longer term treatments are readily accessible. However, when urbanization is rapid and unplanned, a combination of high population density, poverty and lack of infrastructure can have the opposite effect, fostering conditions for communicable diseases to flourish.
It is striking that, today, almost 700 million urban dwellers lack adequate sanitation. The problem is particularly acute in sub-Saharan Africa and south-central Asia, where 62 percent and 43 percent, respectively, of the urban population live in slums and are faced with unacceptable levels of risk to illnesses, worm infections, cholera and diarrhea.
Most worryingly, in today’s hyper connected world, it is easier for pathogens to be carried from one city to another with potential for large scale outbreaks.
The economic impact of Ebola is enormous for the affected countries and neighboring states. The World Bank Group estimates the economic cost of Ebola to be approximately USD 32 billion, in the worst-case scenario. One of the key aggravating factors to the Ebola crisis was the lack of a governance mechanism that would allow an effective link between what was being observed at the country and city levels and the alert mechanisms needed to trigger an emergency response.
Climate Change
Rapid, inadequate and poorly planned expansion of cities can also leave urban populations highly exposed to the effects of climate change. The migration from rural areas to cities is at least partially driven by the increasing prevalence of extreme weather; however cities tend to be located near the sea or natural waterways, where they are at more risk of flooding. Fifteen of the world’s twenty megacities – those with over 10 million inhabitants – are located in coastal zones threatened by sea-level rise and storm surges. Making cities more resilient to extreme weather events should be a priority for both local governments and the private sector.
The insurance industry has a lot to offer in terms of risk management advice, products and services (i.e., property insurance) regarding the management of flooding (https://www.zurich.com/en/industry-knowledge/flood-resilience).
A point in case is Zurich’s UK post event flood paper which was produced as part of Zurich’s flood resilience program – Post Event Review Capability (PERC). It provides an overview and key insights into the flooding (i.e., Xaver event) that took place in 2013. The paper draws on public information and provides Zurich’s perspective as result of its own experience as an insurer in the affected areas.
Social Instability
Cities’ capacity to generate prosperity already largely determines global growth: just over half the world’s population lives in cities, but they generate more than 80% of global GDP. Ultimately, new migrants in cities are expected to create greater economic value than they would have in the countryside. This in turn has the potential to drive greater personal wealth and the desire to protect personal assets and income, offering another role for the insurance industry. However, even when cities are successful, the process of absorbing migrants into urban economies is not necessarily smooth. While moving to a city offers individuals more opportunities to improve their living conditions, the high cost of living and competition for livelihoods can also trap people in poverty.
Rapid and unplanned urbanization can also quickly lead to urban violence and social unrest. Widening inequalities also tend to be more starkly visible in urban than rural areas. The combination of inequality, competition for scarce resources such as land, impunity from the law and weak city governance increases the risk of violence and potential breakdowns in law and order. Some cities in developing countries are already extremely dangerous, for example San Pedro Sula in Honduras suffered 169 killings per 100,000 residents in 2011.
Urbanization can also create connected and cascading effects. For example, high population density fuels property bubbles while a shortage of affordable housing contributes to social exclusion, with this combination threatening to destabilize the wider economy and increase social instability.
Ultimately, urbanization creates opportunities but also exacerbates risks, and the speed at which it is happening challenges our capacity to plan and adapt. This is particularly true in developing economies. For rapid urbanization to provide opportunities to all, carefully considered urban planning and good governance with effective regulatory frameworks are required.
The inability of governments to provide appropriate infrastructure and public services is at the core of many urban challenges in developing countries.
What is more, as the world continues to urbanize, power will increasingly be concentrated in cities. This power – ranging from economic to social – not only makes cities the center of gravity, but offers greater scope to find practical solutions to the most pressing challenges. Indeed, many observers and organizations are now focusing on cities and the connections between them rather than directing their attention at the national level. The strength of city-level institutions in addition to national institutions – their capacity to be flexible, innovative and dynamic, and effectively involve multiple stakeholders in governance – will largely determine whether urbanization makes the world more resilient or more vulnerable in the face of global risks.
As these risks are interconnected, a holistic view and approach is key to mitigating them. They can affect all of us in unpredictable ways, and they are your concern as well as ours. As with all risk management, the very first step is awareness – so it is necessary to highlight and discuss the challenge of interconnected risks on a broader level to ensure adequate levels of public awareness. Close contact between business, governments, communities, city councils, and academic institutions is essential in reaching effective solutions as this will foster an environment where innovative public private partnerships can develop. At Zurich, we see the big picture of interconnected risks and we collaborate with those who care about them. (https://www.zurich.com/en/knowledge) Whether its technological developments for smart traffic control or risk management of critical infrastructure, it has never been so important to ensure that our cities are both efficient and resilient.