PHILIPPINES URBANIZATION REVIEW FOSTERING COMPETITIVE, SUSTAINABLE AND INCLUSIVE CITIES FULL REPORT PUBLISHED BY PHILIPPINES URBANIZATION REVIEW FOSTERING COMPETITIVE, SUSTAINABLE AND INCLUSIVE CITIES FULL REPORT ©2017 The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staf of the World Bank Group with external contributions. The indings, interpretations, and conclusions expressed in this volume do not necessarily relect the views of the Executive Directors of The World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. i List of Acronyms and Abbreviations Abbreviation/Acronym Deinition AAB AUTHORIZED AGENT BANK AIP ANNUAL INVESTMENT PLAN ATO AIR TRANSPORTATION OFFICE AUSAID AUSTRALIAN AGENCY FOR INTERNATIONAL DEVELOPMENT BIR BUREAU OF INTERNAL REVENUE BLGF BUREAU OF LOCAL GOVERNMENT FINANCE BMA BARCELONA METROPOLITAN AREA BP 220 BATAS PAMBANSA 220 BPLO BUSINESS PERMITS AND LICENSING OFFICE BPLS BUSINESS PERMITS AND LICENSING SYSTEM BPLSR BUSINESS PERMITS AND LICENSING SYSTEM REFORM BPO BUSINESS PROCESSING OUTSOURCING BUB BOTTOM-UP BUDGETING CADTs CERTIFICATE OF ANCENTRAL DOMAIN TITLES CATS CHICAGO AREA TRANSPORTATION STUDY CCT CONDITIONAL CASH TRANSFER CDO CAGAYAN DE ORO CITY CDP COMPREHENSIVE DEVELOPMENT PLAN CEAMSE COORDINATION ECOLOGICA DEL AREA METROPOLITANA SOCIADAD DEL ESTADO CEDF-IT CEBU EDUCATION DEVELOPMENT FOUNDATION FOR INFORMATION TECHNOLOGY CHED COMMISSION ON HIGHER EDUCATION CELA CERTIFICATE OF LAND ALLOCATION CICT COMMISSION ON INFORMATION AND COMMUNICATIONS TECHNOLOGY CIP CEBU INTERNATIONAL PORT CLOAs CERTIFICATE OF LAND OWNERSHIP AWARDS CLUP COMPREHENSIVE LAND USE PLAN CMAP CHICAGO METROPOLITAN AGENCY FOR PLANNING CMP COMMUNITY MORTGAGE PROGRAM COA COMMISSION ON AUDIT COR CERTIFICATE OF REGISTRATION CPA CEBU PORT AUTHORITY CPBI CENSUS OF PHILIPPINE BUSINESS AND INDUSTRY CRRU CONCESSION OF THE REAL RIGHT TO USE CSO CIVIL SOCIETY ORGANIZATION CTC COMMUNITY TAX CERTIFICATE CTO CITY TREASURER’S OFFICE DA DEVELOPMENT AGENCIES DAR DEPARTMENT OF AGRARIAN REFORM DBM DEPARTMENT OF BUDGET MANAGEMEBT DENR DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES DENR-LMB DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES LAND MANAGEMENT BUREAU DFA DEPARTMENT OF FOREIGN AFFAIRS DILG DEPARTMENT OF THE INTERRIOR AND LOCAL GOVERNMENT DND DEPARTMENT OF NATIONAL DEFENSE ii Philippines Urbanization Review Abbreviation/Acronym Deinition DOE DEPARTMENT OF ENERGY DOH DEPARTMENT OF HEALTH DOLE DEPARTMENT OF LABOR AND EMPLOYMENT DOTr DEPARTMENT OF TRANSPORTATION DOTC DEPARTMENT OF TRANSPORTATION AND COMMUNICATION DPWH DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS DST DOCUMENTARY STAMP TAXES DSWD DEPARTMENT OF SOIAL WALFARE AND DEVELOPMENT DTI DEPARTMENT OF TRADE AND INDUSTRY DU DELIVERY UNIT EBRD EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT EDC EXPORT DEVELOPMENT COUNCIL EDSA EPIFANIO DE LOS SANTOS AVENUE EIU ECONOMIST INTELLIGENCE UNIT EMT ENTITAT METROPLITANA DE TRANSPORT EO EXECUTIVE ORDER ETRACS LAM TECHNOLOGY TO AUOMATE TAX ASSESSMENT AND COLLECTION FIES FAMILY INCOME AND EXPENDITURE SURVEY FNRI FOOD AND NUTRITION RESEARCH INSTITUTE FPSG FIXED PERIOD STATE GRANT GADM GLOBAL ADMINISTRATIVE AREAS BOUNDARIES WITHOUT LIMITS GDP GROSS DOMESTIC PRODUCT GLA GREATER LONDON AUTHORITY GLC GREATER LONDON COUNCIL GOCCs GOVERNMENT OWNED AND CONTROLLED CORPORATIONS GUCR GLOBAL URBAN COMPETITIVENESS REPORT HCI HUMAN CAPITAL INDEX HDH HIGH DENSITY HOUSING HLURB HOUSING AND LAND USE REGULATORY BOARD HOA HOMEOWNER’S ASSOCIATION HUCs HIGHLY URBANIZED CITIES HUDCC HOUSING AND URBAN DEVELOPMENT COORDINATING COUNCIL IBPAP INFORMATION TECHNOLOGY AND BUSINESS PROCESSING ASSOCIATION OF THE PHILIPPINES ICT INFORMATION AND COMMUNICATION TECHNOLOGY IMF INTERNATIONAL MONETARY FUND INVEST INVESTMENT ENABLING ENVIRONMENT IRA INTERNAL REVENUE ALLOTMENT IRR INTERNAL RULES AND REGULATIONS ISA INSTITUTE FOR SOLIDARITY IN ASIA ISF INFORMAL SETTLER FAMILIES ISFs INFORMAL SETTLER FAMILIES IT INFORMATION TECHNOLOGY LAM LAND ADMINISTRATION MANAGEMENT LAMP2 LAND ADMINISTRATION MANAGEMENT PROGRAM LCPDC LEGAZPI CITY PLANNING AND DEVELOMENT COUNCIL LDA LONDON DEVELOPMENT AGENCY LEIPO LOCAL ECONOMIC AND INVESTMENT PROMOTION OFFICE iii Abbreviation/Acronym Deinition LFEPA LONDON FIRE AND EMERGENCY PLANNING AUTHORITY LFS LABOR FORCE SURVEY LGC LOCAL GOVERNMENT CODE LGPMS LOCAL GOVERNMENT PERFORMANCE MANAGEMENT SYSTEM LLDA LAGUNA LAKE DEVELOPMENT AUTHORIY LPG LIQUEFIED PETROLUEM GAS LPI LOGISTICS PERFORMANCE INDEX LRA LAND REGISTRATION AUTHORITY LSCI LINER SHIPPING CONNECTIVITY INDEX MCCT MODIFIED CONDITIONAL CASH TRANSFER MMDA METRO MANILA DEVELOPMENT AUTHORITY MPA METROPOLITAN POLICE AUTHORITY MSMEs MICRO, SMALL AND MEDIUM ENTERPRISES MSTPL MANAGING SPATIAL TRANSFORMATION FOR PROSPERITY AND LIVABILITY MTPIP MEDIUM TERM PUBLIC INVESTMENT PLAN MWSS METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM NAST NATIONAL ACADEMY OF SCIENCE AND TECHNOLOGY PHILIPPINES NCIP NATIONAL COMMISSION ON INDIGENOUS PEOPLES NCR NATIONAL CAPITAL REGION NCWDP NATIONAL COUNCIL ON DISABILITY AFFAIRS (PHILIPPINES) NEDA NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY NFPP NATIONAL FRAMEWORK FOR PHYSICAL PLANNING NHA NATIONAL HOUSING AUTHORITY NIPC NORTHEASTERN ILLINOIS PLANNING COMMISSION NRCP NATIONAL RESEARCH COUNCIL OF THE PHILIPPINES NSDI NATIONAL SPATIAL DATA INFRATRUCTURE NSO NATIONAL STATISTICS OFFICE NTL NIGHT-TIME LIGHTS NUDHF NATIONAL URBAN DEVELOPMENT AND HOUSING FRAMEWORK NUP NATIONAL URBAN POLICY NWRB NATIONAL WATER RESOURCES BOARD NYC NEW YOR CITY OECD ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT OSS ONE STOP SHOP Pag-ibig HOME DEVELOPMENT MUTUAL FUND PBR PHILIPPINE BUSINESS REGISTRY PCD PRINTER’S CERTIFICATE OF DELIVERY PCF PERFORMANCE CHALLENGE FUND PDEA PHILIPPINE DRUG ENFORCEMENT AGENCY PDP PHILIPPINE DEVELOPMENT PLAN PEMANDU PERFORMANCE MANAGEMENT AND DELIVERY UNIT PEZA PHILIPPINE ECONOMIC ZONE AUTHORITY PGS PERFORMANCE GOVERNANCE SYSTEM PhilHealth THE PHILIPINNE HEALTH INSURANCE COMPANTY PHIVOLCS PHILIPPINE INSTITUTE OF VOLCANOLOGY AND SEISMOLOGY iv Philippines Urbanization Review Abbreviation/Acronym Deinition PISR PHILIPPINE BUISNESS REGISTRY PPA PHILIPPINE PORTS AUTHORITY PPD PUBLIC PRIVATE DIALOGUE PPSB PUHUNAN PANGKABUHAYANG SIKAP BUHAY PSIC PHILIPPINE STANDARD INDUSTRIAL CLASSIFICATION QLAI QUALITY OF LAND ADMINISTRATION INDEX R&D RESEARCH AND DEVELOPMENT RDC REGIONAL DEVELOPMENT COUNCIL REGALA SUPPORT TO LOCAL GOVERNMENT REVENUE GENERATION AND LAND ADMINISTRATION REFORMS (ADB PROGRAM) ROD REGISTRY OF DEEDS RPT REAL PROPERTY TAX RPTAR REAL PROPERTY TAX ACCOMPLISHMENT RATE RS4LG REFORM SIMPLICICATION FOR LOCAL GOVERNMENT SBECO SIKAP BUHAY ENTERPRENEURSHIP AND COOPERATIVE OFFICE SEC SECURITY EXCHANGE COMMINSSION SGLG SEAL OF GOOD LOCAL GOVERNANCE SHFC SOCIAL HOUSING FINANCE CORPORATION SME SMALL, MEDIUM ENTERPRISE SMV SCHEDULE OF MARKET VALUES SSS SOCIAL SECURITY SYSTEM SRP SOUTH ROAD PROPERTIES STEM SCIENCE, TECHNOLOGY, ENGINEERING AND MATHEMATICS TCT TRANSFER CERTIFICATE OF TITLE TESDA TECHNICAL EDUATION AND SKILLS DEVELOPMENT AGENCY TFL TRANSPORT FOR LONDON TFP TOTAL FACTOR PRODUCTIVITY TIN TAXPAYER IDENTIFICATION NUMBER TOD TRANSIT ORIENTED DEVELOPMENT TWG TECHNICAL WORKING GROUP UDHA URBAN DEVELOPMENT AND HOUSING ACT UID UNIQUE IDENTIFICATION DENOMINATION USAID UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT VAT VALUE ADDED TAX WDI WORLD DEVELOPMENT INDICATORS WDR WORLD DEVELOPMENT REPORT ZEIS ZONA ESPECIAL DE INTERESSE SOCIAL v Table of Contents Acknowledgements ......................................................................................................................................................................................................................................................................... viii Memorandum to Policy Makers and City Mayors in the Philippines ....................................................................................................................................................................... ix Executive Summary ............................................................................................................................................................................................................................................................................. xi Chapter 1: Urbanization in the Philippines ................................................................................................................................................................................................................. 1 1.1 Introduction and Context ................................................................................................................................................................................................................................................ 1 1.2 Urbanization Performance in the Philippines ....................................................................................................................................................................................................... 3 Chapter 2: Managing Urbanization for Eiciency and Growth .................................................................................................................................................................... 7 2.1 Introduction .............................................................................................................................................................................................................................................................................. 7 2.2 Urbanization Presents Much Opportunity for the Philippines .................................................................................................................................................................... 9 2.3 Beneits from Urbanization are Yet to be Fully Harnessed – A 3d Perspective on the Key Challenges ............................................................................. 15 2.4 Recommendations ............................................................................................................................................................................................................................................................ 19 Chapter 3: Improving City Competitiveness for Economic Development and Job Creation ............................................................................................. 23 3.1 Introduction and Approach ......................................................................................................................................................................................................................................... 23 3.2 Key Challenges ..................................................................................................................................................................................................................................................................... 24 3.2.1 Business Environment: Recent Successes and Need for Further Improvements ............................................................................................................... 24 3.2.2 Improving Infrastructure, Land Management and Access to Markets to Support Growth .......................................................................................... 30 3.2.3 Low Demand for Innovation and Skill Mismatch ................................................................................................................................................................................. 34 3.2.4 Limited Access to Finance and Business Support ................................................................................................................................................................................ 41 3.2.5 Ineicient Economic Planning, Unclear Mandate and Weak Governance .............................................................................................................................. 44 3.3 Recommendations ............................................................................................................................................................................................................................................................ 50 Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor ...................................................................................................... 58 4.1 Introduction and Context: Urbanization and Poverty in the Philippines ........................................................................................................................................... 58 4.2 Key Challenges ..................................................................................................................................................................................................................................................................... 61 4.2.1 Economic Exclusion .............................................................................................................................................................................................................................................. 61 4.2.2 Spatial Exclusion ..................................................................................................................................................................................................................................................... 68 4.2.3 Social Exclusion........................................................................................................................................................................................................................................................ 76 4.3 Recommendations ............................................................................................................................................................................................................................................................. 81 Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery ............................................................... 87 5.1 Introduction and Context .............................................................................................................................................................................................................................................. 87 5.2 Key Challenges .................................................................................................................................................................................................................................................................... 90 5.2.1 Absence of a Comprehensive National Urban Policy ........................................................................................................................................................................ 90 5.2.2 Absence of a Lead Agency for Urban Development .......................................................................................................................................................................... 92 5.2.3 Weaknesses in the Fiscal Decentralization Framework Contribute to the Poor Enabling Environment for Urban Service Delivery .... 94 5.2.4 Metropolitan Fragmentation and Weak Mechanisms for Inter-jurisdictional Coordination ..................................................................................... 102 5.3 Recommendations ......................................................................................................................................................................................................................................................... 105 Chapter 6. Improving Land Administration and Management for Sustainable Urban Development .................................................................... 122 6.1 Introduction ........................................................................................................................................................................................................................................................................ 122 6.2 Key Challenges ................................................................................................................................................................................................................................................................. 125 6.2.1 Weak LAM System ................................................................................................................................................................................................................................................ 125 6.2.2 Outdated and Inefective Land Use Planning and Regulations and Weak Implementation ...................................................................................... 129 6.2.3 Increasing Informality in Major Urban Centers ................................................................................................................................................................................... 131 6.2.4 Inefective Property Taxation and Valuation Practices .................................................................................................................................................................... 132 6.3 Recommendations .......................................................................................................................................................................................................................................................... 134 Annexes ................................................................................................................................................................................................................................................................................................. 141 vi Philippines Urbanization Review List of Tables Table 1.1 Urban Growth in the Philippines ............................................................................................................................................................................................................................ 3 Table 3.1 Procedures for Starting a Corporation: Average Cost and Time ......................................................................................................................................................... 26 Table 3.2 Cost of the Internet Connection in Selected Cities and Countries ................................................................................................................................................... 30 Table 3.3 Business Support Services at the National Level and in Selected Cities ........................................................................................................................................ 43 Table 3.4 “Traic Light Signal” of Key Constraints in Major Metropolitan Areas of the Philippines ...................................................................................................... 49 Table 5.1 Fragmentation among Urban Areas in the Philippines ........................................................................................................................................................................... 88 Table 5.2 LGU Own-Source Revenues as a Share of Total Operating Income ................................................................................................................................................. 95 Table 5.3 City-Level Own-Source Revenues as a Share of Total Operating Income ..................................................................................................................................... 97 Table 5.4 Distribution of Provinces & Cities by Age of Real Property Values, as of June 2014 ................................................................................................................ 98 Table 6.1 Quality of Land Administration Index by Region for Selected Asian Countries ..................................................................................................................... 125 Table 6.2 Roles of Agencies and LGUs in Land Administration and Management .................................................................................................................................... 126 Table 6.3 Estimates of Titled and Untitled Parcels ........................................................................................................................................................................................................ 127 List of Boxes Box 2.1 Urban Density and Agglomeration Economies .............................................................................................................................................................................................. 11 Box 2.2 Densiication of Metro Manila from 1990 to 2014 ......................................................................................................................................................................................... 13 Box 2.3 The Shifting Role of Major Cities in Korea ........................................................................................................................................................................................................... 14 Box 2.4 Copenhagen 1946: A Regional Framework that Anticipated Transit-Oriented Development ............................................................................................. 20 Box 3.1 Annual Business Permit Renewal Process in Batangas in 2012: An Applicant Firm’s Perspective ....................................................................................... 27 Box 3.2 Good Practices in Business Registration: The Case of Batangas, CDO, IloIlo and Quezon City ............................................................................................. 29 Box 3.3 BPO and Jobs in the Philippines: Opportunities and Challenges from Technological Change ........................................................................................... 32 Box 3.4 Good Practice in Using ICT to Improve Urban Transport: Cases of Manila and Cebu ............................................................................................................... 34 Box 3.5 What is Innovation? The Role of Governments ................................................................................................................................................................................................ 35 Box 3.6 Assessment of the Philippines’s Research Capacity and Innovation Ecosystem .......................................................................................................................... 39 Box 3.7 Examples of Local Business Support Programs: Quezon City .................................................................................................................................................................. 44 Box 3.8 Quezon City Economic Governance ..................................................................................................................................................................................................................... 46 Box 3.9 Good Practice: Cebu Education Development Foundation for Information Technolgy: Business Associations can Play a Pivotal Role ..... 48 Box 3.10 Performance Governance System (PGS) can Help Address Challenges of Accountability .................................................................................................. 48 Box 3.11 Business Registration Reform Options: International Good Practice ................................................................................................................................................ 52 Box 3.12 Developing Ecosystem for Startups: the Case of New York ................................................................................................................................................................... 55 Box 3.13 Organizing for Economic development .............................................................................................................................................................................................................57 Box 5.1 Guiding Principles for the Development of a National Urban Policy .................................................................................................................................................. 91 Box 5.2 Examples of National Urban Policies ..................................................................................................................................................................................................................... 93 Box 5.3 Overview of Intergovernmental Transfers .......................................................................................................................................................................................................... 96 Box 5.4 DILG Performance Monitoring of LGUs ............................................................................................................................................................................................................. 100 Box 5.5 What Explains the Low Level of LGU Indebtedness? ................................................................................................................................................................................. 101 Box 5.6 Examples of National Urban Development Agencies ............................................................................................................................................................................... 111 Box 5.7 Global Approaches to Metropolitan Governance ....................................................................................................................................................................................... 112 Box 5.8 Key Issues in Metropolitan Governance ............................................................................................................................................................................................................ 113 Box 5.9 Examples of Metropolitan Service Authorities .............................................................................................................................................................................................. 115 Box 5.10 Examples of Metropolitan-Wide Planning Authorities ........................................................................................................................................................................... 116 Box 6.1. Deinitions .......................................................................................................................................................................................................................................................................... 123 Box 6.2: Examples of Land Administration and Management Deiciencies on Urbanization .............................................................................................................. 128 Box 6.3. Impacts of Outdated SMVs ....................................................................................................................................................................................................................................... 133 Box 6.4 Improving Land Administration Quality in Republic of Korea ............................................................................................................................................................... 135 Box 6.5 Assessment of International Experience in the Use of Alternative Tenure Options for Mobilizing Land for ISF ...................................................... 138 vii List of Figures Figure 1.1 Change in Real GDP, 2005-12 .................................................................................................................................................................................................................................. 4 Figure 1.2 Change in Employment, 2005-12 ........................................................................................................................................................................................................................ 4 Figure 1.3 Size and Productivity of Firms in the Large Cities and the Rest of the Country ......................................................................................................................... 5 Figure 1.4 GDP Growth in Manila and Regional and Global Peers, 2008-2012 .................................................................................................................................................. 6 Figure 1.5 GDP Growth in Cebu and Davao and Regional and Global Peers, 2008-2012 ............................................................................................................................ 6 Figure 2.1 The Philippines is One of the Early “Urbanizers” in Asia ............................................................................................................................................................................ 7 Figure 2.2 Urban vs. Rural Populations ..................................................................................................................................................................................................................................... 8 Figure 2.3 Urban vs. Rural Population Annual Growth Rates ....................................................................................................................................................................................... 8 Figure 2.4 National Population Shares by Land Type ....................................................................................................................................................................................................... 8 Figure 2.5 Urbanization and Economic Development .................................................................................................................................................................................................... 9 Figure 2.6 Urban Population Density by Country ........................................................................................................................................................................................................... 12 Figure 3.1 Philippines Detailed Rankings in Doing Business 2016 ........................................................................................................................................................................ 24 Figure 3.2 Change in ICT Intensity of Employment, 2002-12 ................................................................................................................................................................................... 31 Figure 3.3 Percentage of Companies that Experienced either Electricity Black Out or Water Supply Problems ......................................................................... 32 Figure 3.4 Metro Manila Rail Transit Network Compared to Other Asian Cities ............................................................................................................................................. 33 Figure 3.5 Contrast between Strong Performance of the Metro Manila on Human Capital, and Poor Innovation Outcomes ........................................... 36 Figure 3.6 R&D Expenditure, % of GDP, 2011-12, versus TFP Growth 2002-12 ................................................................................................................................................ 36 Figure 3.7 Global Innovation Index Score, 2015 ............................................................................................................................................................................................................... 36 Figure 3.8 Innovation can have the Biggest Impact on Low Innovation-Intensive Firms ........................................................................................................................ 37 Figure 3.9 Economic Complexity of the Filipino Production and Exports is Low .......................................................................................................................................... 37 Figure 3.10 Key Sources of Information for Business Innovation ............................................................................................................................................................................ 38 Figure 3.11 Share of Firms Identifying Problems with Finding Quality Workforce ........................................................................................................................................ 40 Figure 3.12 SME Loans to GDP and Contribution to GDP, 2014 .............................................................................................................................................................................. 41 Figure 3.13 SME Loans Growth Rate 2011-2014, CAGR in % ..................................................................................................................................................................................... 41 Figure 3.14 The Distribution of Economic Development Functions between Local and National Authorities ........................................................................... 45 Figure 4.1 Analytical Framework for Inclusive Urbanization ..................................................................................................................................................................................... 58 Figure 4.2 Issues Faced by Informal Settlers in Metro Manila ................................................................................................................................................................................... 60 Figure 4.3 Urban Poverty Trend ................................................................................................................................................................................................................................................. 61 Figure 4.4 Share of Urban Poor (%) .......................................................................................................................................................................................................................................... 61 Figure 4.5 Number of Years Living in Informal Settlements ...................................................................................................................................................................................... 62 Figure 4.6 Unemployment and Underemployment (Urban vs. Rural .................................................................................................................................................................. 62 Figure 4.7 Unemployment Rates (Poor vs. Non-Poor) among Urban Population per Region ............................................................................................................... 63 Figure 4.8 Underemployment Rates (Poor vs. Non-Poor) among Urban Population per Region ........................................................................................................ 64 Figure 4.9 Shares of Informal Employment to Total Employment (Rural vs. Urban) .................................................................................................................................... 65 Figure 4.10 Shares of Informal Employment among Urban Poor vs. Urban Non-Poor .............................................................................................................................. 66 Figure 4.11 Average Daily Wage of Urban Poor vs. Urban Non Poor .................................................................................................................................................................... 66 Figure 4.12 Total Household Income and Expenditure of the Urban Poor (in Php, 2012) ........................................................................................................................ 67 Figure 4.13 Concentration of ISFs by Region ..................................................................................................................................................................................................................... 68 Figure 4.14 Tenure Arrangement of ISFs ..........................................................................................................................................................................................................,.................... 69 Figure 4.15 Main Sources of Drinking Water for ISFs in Metro Manila ................................................................................................................................................................. 71 Figure 4.16 Access to Sanitation Facilities by ISFs in Metro Manila ....................................................................................................................................................................... 71 Figure 4.17 Time Spent for Commute to Work by ISFs in Metro Manila (in Minutes) .................................................................................................................................. 72 Figure 4.18 Educational Attainment of ISFs in Metro Manila .................................................................................................................................................................................... 73 Figure 4.19 Issues Faced with Flooding by ISFs in Metro Manila ............................................................................................................................................................................ 75 Figure 4.20 Incidence of Homicide .......................................................................................................................................................................................................................................... 78 Figure 4.21 Crime Rates (per 100,000 people) .................................................................................................................................................................................................................. 78 Figure 4.22 Perceptions on Crime and Safety in the Philippines ............................................................................................................................................................................ 79 Figure 6.1 Harnessing Economic Growth through Local Investment: The Role of LAM ......................................................................................................................... 124 Figure 6.2 Urban Expansion in Manila ................................................................................................................................................................................................................................. 130 viii Philippines Urbanization Review Acknowledgements This report was prepared by a World Bank team led by Judy Baker (Task Team Leader) with a core team including Makiko Watanabe (Co-Task Team Leader, Urban Poverty and Inclusion), Bernice Varona Soriano and Louie Limkin (Urban Poverty and Inclusion) ; Tuo Shi and Chris Hooton (Urbanization and Productivity); Marcin Piatkowski, Dmitry Sivaev and Farida Adji and Jerzy Toborowicz (Competitive Cities); Lawrence Tang and Julia Nebrija (Institutions and Metropolitan Governance); and Floradema Eleazar and Marilyn Martinez (Land issues). Vickram Cuttaree (Program Leader) provided valuable guidance to the team. The team would like to thank peer reviewers Somik Lall, Paul Procee, Stefano Negri, Ming Zhang, Thalyta Yuwono and Mika Petteri Torhonen, as well as inputs at the concept stage from Mona Haddad, and Bertine Kamphius. The team would also like to thank comments from members of the World Bank Philippine country team. A series of consultations have taken place to discuss the content and indings of the report in the Philippines including workshops held in 2016 in January, March, April, June, August and September. The work was partially funded under a grant funded through the Multi Donor Trust Fund for Sustainable Urbanization at the World Bank. The work was carried out under the guidance of Abhas Jha (Practice Manager, Urban and DRM), Ede Jorge Iijasz-Vasquez (Senior Director, GSURR), Sameh Wahba (Director, GSURR) Agata Pawlowska (Country Manager, Portfolio and Operations, the Philippines) and Mara Warwick (Country Director, the Philippines). Image Credits Aileen Dimatatac, Gabriel Mistral, Francisco Guerrero ix Memorandum to Policy Makers and City Mayors in the Philippines This memo introduces you to a report about Urbanization in the Philippines with a set of priority recommendations for fostering more competitive, sustainable and inclusive cities in your country. The global evidence is clear – urbanization provides enormous opportunities for growth, job creation and poverty reduction. Yet when unmanaged, it can lead to congestion, slums, pollution, inequality and crime. The Philippines is at a critical juncture in its urbanization process with the number of people living in cities projected to increase by approximately 20 million over the next 20 years. By 2050, it is estimated that close to 102 million Filipinos will live in cities, about double the number of today. Decisions made now will afect how that urbanization takes place, how cities grow, how vibrant they are, and the extent to which they contribute to improving the lives of tens of millions of residents. The opportunity, therefore, lies in ensuring that some of the binding constraints that have hampered the full beneits of urbanization from being realized until now, are addressed. This will require a number of bold policy reforms that are needed at both the national and local level. The top priorities fall into 5 broad categories with the inal two, strengthening institutions for urban development and improving land administration management, likely to have the biggest impact given the extent to which efective urban governance and land issues constrain urban development in the Philippines today. For your consideration are the following areas for policy reform: • Managing urbanization for eiciency and growth. The spatial and economic patterns of urbanization are impeding urban led growth and productivity. Priority policies include focusing on managing the existing urban density and preparing for further concentration such as better coordinating spatial planning, land use, infrastructure development and service delivery, encouraging mobility in the labor market, and improved transport infrastructure to lower inter-city transportation costs, expand market access, and generate complementary and specialized functions for each city to formulate a more eicient system of cities. Within cities, the promotion of eicient and afordable mass transport such as metro rail transit (MRT) and bus rapid transit (BRT) will increase productivity and improve sustainability. Eicient land use through transit-oriented development (TOD) has been demonstrated to be a high-value complement to mass transit in many other countries. • Improving city competitiveness for local economic development and job creation. There are a number of actions needed to improve the business environment to make cites more attractive to investors such as simplifying licensing and permitting, and standardizing requirements and procedures. Investing in basic infrastructure, particularly connective infrastructure and mass transit, and opening up land markets to make areas more available for development will foster a competitive environment. Strengthening programs to foster innovation and match skills with demand, strengthening the Local Economic and Investment Promotion Oices (LEIPOs) and promoting new opportunities with the private sector will generate new opportunities for workers. x Philippines Urbanization Review • Promoting inclusive growth by creating opportunities for the urban poor. There are many people in cities that rely entirely on the informal sector for work, and live without access to afordable housing and basic services, ultimately creating divisions which hamper growth and competitiveness. To promote inclusion in cities, there is a need to prioritize programs for afordable housing and basic services, foster participation at the community level for slum upgrading, provide incentives for completion of secondary education which is critical to securing jobs, and invest in livelihoods and job support for low income groups. • Strengthening institutions and governance of metropolitan areas for eicient service delivery and sustainable urban planning and management. At the core of the efective management of cities, delivery of services and creation of a dynamic environment for job creation is strong institutions and good governance. A necessary starting point is a comprehensive national urban policy that includes provision for the establishment of a lead agency for urban development and housing, and clearly deines the roles of national and local governments. Structural reforms to the legal framework for iscal decentralization will also be required to strengthen local service delivery. At the metropolitan level, a reform of Metro Manila Development Authority (MMDA) is needed for Metro Manila and the development of metropolitan coordination arrangements in some of the larger secondary urban areas. • Improving land administration and management to open up land markets. Improvements in land information systems are critically needed so that can be used reliably and transparently across agencies, updating land use planning and regulations that takes into account future requirements and sustainability concerns, improving property taxation and valuation practices to ensure the proper collection of real property taxes, and addressing informality by expanding opportunities for afordable housing and land tenure. Implementing such reforms in the Philippines is possible but will require a strong commitment from you, your counterparts in other agencies or neighboring municipalities, and from the private sector and citizens. The investments made now will provide a pathway forward for the Philippines where urban areas contribute signiicantly to boosting growth and reducing poverty, and are dynamic, prosperous, resilient, inclusive and attractive places to live. xi Executive Summary Introduction Urbanization is a driving force for growth and poverty reduction. Globally, over 80 percent of economic activity is concentrated in cities, and cities are essential for lifting millions of people out of poverty through the opportunities that density and agglomeration can bring with jobs, services, and innovation. However, if not carefully managed and planned for, the beneits of urbanization are not realized and can result in congestion, slums, pollution, inequality and crime. City competitiveness is an important part of successful urbanization. A competitive city facilitates its irms and industries to create jobs, raise productivity, and increase the incomes of citizens over time.1 At the same time, it is not possible to achieve these objectives without strong institutions, social inclusion, resilience, and environmental sustainability. All of these elements are important to harnessing the beneits of urbanization and must be enabled by both national and local governments. The Philippines is one of the fastest urbanizing countries in the East Asia and Paciic region. In the past ive decades the urban population grew by over 50 million people, and by 2050, approximately 102 million people (more than 65 percent of the country’s total population) will reside in cities. Urban density overall is high, particularly in Metro Manila, one of the regions fast growing megacities. Urbanization is correlated with economic eiciency and growth in the Philippines, as has been found in other countries. The economic beneits of urbanization are realized through agglomeration economies based on the high and increasing density of cities which provides much opportunity for structural transformation of the economy While urbanization in the Philippines has had positive impacts on increased productivity, economic growth and poverty reduction, the country has not beneited from urbanization gains as much as other countries which leaves much scope for increasing opportunities going forward. There are a number of underlying structural issues afecting urbanization in the Philippines in various ways. First is the countries’ archipelagic geography which creates divisions in connectivity both internally and to external markets. Second is the country’s bypassing the industrialization process normally associated with urbanization, having shifted directly from agriculture to service sector dominance. Third is a stagnating manufacturing sector which has not resulted in high quality jobs and, in turn, has negatively afected urban led growth. In all known cases of high and sustained growth, urban manufacturing and services led the process while increases in agricultural productivity freed up the labor force that moved to the cities and manned factories.2 Fourth, is the Philippines high exposure to natural hazards, particularly looding and seismic risk, all of which exacerbate urban management challenges. 1 World Bank, 2016, “Competitive Cities for jobs and growth: what, who and how” 2 Spence, M. Annez, P. and Buckley, B. eds, 2009, Urbanization and Growth, World Bank. xii Philippines Urbanization Review Beyond these key structural issues are two binding constraints which, unlike the structural issues, can be addressed through a bold reform agenda. These include highly fragmented institutional arrangements for urban development and metropolitan governance, and major shortcomings in land administration and management. The resulting impacts of these issues coupled with rapid urbanization have greatly hampered city competitiveness afecting economic development, job creation, poverty reduction and livability. This being said, there are many encouraging opportunities for better leveraging urbanization in the Philippines. One only has to look at the vibrant private sector and development of areas such as Bonifacio Global City in Taguig City, or the IloIlo Business Park in IloIlo, City, Center, or a number of successful programs at the local level to know what is possible. To realize these opportunities, however, commitment to implement bold reforms will be needed by a range of stakeholders including national and local government, the private sector and civil society. This policy report aims to analyze key issues related to urbanization in the Philippines and provide a set of recommendations as part of a major reform agenda for improving the competitiveness of cities in the country. The report draws on a number of existing data sets, extensive consultations with Government, the private sector, researchers and civil society groups. It also draws on international experience on urbanization. Chapter 1 of the report provides an introduction to urbanization in the Philippines. Chapter 2 covers analysis of urbanization and growth in the Philippines, Chapter 3 focuses on city competitiveness for economic development and job creation, Chapter 4 provides an analysis of urban poverty with a particularly focus on informal settler families (ISFs) in Metro Manila, Chapter 5 outlines the key binding constraints related to institutions for urban development and metropolitan governance; and Chapter 6 covers constraints related to land administration and management in urban areas. Each chapter includes a framework for analysis, identiication and assessment of key issues, and provides recommendations for the Government of the Philippines to consider. Important topics related to environmental sustainability and resilience are included as a cross cutting issue as they relate to urban planning and land management, but not covered in depth as they have been addressed in other World Bank reports. The full study is summarized below. Background technical papers for each section have also been prepared and cover much more analysis and detail. These are available as a companion to this policy report. Urbanization and Economic Growth Urbanization presents a great opportunity for the economic growth of the Philippines. Evidence from today’s developed countries and rapidly emerging economies suggests that urbanization and economic growth go hand in hand due to agglomeration economies embedded in the high density of cities. The Philippines has the second highest average urban density in East Asia and Paciic Region and it is still increasing. This provides a potential driver for enhanced productivity and economic growth. Rising population and economic densities could enable savings in transport and communication costs, lead to frequent interactions, enable iner specialization and knowledge spillovers, and heighten competition in product and labor markets. A clear densiication process has been experienced by Metro Manila since 1990s together with a structural transformation of the urban economy, with industries moving out of the central urban areas into the metro fringe and secondary cities, and replaced by services, which can lead to a more eicient system of cities based on experience from developed countries. xiii The economic beneits from urbanization in the Philippines, however, are yet to be fully harnessed. Realization of eiciency gains from urbanization have been hampered by some key challenges, which can be summarized from the dimensions of Density, Distance and Division. • Density. The fast growing urban population and urban density have not been accompanied by commensurate investments in urban infrastructure, as exacerbated by the weak and fragmented institutions and governance for urban and metropolitan management and service delivery, leading to congestion diseconomies associated with land scarcity and lack of basic services such as clean water and sanitation, and housing, increases in natural hazard risk and pollution, and rising commuting costs, which have most clearly manifested in Metro Manila. • Distance. The country faces signiicant connectivity challenges from infrastructure bottlenecks alongside the archipelagic geography. Inadequacy of urban and regional transportation infrastructure remains a major constraint in the movement of people and commodities between production and consumption centers as well as between urban centers. The high domestic transport cost increases economic distance between cities, limits the potential for cities to diversify or specialize based on their comparative advantage and trade with each other, and thus undermines the eiciency of the whole city network. • Division. The economic, social and spatial exclusion in urban areas are most prominently manifested by the large scale of ISFs living in poor conditions with limited access to basic urban services. Such divisions and inequality can also be detrimental to the development of a vibrant urban middle class whose consumption patterns can boost domestic demand and a more service based urban economy. Competitiveness for Economic Development and Job Creation City competiveness is important to job creation, growth and livability. Both national and local governments have a role in providing an enabling environment that facilitates irms and industries to create jobs, raise productivity and increase the incomes of citizens over time. The primary source of job creation in cities all over the world has been the growth of private sector irms, which have typically accounted for around 75 percent of job creation. In recent years large cities in the Philippines have been the main drivers of growth consistently outperforming the national economy. The rise of service sector, particularly the BPO industry, have led to creation of hundreds of thousands of well paid jobs. However Filipino cities remain behind their international peers, suggesting the need for reforms to improve the potential for additional economic growth and job creation in cities. Several key issues have been identiied as major obstacles. Poor business environment. Business regulations in the Philippines are among the most complex in East Asia, and impact overall job creation. The World Bank Doing Business 2016 report ranks the Philippines 103 out of 189 in overall ease of doing business with only Indonesia ranking lower (109) among major regional economies. Cities impose additional constraints on national level regulations and fail to adopt best practice solutions plenty of which are available within the country. As a result, starting a business, paying taxes, construction permits, and registering property are all especially onerous. xiv Philippines Urbanization Review Weak infrastructure, land management and access to markets. The high costs and unreliable provision of internet, water, and electricity serve to undermine irm productivity and growth. Poor telecommunication infrastructure in particular limits the growth of the business process outsourcing sector, an important source of well-paying jobs. Cities are also crippled by traic due to underinvestment in transportation infrastructure. High infrastructure, logistics and shipping costs, coupled with corruption, has led the Philippines to have higher than average bilateral trade and export costs within the region and limited access to international markets. Low demand for innovation and skill match. The Philippines spends only 0.1 percent of GDP on R&D, behind all regional peers with the exception of Indonesia. According to the Global Innovation Index, it also lags behind peers in research outputs, patents and intellectual property rights. The combined negative impact of poor business environment, lack of access to early-stage inance and weak access to domestic and global markets has resulted in cities like Metro Manila, Cebu and Davao being unable to leverage substantial human capital potential to enhance innovation. This is compounded by a lack of coordination between the university system and the private sector, and an overall mismatch between the skills of university graduates and the needs of the business community. Limited access to inance and business support. The banking sector in the Philippines is stable, proitable and well capitalized, but provides limited inancing to micro, small, and medium-size enterprises (MSMEs). The lack of legal protection for bank supervisors, an inadequate bankruptcy resolution framework, lack of centralized credit information, and a cumbersome collateral registration process all result in overly conservative guidelines for credit operations. As a result, many large banks fail to meet the legal target of loans to MSMEs accounting for at least 8 percent of the lending portfolio. Other forms of public business support while plentiful sufer from poor coordination and lack of monitoring and evaluation systems that allow for assessment of efectiveness of such programs. Insuicient economic planning. Many city-level economic development programs, with a possible exception of the few most developed cities in Metro Manila, are under-resourced and fail to reach a critical mass to tangibly support the private sector. Furthermore, a lack of clarity of the economic development functions of both local and national government agencies undermines eiciency. While at the local level lack of transparency and ineicient organization of economic function in city halls becomes a hindrance for economic growth. Inclusive Growth for Pro-Poor Development and City Competitiveness Inclusive urbanization, where everyone can reap the beneits of urban growth, is a key aspect of competitive cities. If urbanization is managed well, it can provide a pathway out of poverty and act as an engine of growth. If not, it can give rise to inequality and exclusion that can derail the development process. As mentioned above, the challenges of division as manifested through economic, spatial and social exclusion ultimately afect opportunities in cities. xv Rising multi-dimensional urban poverty, inequality and high levels of informality. Urban poverty has remained largely unchanged between 2003 and 2012, while national poverty decreased slightly. Yet, disparities in living conditions are most evident in urban areas as cities fail to keep pace with the increased demand for jobs, housing, infrastructure and basic services. Not all informal settlers are income poor, but many live just above the poverty line and are extremely vulnerable to slipping back into poverty with potential external shocks such as natural disasters and illnesses. Informal employment and low wages. Urban poor sufer from high underemployment, which was twice as high (29%) as that of urban non-poor (14.7%) in 2012. This signiies that urban poor are predominantly engaged in part-time or casual labor, which is informal by nature, and sufer from unstable and low income. The urban poor are afected by informality and low wages due to low levels of education. Workers with less than secondary education face substantially worse labor market prospects than those who completed high school. Their earnings are signiicantly lower, and the risk of poverty is much higher. Indeed, a survey of 3,000 ISFs in Metro Manila found that 53% have less than secondary education, severely limiting their job opportunities. Research shows that most urban poor prefer formal wage employment should there be opportunities. But many are trapped in informal service sector and are engaged in self-entrepreneurship “out of necessity”. Large and growing slum populations and limited basic services. Informal settlements vividly depict multi-dimensional poverty in the Philippines. The high rate of migration to cities has put enormous pressure on needs for housing, infrastructure, and basic services in major cities. The result has been proliferation of informal settlers without adequate access to decent living conditions with security of tenure. The number of informal settlers in the Philippines has increased gradually, from 4.1% of total urban population in 2003 to 5.4% in 2012. In 2012, 5.4% of the urban population or about 2.2 million people lived in informal settlements. In Metro Manila alone, an estimated 1.3 million people live in informal settlements. Exposure to natural and other hazards. Many informal settlements are located on river loodplains or along shorelines exposing informal settlers to recurring loods. This creates an enormous burden in terms of loss of livelihood, damage to housing and assets, and increased health risks due to prolonged exposure to water pollution. Fires in congested informal settlements are also quite common creating additional risk to low income families. Social problems of crime and violence. The rates of crime and violence are higher in cities than the national average and understood to disproportionately afect the urban poor. Numbeo data shows that Quezon City, Zamboanga, Bacolod, Manila and Cebu in that order have the highest crime rates in the country. Many low income residents report feeling unsafe, with the group considered most at risk for getting involved in criminal activity being male youth who have dropped out of school or are unemployed. xvi Philippines Urbanization Review Institutions for Urban and Metropolitan Management and Service Delivery Strong institutions and governance are critical to the efective management of cities, the delivery of eicient and sustainable urban services and infrastructure, and the establishment of an enabling environment for business and job creation. In the Philippines, a number of underlying institutional and governance issues at both the national and metropolitan levels stand out as binding constraints, preventing the country from optimizing the beneits of urban development. With continued expansion and population growth in urban areas, the need for the Philippines to address these issues becomes more urgent. Absence of a comprehensive national urban policy. An efective national urban policy (NUP)—including legal foundations, capable institutions, and inancial instruments—is critical for designing and building productive, livable, and resilient cities. The Philippines has historically lacked an efective and comprehensive policy that deines a vision for urban development that is supported by strategies and linked actions to realize the potential and to tackle the problems arising from the concentrated growth of population and economic activity. Encouragingly, a number of existing national planning frameworks, such as the National Urban Development and Housing Framework and the National Framework for Physical Planning, attempt to address speciic dimensions of urban development. However, past administrations have not prioritized such plans, and as a result, relevant national agencies have not been empowered to enforce them. The ineicient spatial pattern of urbanization at the macro level, with an over-concentration of development in Metro Manila and the underdevelopment of secondary urban areas, is a consequence of the absence of a national urban policy in the Philippines. Absence of a lead agency for urban development and housing. An already complex environment for urban development is exacerbated by institutional fragmentation. Numerous regulatory and sectoral agencies have overlapping mandates and functions, with no single designated national authority to oversee urban development. Due to the absence of a lead agency for urban development and housing, formal mechanisms for both horizontal coordination (across sectoral agencies) and vertical coordination (between national agencies and LGUs) within urban areas are very weak, which has contributed to poor urbanization outcomes as they relate to city competitiveness, mobility, poverty and inequality, and environmental quality. Fiscal decentralization complicates urban service delivery. The intergovernmental iscal system supporting LGUs has not been conducive to improving local service delivery. Structural weaknesses in the institutional and legal framework for iscal decentralization constrain the capacities of LGUs to efectively and eiciently provide urban services. Furthermore, an institutional environment characterized by overlapping accountabilities across levels of government, the absence of standards for service delivery, and poor availability of information on service delivery provides weak demand-side and supply-side incentives for LGU performance. Relative to other types of LGUs, cities enjoy productive property and business tax bases and are less dependent on iscal transfers to inance recurring expenditures. In contrast to the vast majority of provinces and municipalities, most cities are able to raise local revenues to fund the majority of their local expenditures. Nonetheless, cities continue to lack the iscal capacity to independently undertake major urban infrastructure projects and remain reliant on the national government for major public infrastructure investments, such as major road and bridge construction, drainage and lood control facilities, housing, and solid waste management facilities. xvii Metropolitan fragmentation and weak mechanisms for inter-jurisdictional coordination. Urban areas in the Philippines face the same broad issues of metropolitan fragmentation that are confronted by metropolitan regions across the world. As urban expansion leads to mismatches between socio-economic (functional) areas and administrative (spatial) jurisdictions, city and municipal mayors have to grapple with the demands for inter-jurisdictional coordination to efectively and eiciently provide core urban services with metropolitan-wide dimensions, such as traic management, solid waste and environmental management, and road infrastructure. The experience of MMDA shows that a metropolitan authority created without the proper resources, both inancial and technical, has limited potential to fulill a comprehensive mandate. MMDA has historically lacked the funding, technical capacity, and political authority to properly fulill its role, leading to poor service delivery outcomes highlighted by an on-going transportation crisis. Outside of Metro Manila, there have been no eforts by the national government to establish formal metropolitan arrangements. Composite urban LGUs are left to voluntarily pursue coordination agreements with minimal external support, resulting in varied quality of service delivery and inadequate management across urban areas. Land Administration and Management for Efective and Sustainable Urban Development Land administration and management systems (LAM) help shape the spatial, economic and social development in cities. Weak land administration and management, poor land use planning, and limited capacities in property taxation and valuation in the Philippines are also binding constraints which have far ranging efects on the vibrancy of the land market, in shaping and rationalizing urban growth in a sustainable manner, and in generating revenues to support programs to improve urban life. Weak land administration and management system. There are multiple institutions with overlapping mandates that address land in the Philippines. Poor information sharing between these institutions creates gaps in records, multiple titles on the same land, and fake and spurious titles which all serve to undermine investor conidence in the titling system. Secondly, incomplete cadastral surveys have resulted in unresolved conlicts and boundary disputes among local governments. This has created governance issues in afected areas – such as inconsistent taxation, conlicting land uses, unclear responsibilities in service provision, and computation of national government transfers. Third is the huge backlog in titling. In the face of rising land values, this prevents proper land management in cities and can even constrain investments in property development. This situation has also contributed to an incomplete tax base for real property taxes collection eforts, and underdevelopment of high growth areas. Finally, slow registration and processing times for transfers, mortgages, and securing BIR clearance has increased the cost of doing business in the Philippines. Outdated and inefective land use planning and regulations. In cities such as Metro Manila and Cebu, comprehensive land use plans (CLUP) are out of date. Of the sixteen cities and one municipality in Metro Manila, only ive cities have updated CLUPs, while in Cebu city, the CLUP has not been updated since 1980. This has created a situation where urban land use planning is not efective in controlling spatial development, and urban growth is happening in an ad hoc manner. Urban sprawl has been the norm, compromising eiciency and negating many of the beneits of agglomeration. Additionally, the review and approval of development permits has been discretionary. In the absence of updated CLUPs as a basis of zoning, applications for land development have been evaluated on a piece meal basis, creating opportunities for improper and corrupt practices. xviii Philippines Urbanization Review Increasing informality with many areas at high risk. The growth of ISF in Metro Manila and major urban centers has partly been the consequence of weak planning and ad hoc spatial development. Issues of informality are further exacerbated by limited information about ISF populations, hindering eforts to provide services and assistance. Guidelines and standards for socialized housing are weakly enforced, and there have been systematic barriers in mobilizing government lands for ISF. Rapid property development has also increased land prices beyond afordability, and ISF struggle to ind tenure options and have their housing rights respected. Many also settle on lands that are high risk lood prone areas. Inefective property taxation and valuation practices. Revenues from real property constitutes the most stable source of income for local governments, and are important sources of resources to improve service delivery and inance infrastructure projects. However, average real property tax collection by all LGUs has declined as proportion of GDP, representing only 0.35% in 2013 down from 0.45% in 2000. This can be explained in part by incomplete LGU assessment roles, which are overly dependent on the self-reporting of property owner about the values of their lands. Information about land and properties is also not frequently shared across government agencies and LGUs. Additionally, in many cities in Metro Manila, Metro Cebu and Cagayan de Oro, property assessment for tax purposes is not based on market prices and the schedule of market values are not updated regularly. Recommendations The analysis in this report raises a number of complex, deep rooted problems that have limited the Philippines from fully beneiting from urbanization. Looking ahead, there are many opportunities for changing course towards more competitive, sustainable and inclusive cities in the Philippines. This will require bold actions and a sustained commitment to prioritizing investments in cities. Both Metro Manila and secondary cities have substantial needs for urban infrastructure, improving the investment climate, and the delivery of basic services to residents. Actions are required at both the national and local level, and will be reliant on strong leaders who are willing to take risks in a transparent and consultative manner, and push forward on diicult reforms. Given the size and complexity in Metro Manila, and its importance for the national economy, there is an urgent imperative to prioritize a few critical areas that impede competitiveness such as congestion, urban looding, and slums. These issues span across administrative boundaries and can only be solved through strong political commitment and coalitions for change in metropolitan governance and land administration management. At the same time, investing in secondary cities presents an enormous opportunity for shifting the overall balance of spatial development in the country, increasing productivity in urban areas and avoiding many of the problems that have evolved over time in Metro Manila as these cities grow. Across all cities, there are substantial needs to address iscal and capacity constraints to deliver core urban services. Key recommendations are grouped into 5 priority areas, with two that stand out as top priorities for broadest impact: i) addressing the binding constraints of weak institutions to improve the delivery of necessary infrastructure, services and sustainable urban planning, and ii) improving land administration management to open up land markets for city competitiveness. The recommendations are discussed in greater detail in the full report. A matrix of proposed level of priority, time frame and implementing agency is also included. xix 1. Managing Urbanization for Eiciency and Growth In order to maximize the economic gains from urbanization, policies on land use and investments in connective infrastructure should focus on managing the existing urban density and prepare for further concentration. It is important to ensure that spatial planning, land use, infrastructure development and service delivery can progress commensurately with the population growth and density increase in existing urban areas. Policy measures are needed to make the productive factors, such as land, people and capital, more eiciently allocated within cities. The land administration and management need to be strengthened and the land use planning needs to be more efective so that the land market can function to meet the needs of growing urban density. Infrastructure development needs to be coordinated with land use planning and addressed as an integrated urban strategy that can cater to various user groups and anticipate long-term needs. More investments and stronger management are needed to improve intra-city connectivity and reduce the actual distance between people and jobs. Investments should be focused on increasing the capacity of existing road networks on one hand, and expanding and modernizing the mass transit system on the other hand. Eicient land use through transit-oriented development (TOD) has been demonstrated to be a high-value complement to mass transit development in many other countries. Improve transport infrastructure to lower inter-city transport cost, expand market access and generate complementary and specialized functions for each city, and formulate an eicient system of cities. Given the difering roles of cities in a national urban portfolio where each has a comparative advantage, specialization can facilitate the beneits of agglomeration. Primary cities such as Metro Manila typically serve as the gateway to the global economy with a strong service sector. Clustering of manufacturing in secondary cites enables cost saving for irms due to relatively cheap land and labor. Meanwhile, producers in the same or related industries gain from proximity to others through the sharing of capital inputs, information, and labor, matching between production requirements and types of land, labor, and intermediate inputs and can help accelerate industrial diversiication and upgrading for the country. The importance of secondary cities is already recognized by in the Philippines through its National Spatial Strategy. Growth of secondary cities would also help absorb surplus labor from rural areas and alleviate migration pressures on Manila. Key elements to fostering the growth of secondary cities are improved transport infrastructure and low transport costs between cities which can enable irms to access local, regional, and global markets—both for buying inputs and selling outputs, reinforce agglomeration efects and generate complementary and specialized functions, as well as investments in quality basic services such as health and education to attract a well skilled labor force. Policy measures to improve inter-city connectivity should be prioritized based on an integrated transport framework that takes into account selectivity, sequencing and prioritization. New connective infrastructure investments should be accessed based on their impacts on the entire existing transport network and respective overall and spatial economic development. Accordingly, key data gaps, such as the absence of a national database of local roadways, needs to be addressed to promote evidence based planning. xx Philippines Urbanization Review 2. Improving City Competitiveness to Generate Local Economic Development and Foster Job Creation Simplify business registration, licensing, and tax regimes to spur more rapid business growth. A healthy business environment is essential for growth and poverty reduction. Yet, the Philippines ranks 103th among 189 countries in the World Bank Doing Business 2016 report. In the short-term, the government should: (i) standardize requirements and procedures, (ii) reduce or abolish the paid-in minimum capital requirement, (iii) make the use of notaries and lawyers optional for company startups, and (iv) move toward a ixed registration fee that covers only administrative costs. Government should consider disassociating business tax collection from business permit renewal, in line with international good practice. The simpliied tax regime can encourage micro, small and medium enterprises (MSMEs) to move to the formal sector. Possible measures include replacing the value-added tax (VAT), percentage tax, and income tax with a single business tax on turnover and ofer a simpliied system of accounting and reporting. Modernization of tax payments through on line systems would increase eiciency.3 Improve access to land and markets and upgrade infrastructure to foster better trade connectivity and higher irm productivity. Given the fragmented market and archipelagic geography, good access to regional and international markets and trade connectivity are essential for the Philippines. Accurate land information system on ownership, boundaries, and land values available to all is urgently needed. Government should prioritize investments in connective infrastructure, mass transit, and identifying areas of land for development to foster a more competitive environment for private sector. Reforms to lower entry barriers for shipping and modernization of ports4 should be accelerated through coordinated eforts by Bureau of Internal Revenues (BIR), Department of Trade and Industry (DTI) and Department of Public Works and Highways (DPWH) to further simplify import-export procedures by streamlining customs and border management procedures, simplifying the BIR importer licensing process, improving shipping/trucking/warehouse regulations and facilitating logistics services multimodality. More investments are needed to improve roads, electricity, water, sanitation, transportation, communication and upgrading of ports to improve productivity and connectivity. The Competition Commission which became operational in 2016 has substantial power to promote fair competition across industries and can help to promote competition in the network industries, particularly the telecoms, to encourage sharing of infrastructure by providers, increased competition on the price and quality, and more inclusive access, especially for broadband Internet. Strengthen innovation systems that drive productivity and sustained economic growth. Filipino cities, with their high levels of human capital, well-established university systems, and vibrant business process outsourcing (BPO) industry, have high potential to breed innovative activities. Yet, their potential is not maximized. The establishment of a new lagship entrepreneurship agency would help to consolidate various existing support programs and centralize resources available for supporting innovation. There is also much potential for expanding collaboration between universities and business, drawing on programs such as the Commission on Higher Education (CHED)’s secondment program between science and the business community. At the city level, there is scope for developing the community of entrepreneurs through creating networking spaces, accelerators, incubators and shared services facilities, and upgrading skills and attracting talent through targeted programs. 3 For good practices on paying taxes, see http://www.doingbusiness.org/data/exploretopics/paying-taxes/good-practices 4 The Philippines Economic Update. October 2015. The World Bank. xxi Improve access to inance and business support services especially for MSMEs to facilitate their growth. Reforms are needed in many areas to address the main constraints to inancing MSMEs including strengthening of comprehensive credit information system, legal protections for banks and adequate bankruptcy and debt resolution framework to encourage more proactive bank inancing, and better collateral registration system. There is also need to consolidate the business support system managed by multiple agencies. A low hanging fruit is the expansion and strengthening of the network of Go Negosyo centers, one-stop shops for business support, and upgrade the scope and quality of their services. Strengthen cities’ role and capacity in economic development planning and implementation. Cities can play a decisive role in promoting competitiveness, given the signiicant responsibilities decentralized to the local governments. Yet, there is lack of enabling environment, adequate capacity and incentives for the local governments to fulill their mandates. The national government needs to clearly delineate the roles of national and city governments for economic development, provide incentives for local governments to collaborate at the metropolitan level and harmonize business support mechanisms (such as registration requirements, tax regimes, etc.) to promote the development of industrial clusters, modify the structure of Comprehensive Development Plans (CDPs) to give priority to economic development targets, and provide resources for local governments’ capacity building. City governments should strengthen the Local Economic and Investment Oices (LEIPOs) to identify local economic development priorities and coordinate relevant activities, and deepen the public-private collaboration with business associations to promote economic policy reforms. 3. Promoting Inclusive Growth by Creating Opportunities for the Urban Poor Economic Inclusion Enhance livelihoods/jobs support for ISFs in close collaboration with the private sector. A majority of the ISFs engage in low- paying low-skilled informal jobs due to lack of education and skills, vulnerable to external shocks that can push them below the poverty line. There is a need to help them move up the job ladder and augment their income. Such support requires a two-pronged approach. One for skills training and placement for formal wage employment, and the other for enterprise development. For the former, the government should reorient the existing vocational skills training and placement programs to a more “market demand-driven” approach, where potential employers are involved in the course design and subsidy for initial post-placement period. For the latter, upfront support to analyze the marketability of end products or services and end support to link the microenterprises to market need to be built in. A properly designed public works program can also be an efective means to provide complementary income support to the unskilled poor, especially to compensate the unstable income. Prioritize investments in facilitating secondary education completion to improve job prospects of the poor. Completion of high school education is critical in securing job opportunities. Support to alleviate the inancial burden of uniforms, school supplies, education materials, and transportation costs, possibly through the ongoing conditional cash transfer (CCT), would greatly enhance the chances of more urban poor youths to complete higher education. xxii Philippines Urbanization Review Spatial Inclusion Provide support for afordable housing, secure tenure, and access to basic infrastructure and services. Provide support to inance primary and secondary infrastructure development which would be undertaken under the leadership of the local government unit (LGU) consistent with city-level planning. Tertiary infrastructure such as small-scale water supply, drainage, sanitation, solid waste management, footpaths, ire safety measures, sidewalks and street lights are also needed. Identiication and prioritization of tertiary infrastructure could be carried out in a community-driven manner to empower the poor. Disaster risk reduction will be mainstreamed through design and implementation to reduce the poor’s exposure to both natural and man-made disasters. Alternative housing support in the form of incremental housing or rental housing should also be undertaken concurrently to maximize options. Strengthen institutions that underpin afordable housing and inclusive urbanization. A coherent assignment of institutional roles and functions in managing the urbanization processes at both the national and local level is absent. There is a need to strengthen support for the LGUs. Additionally, the mandates of key shelter agencies need to be reined, and an authoritative body that oversees overall urban development needs to be identiied or created. Finally, there is a need for continued support to develop and implement key policy reforms in the areas of urban development planning, housing inance, land use management and administration, disaster risk management etc. Social Inclusion Support communities and engage them in the local development process through citywide mapping and community- driven slum upgrading. Beyond the needs of addressing afordable housing and secure tenure for ISFs, there is much that can be done at the community level. It is well established that communities can be efective if empowered to undertake planning and decision-making of their own afairs. By providing hands-on facilitation, capacity building, and engaging them in community-driven mapping and slum upgrading, and providing opportunities to engage with LGU oicials, urban poor communities will be empowered and social cohesion within the community will be strengthened. Increased social cohesion can nurture mutual trust that helps mitigate crime and violence. Moreover, increased interaction between the LGU and the communities helps generate social capital which can be harnessed by LGUs toward advancing local development and housing initiatives. 4. Strengthening Institutions and Metropolitan Governance for Better Delivery of Infrastructure, Services and Resilient Urban Planning and Management Strengthen the institutional framework for urban development through the adoption of a Philippine National Urban Policy (NUP) and the establishment of a lead agency for urban development and housing. A comprehensive NUP for the Philippines should deine the urban development priorities of the country, which speciies how urban development is integrated into broader national development goals and deines a vision for the sustainable spatial expansion of urban areas across the country. Key elements include speciication on the respective roles of the national and local governments in the urban planning, inancing, and provision of core urban infrastructure and services. At the same time, NUP should also xxiii provide a comprehensive urban planning framework that integrates national level development objectives and strategies with metropolitan- and city-level land use and development plans. The NUP should provide for the establishment of a lead agency for urban development and housing, which will be responsible for the implementation of the policy’s objectives and priorities. Consistent with on-going policy discussions to consolidate all the key shelter agencies under one national government agency, the lead agency should also assume full responsibility for the housing sector and be empowered to provide capacity building, technical assistance, and policymaking support to cities and metropolitan areas. Reform metropolitan governance arrangements in Metro Manila and in secondary urban areas. Given the strong history of and legal protections for the local autonomy of LGUs, a renewed approach to a more efective metropolitan governance of Metro Manila requires a balance of maintaining the local autonomy of the constituent LGUs while adopting politically and technically feasible compromises for the more efective and eicient delivery of critical urban services. A feasible arrangement could be one that allows territorial fragmentation but where sector-based integration overcomes it in the performance of certain sectors, such as transportation and traic management, solid waste disposal and management, and water and sanitation. Such an arrangement will require a shift in the role of MMDA to focus on metropolitan wide development and land use planning and coordination. The current functions of MMDA as an implementing agency with responsibilities for direct service provision would thus be greatly reduced, allowing it to focus on its core competencies. For smaller metropolitan areas outside of Metro Manila, a more nuanced approach should be provided for under the proposed NUP that allows for more lexibility and innovation. i. In relatively large, “fragmented” metropolitan areas, particularly Metro Cebu or Metro Angeles in Pampanga, adopting the same approach proposed for Metro Manila would be appropriate. Metropolitan-wide planning bodies may be established to coordinate inter-jurisdictional development and land use planning and to lead the coordination between the metropolitan area and the national government for service delivery and large-scale public infrastructure investments. Concurrently, metropolitan service authorities may established to deliver strategic, inter-jurisdictional urban services across each metropolitan area. ii. For smaller “spillover” metropolitan areas, a more practical approach may be to strengthen formal mechanisms and incentives for inter-local government coordination for spatial and land-use planning and collaboration for service delivery. Improve accountability systems for local service delivery through iscal decentralization reforms. Structural reforms to the intergovernmental iscal system of the Philippines require legislative actions and must hence be considered as part of a long-term agenda. DILG has led comprehensive reviews of the iscal decentralization system in past but proposed revisions to the Local Government Code (LGC) have found minimal support in Congress. Nonetheless, executive actions of the proposed enactment of NUP and establishment of a lead agency for urban development and housing will help to address weak systems of accountability that stem from fundamental issues in the decentralization system. Further, short- term reforms should be pursued to support the capacity building of cities for local revenue administration and to improve the institutional environment for debt inancing. Capacity building support and advocacy activities targeted to cities can help to facilitate the regular updating of schedules of market values and local revenue codes, the adoption of modern tax xxiv Philippines Urbanization Review mapping and GIS tools, and the streamlining of business permits and licensing systems. Executive actions are also needed to facilitate LGU borrowing, such as better coordination by Bureau of Local Government Finance (BLGF) of the Department of Finance and the Monetary Board to lower the bureaucratic hurdles and to shorten the processing time for LGUs to access loans. 5. Strengthening the Land Administration and Management System to Promote City Competitiveness and Sustainable Urbanization Establish a uniied land information system available to the public and streamline the institutional arrangement for LAM. Fragmented institutional responsibilities have resulted in lack of a coherent land information system. This has led to gaps in records, overlaps, existence of multiple titles on the same land, and spurious titles, increasing the transaction costs in securing, registering and transferring property rights and constraining investments in property development. By consolidating land information from all agencies concerned, an integrated system can serve as a backbone of a land tenure improvement program and up-to-date property tax and information system. It should be supported by the development of a national spatial data infrastructure (NSDI) or data inter-operability system that will facilitate exchange and sharing of land records among agencies and make these more accessible to the public. Concurrently, fragmented institutional responsibilities on LAM should be consolidated to improve eiciency in service delivery. Develop a metropolitan-wide land use physical framework plan to optimize the beneits of agglomeration and mitigate urban sprawl. A metropolitan- wide land use physical plan that takes into account future requirements for space, economic activities and function is needed to guide development and improve eiciency in infrastructure and service provision across cities. Such a plan needs to support implementation of projects aimed at maximizing the beneits of agglomeration, especially in the areas of transport, environmental management, sewage, and other urban infrastructure. This should be developed in a consultative manner including the private sector and citizens as they will have important roles to play in its realization. Based on the framework plan, there should be incentives for the LGUs to update their comprehensive land use plan (CLUPs) and Zoning Ordinances to guide spatial development in cities. The roles for projects to be implemented by local government and those to be carried out by national government based on the framework plan should be clearly distinguished. Address increasing informality in major urban centers by establishing an integrated land and ISF information system and undertake a systematic approach to tenure improvement of ISFs Given the magnitude of ISFs, it is vital that opportunities for afordable housing and secure tenure are sustainably expanded. A program on integrated land and ISF information systems is urgently needed, and will require dedicated funding, resources and a timetable to undertake inventory of existing tenure status of ISFs and prepare citywide land tenure improvement plans. The designated oice would also need to take responsibility for identifying available land for ISFs for in-city resettlement and on-site development, establish infosystem link between government agencies and LGUs, make land information more accessible to all users, and take measures to institutionalize land data-sharing between and among LGUs and national government agencies.A systematic or citywide approach to tenure improvement for ISFs is also urgently needed, while piloting alternative tenure options such as usufruct, long term leases, and land sharing. There is also a need to simplify current procedures to mobilize government lands for ISFs. xxv Strengthen local governments’ capacity on property valuation and taxation to improve service delivery and increase investments in vital infrastructure. Capacity building by BLGF under Department of Finance is needed for LGUs on valuation and taxation to implement existing standards and methods. Concurrently, there is a need to develop an accurate integrated land information system that allows LGUs to capture accurate information on land ownership, strengthen BLGF’s monitoring of LGUs’ real property tax collection, and developing measures to ensure that LGUs regularly update their schedule of market values – such as establishment of a National Valuation Authority which will be responsible for approving the values - so that property tax is based on the latest market prices. Prioritize sustainable land management and enhance resilience in urban planning. Given the potentially negative consequences of speciic urban planning and land management decisions that can lead to congestion, pollution and high greenhouse gas emissions, cities need to consider the trade-ofs of infrastructure investments as these are likely to be locked in for hundreds of years. The rapid population growth particularly in unplanned or poorly planned settlements is also contributing to growing exposure to natural hazards in cities. Enhancing city resilience as a cross cutting approach through multi-hazard risk reduction measures, public awareness and preparedness, and risk mitigation for public facilities (e.g. retroitting of schools, hospitals, government administrative buildings, etc.) in the Philippines is a priority for city competitiveness and can be integrated with good urban planning and management, sectoral investments, and better preparedness. xxvi Philippines Urbanization Review Fostering Competitive, Sustainable, and Inclusive Cities for the Philippines Summary Matrix of Policy Recommendations Key to Table: Priority level: Level of Diiculty (based on experience in the Philippines and internationally) H-High, M-Medium, Low 1. Easiest: Introduction/change in business process/practices without changing existing policies/ regulations. Changes that can be issued as a Secretary’s letter. Time Horizon 2. Moderately easy: Introduction/changes in process, programs, policies or regulations pertaining S: Short term: next 12 months to a single agency. Changes that can be introduced through Memorandum Circulars/Memoranda M: Medium Term: next 3 years signed by one secretary. L: Long Term: next 5-6 year 3. Challenging: Introduction/changes in process, programs, policies or regulations pertaining to multiple agencies, which require substantial commitment, capacity, and budget. Changes that can be introduced through Joint Memorandum Circulars signed by various secretaries. 4. Very diicult: Introduction/changes of permanent character that require Presidential Executive Order or Administrative Order. 5. Extremely diicult: Introduction/changes in policies and regulations that require an enactment of a bill e.g.- establishment of a new department. Issue Recommendations and Priority Level Priority Leading Institutions Time Horizon Level of (H, M, L) (H, M, L) (Primary/Secondary) (S, M, L) Diiculty (1-5) Managing Urbanization for Eiciency and Growth High and increasing Give policy priorities to managing the urban density H NEDA (w/ HUDCC, M/L 3 urban density not and preparing for further concentration, facilitating LGUs) accompanied by market driven urbanization and make the productive commensurate factors more eiciently allocated within cities. infrastructure and management, Improve the land administration and management H HUDCC (w/ LGUs, DENR, M/L 3 leading to and strengthen the land use planning to make the LRA) congestion land market function for growing urban density. diseconomies Coordinate infrastructure development, especially M HUDCC(w/ DOTr, M 3 public transport, with land use planning as an MMDA, LGUs) integrated urban strategy that can cater to various user groups and anticipate long-term needs. Inadequate inter- Increase investments in inter-city connectivity H NEDA (w/ DOTr, DPWH, M 2 city connectivity infrastructure. DOF) infrastructure increases economic New investments should be considered under an M NEDA (w/ DOTr, DPWH, M/L 3 distance, limits integrated transport framework and assessed based HUDCC, DTI) market access and on their impacts on the entire existing transport specialization network and respective overall and spatial economic inter-city development. connectivity infrastructure is Key data gaps, such as the absence of a national H DOTr (w/ DPWH, PSA) inadequate with database of local roadways, needs to be addressed to S 3 very uneven promote evidence based planning. distribution xxvii Issue Recommendations and Priority Level Priority Leading Institutions Time Horizon Level of (H, M, L) (H, M, L) (Primary/Secondary) (S, M, L) Diiculty (1-5) Improving City Competitiveness to Generate Local Economic Development and Foster Job Creation Poor business Further simplify business registration, licensing and H DTI (w/ NCC) S 2 environment business permit renewal based on international and domestic good practice. Improve transparency of business regulations by H DTI S 1 publishing all regulations and processes online. Introduce a simpliied tax regime for micro enterprises to enhance compliance with tax laws, H BIR M 3 reduce the size of the informal sector and increase tax revenue. Harmonize regulatory requirements and processes across metropolitan areas to reduce compliance M LGUs M 3 burden on enterprises. Expand the use of city rankings on the business environment to enhance transparency and M DILG (w/NCC) M 2 accountability and strengthen incentives. Low demand for Expand incentives for collaboration between H DOST (w/DTI) S 2 innovation, skills universities and business by reforming funding for mismatch, and public universities and increasing funding for applied, limited access commercial research. to inance and business support Create a public fund to support the development of M DOST (w/CHED) S 2 a private seed and venture capital market to inance startups. Introduce innovation-oriented public procurement to M DOST (w/DTI) S 3 support innovative SMEs. Attract diaspora and global talents by expanding on M DTI M 2 the existing programs for attracting diaspora and creating new programs to attract global talents. Address the skills mismatch by facilitating city- M CHED M 2 level dialogue between universities and business, adjusting curricula to business needs, and monitoring the job market performance of university graduates. Consolidate the business support system; and H CHED M 2 introduce a monitoring and evaluation framework to track its efectiveness. Encourage cities to leverage national support M DTI (w/LGUs) S 2 programs by providing small grants to prepare and submit applications for funding to national support programs (“grants for grants”). Ineicient Increase transparency and accountability of local H DILG S/M 2 economic governance to strengthen incentives for reforms by planning, unclear expanding access to online information and raising mandate and weak rewards for top performers. governance M NEDA (w/LGUs) S 2 Modify the structure of the local planning system and guidelines for LGUs to give priority to economic development targets. M DILG (w/DTI) M 3 Enhance the mandate and capacity of Local Economic and Investment Oices (LEIPOs) to identify economic development priorities and programs and coordinate activates of various departments. xxviii Philippines Urbanization Review Issue Recommendations and Priority Level Priority Leading Institutions Time Horizon Level of (H, M, L) (H, M, L) (Primary/Secondary) (S, M, L) Diiculty (1-5) Promoting Inclusive Growth by Creating Opportunities for the Urban Poor Low incomes Help the urban poor access formal wage H DOLE (w/ NCC) S 2 and limited job employment by providing skills training and opportunities for placement services in close collaboration with the ISFs private sector. Expand cash-for-work programs to provide income M DSWD S 2 support to the unskilled poor to smooth the income variability. Provide inancial support through conditional cash M DSWD M/L 2 transfer to facilitate secondary education completion. Shortage of Establish an integrated land and ISF information H HUDCC (w/ LGUs, LRA, S 3 afordable system through citywide participatory mapping. DENR) housing, large slum populations, Provide grants in the form of serviced land, H HUDCC (w/ SHFC, NHA, S 2 and deiciencies help secure property rights, and provide home LGUs) in access to basic improvement grants for low-income informal services communities. Provide infrastructure and site development for H SHFC, NHA (w/ LGUs) S 2 formal but blighted communities and informal communities that are in the process of securing land tenure. Expand connective infrastructure to allow H DPWH (w/ HUDCC, M/L 3 neighboring areas to beneit from urbanization, LGUs) including of-city resettlement sites. Help the rental housing market grow. M HUDCC (w/ private M 3 market) Communities Provide hands-on facilitation, capacity building, H HUDCC (w/ SHFC, LGUs) S 2 excluded from and engage them in community-driven mapping local development and slum upgrading, and provide opportunities to process engage with LGU oicials. Provide TA funds to help organize urban poor H HUDCC S 2 communities around collective priority issue of housing. Weak institutional Strengthen support for the LGUs to allow them to fulill their H HUDCC (w/DILG) S 2 capacity for mandate to plan and implement housing programs. afordable housing and inclusive Review and streamline the roles and responsibilities of key urbanization shelter agencies need to be reined. H HUDCC (w/ key shelter S 4 agencies) Work to establishing an authoritative body that oversees overall urban development and housing needs. H HUDCC (w/ key shelter M 5 agencies, Congress, Continue to support to develop and implement key policy Senate) reforms in the areas of urban development planning, housing inance, land use management and administration, H HUDCC (w/ key shelter S 3 disaster risk management etc. agencies, Congress, Senate) xxix Issue Recommendations and Priority Level Priority Leading Institutions Time Horizon Level of (H, M, L) (H, M, L) (Primary/Secondary) (S, M, L) Diiculty (1-5) Strengthening Institutions and Metropolitan Governance for Better Delivery of Infrastructure, Services and Urban Planning and Management Absence of a Strengthen the institutional framework supporting urban H Oice of the President M 5 Comprehensive development through the adoption of a Philippine National Legislature National Urban Urban Policy and the establishment of a lead agency for » Senate Comm. Policy urban development and housing. on Urban Planning, Housing & Resettlement Absence of a Lead » Congress Comm. Agency for Urban on Housing & Urban Development Development HUDCC (w/ DILG, DOF- BLGF) Metropolitan Strengthen metropolitan governance and service H Oice of the President M 5 fragmentation delivery through the reform of metropolitan governance Legislature and weak arrangements in Metro Manila and secondary urban areas. » Senate Comm. mechanisms for on Urban Planning, inter-jurisdictional Housing & Resettlement coordination » Congress Comm. on Housing & Urban Development HUDCC (w/ MMDA) Weaknesses Strengthen accountability systems for local service H Oice of the President M 5 in the iscal delivery through iscal decentralization reforms. Legislature (The potential decentralization » Senate Comm. Constitution framework on Urban Planning, shift to a federal Housing & Resettlement system will » Congress Comm. entail iscal on Housing & Urban decentralization Development reforms) Short-term reforms to support the capacity building H DOF-BLGF (w/ DILG) S 3 of cities for local revenue administration and to improve the institutional environment for debt inancing. xxx Philippines Urbanization Review Issue Recommendations and Priority Level Priority Leading Institutions Time Horizon Level of (H, M, L) (H, M, L) (Primary/Secondary) (S, M, L) Diiculty (1-5) Strengthening the Land Administration and Management System to Promote City Competitiveness and Sustainable Urbanization Overlaps in delivery Support earlier moves to establish a single agency H LRA (w/ DENR-LMB, L 5 of LAM services integrating the functions of LRA, and DENR-LMB. Congress and Senate) Lack of land Establish uniied land information system (ULIS) at H LGUs (w/ LRA-RoD, M 4 information sharing the LGU. DENR-LMB) among agencies Develop a national spatial data infrastructure (NSDI) M LGUs (w/ LRA-RoD, M 4 or data interoperability system that will facilitate DENR-LMB) exchange and sharing of land records among agencies and make these more accessible to the public. Develop and implement Citywide Land Tenure M LGUs (w/ LRA-RoD, M 3 Improvement Plans. DENR-LMB) Prepare implementing rules for section 209 of Local H DOJ (w/ DILG) S 2 Government Code mandating RoDs to provide annual abstracts of Registries to LGUs. Most CLUPs Develop a metropolitan wide land use physical H NEDA (w/ DILG, HUDCC, M 3 are outdated, planning framework that takes into account future MMDA, LGUs in MM, resulting in ad hoc requirements for space, economic activities, and Metro Cebu and LGU and unplanned function and incentives for updating of CLUPs. clusters) development, uncontrolled The national government, should develop a metro H NEDA (w/ HUDCC, DILG) M 3 urban sprawl; wide plan to support implementation of projects lack of coherence aimed at maximizing agglomeration, for transport, in city CLUPs in environmental management, sewage, and other metropolitan areas urban infrastructure. No updated Issue an Executive Order to implement a program on H HUDCC (w/ DILG, LGUs) S 2 inventory of ISF integrated land and ISF information system for NCR and tenure status (for ISF and other related programs); and eventually, of lands occupied, for the rest of the country. making it diicult to adequately In support of above, undertake systematic or city H LGUs (w/ DENR, LRA, M 3 plan and support wide approach to tenure improvement of ISF. SHFC) formalization of growing number Pilot test alternative tenure options. H HUDCC (w/ DILG, LGUs) S 3 of ISF Implement a shelter program to help ISFs secure H HUDCC (w/ SHFC, NHA, M 2 Limited tenure property rights and provide serviced land with core LGUs) options for securing houses – through a systematic “citywide community tenure for ISF upgrading strategy”. xxxi Issue Recommendations and Priority Level Priority Leading Institutions Time Horizon Level of (H, M, L) (H, M, L) (Primary/Secondary) (S, M, L) Diiculty (1-5) Limitations and Formulate new planning and building guidelines M HLURB M 3 gaps in existing and standards that will strengthen a more holistic settlements approach to planning and implementation of shelter planning and and settlements development for ISF communities. building standards (BP 220) *(Does not apply to on site development and self help initiatives, does not take into account alternative and afordable housing solutions) Problematic Executive Order to establish an Interagency H HUDCC (w/ NHA, SHFC, S 4 Proclamations that Presidential Task Force to resolve Issues in LGUs) cannot be enforced enforcement of Proclamations. to formalize ISF Absence of clear Standardize guidelines for administration and M HUDCC (w/ NHA, SHFC, S 3 guidelines on disposition of proclaimed lands for ISF, through an LGUs) administration and Executive Order. disposition of lands proclaimed for ISF Poor performance Establish and maintain a uniied land information H LGUs (w/ LRA-RoD, M 3 of LGUs in real system at the LGU in order to have complete and DENR) property taxes updated information base for tax assessment and collection collection. Strengthen BLGF oversight and monitoring of LGU H BLGF M 2 Treasurers to ensure the administrative and judicial remedies are utilized, to improve tax collection and collect delinquent payments. Review IRA formula to incentivize local revenue M DILG (w/ BLGF) L 5 generation. Outdated Schedule Strengthen LGU capacities on property valuation and M BLGF S/M 2 of Market Values taxation. (SMVs) and SMVs do not relect market Review options obliging LGUs to update SMVs M BLGF (w/ DILG) M 4 prices based on market values: (i) provision of incentives to those who will abide by the mandatory general revision; and (ii) establishment of a National Valuation Authority (NVA) which will be responsible for approving the values. In the long term, work towards the establishment of M BLGF (w/ DILG) L 5 central mass valuation system that provides fair and timely estimates of property and taxation values. xxxii Philippines Urbanization Review Graphic Representation of Policy Recommendations Managing Urbanization for Eiciency and Growth Short-Term Policy Recommendations 1 Medium High Priority Level 1. Key data gaps, such as the absence of a national database of local roadways, needs to be addressed to promote evidence based planning Low 0 1 2 3 4 5 Level of Diiculty 1 Medium-Term Policy Recommendations Medium High 2 Priority Level 1. Increase investments in inter-city connectivity infrastructure Low 2. Coordinate infrastructure development, especially public transport, with land use planning as an 0 1 2 3 4 5 integrated urban strategy that can cater to various Level of Diiculty user groups and anticipate long-term needs Long-Term Policy Recommendations 1 2 Medium High 1. Give policy priorities to managing the urban density Priority Level and preparing for further concentration, facilitating 3 market driven urbanization and make the productive factors more eiciently allocated within cities Low 2. Improve the land administration and management 0 1 2 3 4 and strengthen the land use planning to make the Level of Diiculty land market function for growing urban density 3. New investments should be considered under an integrated transport framework and assessed based on their impacts on the entire existing transport network and respective overall and spatial economic development xxxiii Improving City Competitiveness to Generate Local Economic Development and Foster Job Creation 2 3 1 High 4 5 7 6 Priority Level Medium Low 0 1 2 3 4 Level of Diiculty Short-Term Policy Recommendations 1. Further simplify business registration, licensing and 5. Introduce innovation-oriented public procurement to business permit renewal based on international and support innovative SMEs domestic good practice 6. Encourage cities to leverage national support 2. Improve transparency of business regulations by programs by providing small grants to prepare and publishing all regulations and processes online submit applications for funding to national support programs (“grants for grants”) 3. Expand incentives for collaboration between universities and business by reforming funding for 7. Modify the structure of the local planning system public universities and increasing funding for applied, and guidelines for LGUs to give priority to economic commercial research development targets 4. Create a public fund to support the development of a private seed and venture capital market to inance startups xxxiv Philippines Urbanization Review 3 2 1 High 6 7 5 8 4 Priority Level Medium Low 0 1 2 3 4 5 Level of Diiculty Medium-Term Policy Recommendations 1. Introduce a simpliied tax regime for micro enterprises 5. Expand the use of city rankings on the business to enhance compliance with tax laws, reduce the size environment to enhance transparency and of the informal sector and increase tax revenue accountability and strengthen incentives 2. Consolidate the business support system; and 6. Attract diaspora and global talents by expanding on introduce a monitoring and evaluation framework to the existing programs for attracting diaspora and track its efectiveness creating new programs to attract global talents 3. Increase transparency and accountability of local 7. Address the skills mismatch by facilitating city-level governance to strengthen incentives for reforms by dialogue between universities and business, adjusting expanding access to online information and raising curricula to business needs, and monitoring the job rewards for top performers market performance of university graduates 4. Harmonize regulatory requirements and processes 8. Enhance the mandate and capacity of Local Economic across metropolitan areas to reduce compliance and Investment Oices (LEIPOs) to identify economic burden on enterprises development priorities and programs and coordinate activates of various departments xxxv Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 1 4 3 5 2 9 8 High 7 6 Priority Level 10 Medium Low 0 1 2 3 4 5 Level of Diiculty Short-Term Policy Recommendations 1. Help the urban poor access formal wage employment 6. Provide TA funds to help organize urban poor by providing skills training and placement services in communities around collective priority issue of close collaboration with the private sector housing 2. Establish an integrated land and ISF information 7. Strengthen support for the LGUs to allow them to system through citywide participatory mapping fulill their mandate to plan and implement housing programs 3. Provide grants in the form of serviced land, help secure property rights, and provide home improvement 8. Review and streamline the roles and responsibilities grants for low-income informal communities of key shelter agencies need to be reined, and an authoritative body that oversees overall urban 4. Provide infrastructure and site development for formal development needs to be identiied or created but blighted communities and informal communities that are in the process of securing land tenure 9. 9. Continue to support to develop and implement key policy reforms in the areas of urban development 5. Provide hands-on facilitation, capacity building, and planning, housing inance, land use management and engaging them in community-driven mapping and administration, disaster risk management etc slum upgrading, and providing opportunities to engage with LGU oicials 10. 10. Expand cash-for-work programs to provide income support to the unskilled poor to smooth the income variability xxxvi Philippines Urbanization Review Medium-Term Policy Recommendations 1. Help rental housing market grow 2. Work to establishing an authoritative body that oversees overall urban development and housing needs 2 High Priority Level 1 Medium Low 0 1 2 3 4 5 Level of Diiculty Long-Term Policy Recommendations 1. Expand connective infrastructure to allow neighboring areas to beneit from urbanization, including of-city resettlement sites 2. Provide inancial support through conditional cash transfer to facilitate secondary education completion 1 High Priority Level 2 Low Medium 0 1 2 3 4 5 Level of Diiculty xxxvii Strengthening Institutions and Metropolitan Governance for Better Delivery of Infrastructure, Services and Urban Planning and Management 1 Short-Term Policy Recommendations High Priority Level Medium 1. Short-term reforms to support the capacity building of cities for local revenue administration and to improve the institutional environment for debt inancing Low 0 1 2 3 4 5 Level of Diiculty Medium-Term Policy Recommendations 1. Strengthen the institutional framework 2 1 3 supporting urban development through the High adoption of a Philippine National Urban Policy and the establishment of a lead agency for urban Medium development and housing Priority Level Low 2. Strengthen metropolitan governance and service delivery through the reform of metropolitan governance arrangements in Metro Manila and 0 1 2 3 4 5 secondary urban areas Level of Diiculty 3. Strengthen accountability systems for local service delivery through iscal decentralization reforms xxxviii Philippines Urbanization Review Strengthening Institutions and Metropolitan Governance for Better Delivery of Infrastructure, Services and Urban Planning and Management 1 2 4 3 High Priority Level 5 Medium Low 0 1 2 3 4 5 Level of Diiculty Short-Term Policy Recommendations 1. Issue an Executive Order to implement a program on 3. Executive Order to establish an Interagency integrated land and ISF information system for NCR Presidential Task Force to resolve Issues in enforcement (for ISF and other related programs); and eventually, of Proclamations for the rest of the country 4. Pilot test alternative tenure options 2. Prepare implementing rules for section 209 of Local Government Code mandating RoDs to provide annual 5. Standardize guidelines for administration and abstracts of Registries to LGUs disposition of proclaimed lands for ISF, through an Executive Order xxxix 5 7 3 1 4 2 High 6 Priority Level 8 9 10 11 Medium Low 0 1 2 3 4 5 Level of Diiculty Medium-Term Policy Recommendations 1. Establish uniied land information system (ULIS) at the 7. Strengthen BLGF oversight and monitoring of LGU LGU Treasurers to ensure the administrative and judicial remedies are utilized, to improve tax collection and 2. Develop a metropolitan wide land use physical collect delinquent payments planning framework that takes into account future requirements for space, economic activities, and 8. Strengthen LGU capacities on property valuation and function and incentives for updating of CLUPs taxation 3. The national government, should develop a metro 9. Develop a national spatial data infrastructure (NSDI) wide plan to support implementation of projects or data interoperability system that will facilitate aimed at maximizing agglomeration, for transport, exchange and sharing of land records among agencies environmental management, sewage, and other and make these more accessible to the public urban infrastructure 10. Formulate new planning and building guidelines 4. In support of above, undertake systematic or city wide and standards that will strengthen a more holistic approach to tenure improvement of ISF approach to planning and implementation of shelter and settlements development for ISF communities 5. Implement a shelter program to help ISFs secure property rights and provide serviced land with core 11. Develop and implement Citywide Land Tenure houses – through a systematic “citywide community Improvement Plans upgrading strategy” 6. Establish and maintain a uniied land information system at the LGU in order to have complete and updated information base for tax assessment and collection xl Philippines Urbanization Review Long-Term Policy Recommendations 1. Support earlier moves to establish a single agency integrating the functions of LRA, and DENR-LMB 2. Review IRA formula to incentivize local revenue generation 3. Work towards the establishment of central mass valuation system that provides fair and timely estimates of property and taxation values. 1 High Priority Level Medium 2 3 Low 0 1 2 3 4 5 Level of Diiculty Chapter 1: Urbanization in the Philippines 1 Chapter 1 Urbanization in the Philippines 1.1 Introduction and Context The beneits of urbanization for growth and poverty reduction, the country has not beneited from urbanization reduction are well known. Over 80 percent of global gains as much as other countries. economic activity is concentrated in cities, and cities are essential for lifting millions of people out of poverty. City competitiveness is an important part of successful Through their density, they make it easier and cheaper to urbanization. A competitive city successfully facilitates its deliver basic public services and contribute to increasing irms and industries to create jobs, raise productivity, and productivity. That being said, if not carefully managed increase the incomes of citizens over time.5 At the same and planned for, the beneits of urbanization are not time, it is not possible to achieve these objectives without realized and can result in congestion, slums, pollution good urban governance, social inclusion, resilience, and and inequality. This is particularly true in rapidly growing environmental sustainability. While urbanization policies cities where services are not able to keep up with demand are important at the national level, many urban issues and land located near jobs is often constrained. In the are best handled by local governments. Good urban Philippines while urbanization is closely associated with governance ensures transparency, accountability, equity increasing productivity, economic growth and poverty and local participation. Social inclusion, which allows all 5 World Bank, 2016, “Competitive Cities for jobs and growth: what, who and how” 2 Philippines Urbanization Review eiciency and infrastructure investments are important to carefully consider now as such investments are likely to be locked in for decades. Cities that make investments that are green and resilient, ultimately generate higher economic returns and improve quality of life for residents. These core elements afecting city competitiveness are critical for current and future urbanization in the Philippines. This policy report aims to analyze key issues related to urbanization in the Philippines and provide a set of recommendations for improving the competitiveness of cities in the Philippines to better address job creation, economic development and poverty reduction. The report draws on a number of existing data sets, extensive consultations with Government, the private sector, researchers and civil society groups. It also draws on international experience on urbanization from around the world.6 Following this Introductory Chapter (1), Chapter 2 covers analysis of urbanization and productivity in the Philippines, Chapter 3 analyzes city competitiveness for economic development and job creation, Chapter 4 provides an analysis of urban poverty including a focus on ISFs in Metro Manila, Chapter 5 outlines the key constraints related to people to share in and contribute to rising prosperity, is institutions for urban development and metropolitan particularly important in urban areas where inequalities governance; and Chapter 6 covers land administration are highly visible. Resilience refers to a city’s ability to adapt management in urban areas. Background technical to a variety of shocks and stresses while still providing papers for each section have also been prepared and cover essential services to its residents, especially the poor much more analysis and detail. These are available as a and vulnerable. Environmental sustainability is afected companion to this policy report. by urban form and thus trade-ofs with regard to spatial 6 Data sets include the Family Income and Expendture Survey (National Statistics Authority), the Urban Expansion Dataset and shapeiles 2000-2010 (World Bank), Metro Manila Slum Survey, 2016 (World Bank) Chapter 1: Urbanization in the Philippines 3 1.2 Urbanization Performance in the Philippines Cities are the key engines of growth, job creation and Population and employment in Philippine cities have poverty reduction in the Philippines. Cities represent more grown at a fast pace in recent years. The Philippines is than 70 percent of the country’s GDP and the seven largest one of the fastest urbanizing countries in the East Asia urban areas host 54 percent of formal jobs.7 In line with and Paciic region. In the past ive decades the urban the increasing urbanization, the share of largest cities in population grew by over 50 million people, and by 2050, GDP increased from 38 percent to 40 percent between approximately 102 million people (more than 65 percent 2005 and 2012 (Figure 1.1). The share of Metro Manila, the of the country’s total population) will reside in cities. country’s dominant economic center, increased from 33 percent to 36.5 percent.8 Given the ongoing urbanization Over the ten-year period from 2000 to 2010, the population trends, the share of cities in GDP is likely to continue to of urban areas in the Philippines expanded at a faster rate grow. Overall poverty in urban areas (13.2%) is signiicantly compared to its peers in East Asia (World Bank 2015). lower than in rural areas (39.4%). Urban Philippines, with For 21 urban areas identiied in the Philippines with at almost twice the average per capita income as rural areas, least 100,000 inhabitants, the average annual increase in accounts for 44% of the total population but 58% of total population was greater in the Philippines (3.3 percent) income. compared to the regional average (3.0 percent). Excluding the largest urban area (Metro Manila), the average annual increase in population in urban areas was even higher at 3.9 percent. Table 1.1 Urban Growth in the Philippines POPULATION PHILIPPINES – URBAN POPULATION (MILLIONS) EAST ASIA – URBAN POPULATION (MILLIONS) SIZE CATEGORY (MILLIONS) NUMBER OF AVE. ANNUAL NUMBER OF AVE. ANNUAL URBAN AREAS 2000 2010 EXPANSION RATE URBAN AREAS 2000 2010 EXPANSION RATE 10 or more 1 12.20 16.52 3.1% 8 132.72 182.58 3.2% 5-10 0 - - - 17 88.98 119.83 3.0% 1–5 1 1.01 1.53 4.1% 106 154.65 211.89 3.2% 0.5 – 1 3 1.37 2.05 4.1% 166 88.93 117.44 2.8% 0.1 – 0.5 16 2.24 3.18 3.6% 572 114.05 145.78 2.5% Total 21 16.83 23.28 3.3% 869 579.33 777.51 3.0% Source: World Bank 2015 7 Data from the Philippines Business and Industry Survey 2012 (PBSI 2012). The seven largest metropolitan areas include the National Capital Region, Metro Cebu (Including Cebu City, Mandaue City and Lapu-Lapu), Davao City, Bacolod, Cagayan de Oro, General Santos, and Zamboanga. 8 Unless noted otherwise, all data are based on a proprietary dataset developed by Oxford Economics, which includes data on the main development parameters for 750 cities around the world. 4 Philippines Urbanization Review Figure 1.1 Change in Real GDP, 2005-12 Figure 1.2 Change in Employment, 2005-12 60% 30% 27% 54% 50% 25% 50% 45% 25% 41% 40% 20% 17% 16% 30% 15% 20% 10% 10% 5% 0% 0% Metro Manila Metro Cebu Davao City The Philippines Metro Manila Metro Cebu Davao City The Philippines Source: Oxford Economics While the country has more than 200 urban areas, Metro Despite these achievements, the Philippines has not Manila would continue to dominate (with 50 % of GDP beneitted from urbanization gains as much as other being generated by the greater Metro Manila area alone9) countries. The country has had lower economic growth and absorb more people around its periphery. During the during the urbanization process compared to regional 2000-2010 period, Metro Manila added an additional 4.3 neighbors: for the period 1970 to 2006, China and India million people. GDP and employment growth in recent demonstrated an average 6% increase in per capita GDP years has been faster than the national economy (Figure for every 1% increase in urban population while Vietnam 1.1 and 1.2). Fast growth helped produce more than a and Thailand exhibited 8% and 10%, respectively. The million new formal sector jobs in the seven largest urban Philippines, however, showed less than a 2% increase areas, and probably more given that many jobs created (World Bank 2015)10. More recent data at the city level in the informal sector were not reported by the national shows for example, that while Metro Manila’s economic statistics. growth outpaced the national average, it grew at a slower pace than its regional and global peers between 2008 and Fast growth has been driven by bigger and more 2012. Cities with a similar (Jakarta, Mumbai and Lima) or productive irms in cities than in rural areas. According to even higher GDP per capita (Kuala Lumpur, Buenos Aires) the results of the 2012 business and industry census, the were growing substantially faster in 2008-2012 than the formal irms in cities are 50% larger than irms in the rest of Filipino capital (Figure 1.4). Secondary tier cities of Cebu the country. They are also more productive, both in output and Davao have also performed less well than their per worker and in total factor productivity (TFP) (Figure peers.11(Figure 1.5). 1.3). This suggests that cities are a conducive place to do business and represent a large potential for further growth and job creation. 9 Webster, Corpuz and Pablo, 2003 10 Calculation based on data from World Development Indicators, World Bank 11 Cities focused on BPO and tourism were selected as comparators for Metro Cebu and Davao City. Cities specialized in BPO/IT activities include Pune and Coimbatore, two successful BPO centers in India, Georgetown – an IT and electronics manufacturing center in Malaysia, Recife – one of the most dynamically growing IT hubs in Brazil, Cordoba – second largest city in Argentina and a center of software and electronics. Cities specialized in coastal tourism include Da Nang – one of the fast growing tourist destination in south-east Vietnam, Padang – a major tourist destination in Indonesia, Denpasar – the largest city on Bali Island and one of the world’s top sea-side resorts, Kota Kinabalu – a regional center and a resort in Malaysia located on Borneo island, Acapulco – a well known resort in Mexico, Natal – a resort in Northern Brazil known for some of the best beaches in the world. Chapter 1: Urbanization in the Philippines 5 Figure 1.3 Size and Productivity of Firms in the Large Cities and the Rest of the Country Average irm size Labor Productivity Total Factor Productivity 120 2250 6.4 2200 100 2150 6.3 Value Added per worker (PHP, thousands) 2100 6.2 80 2050 6.1 Number of Employees TFP Index 2000 6 60 1900 5.9 1900 40 5.8 1800 5.7 20 1800 1700 5.6 0 1700 5.5 Large cities Rest of the country Large cities Rest of the country Large cities Rest of the country Source: The World Bank based on PCBI 2012. Several underlying structural problems have afected of high and sustained growth, urban manufacturing and the Philippines ability to fully harness the beneits services led the process while increases in agricultural of urbanization. Urbanization patterns and the productivity freed up the labor force that moved to the competitiveness of cities in the Philippines have cities and manned factories.12 Though labor productivity in historically been afected by, among other factors, its Metro Manila is higher than in Jakarta, Mumbai and Lima, archipelagic geography which makes access to markets and at a similar level with Bangkok, it is much lower than more complex, its bypassing the industrialization process in Kuala Lumpur, Taipei or Seoul. Productivity gaps are (i.e., the country shifted from agriculture to service sector even larger for Cebu, Davao and other secondary cities. dominance), and a stagnating manufacturing sector due Other key structural problems relate to highly fragmented to uncompetitive practices and a small consumer base, institutional arrangements for urban development, weak which has not resulted in high quality jobs and, in turn, has governance particularly in metropolitan areas, and major negatively afected urban led growth. In all known cases deiciencies in land administration. 12 Spence, M. Annez, P. and Buckley, B. eds, 2009, Urbanization and Growth, World Bank. 6 Philippines Urbanization Review Figure 1.4 GDP Growth in Manila and Regional Figure 1.5 GDP Growth in Cebu and Davao and and Global Peers, 2008-2012 Regional and Global Peers, 2008-2012 Source: Oxford Economics Source: The World Bank based on PCBI 2012. The resulting impacts have greatly hampered city of existing infrastructure was likewise constrained. competitiveness. The rapid urbanization coupled with the Investment in human capital also sufered major setbacks. problems mentioned above has resulted in infrastructure The country’s public education and health systems remain and afordable housing deiciencies, traic congestion, underfunded and have held back the development of the environmental pollution and high levels of exposure to country’s labor force. Other key challenges include a poor natural hazards.13 Investment in physical infrastructure business environment, weak infrastructure and access to declined to about 20 percent of GDP in the last decade. In markets, low demand and weak support for innovation, the public sector, a low tax base and weak public investment and a lack access to inancing and business support. All management limited public infrastructure spending to of these issues have afected city competitiveness, poverty less than 2.5 percent of GDP annually.14 Maintenance reduction and livability. 13 World Bank (2014), Country Partnership Strategy for the Republic of the Philippines for the Period FY2015-2018. 14 World Bank (2014), Philippine Economic Update, Philippines: Accelerating investment in infrastructure, health, and education to sustain growth that beneits the poor. Chapter 2: Managing Urbanization for Efficiency and Growth 7 Chapter 2 Managing Urbanization for Eiciency and Growth Figure 2.1 The Philippines is One of the Early “Urbanizers” in Asia Percentage urban population (each square is 100%) China Indonesia Vietnam Mongolia Cambodia Lao PDR Philippines Paciic Island Myanmar Small States Source: World Development Indicators, World Bank 2.1 Introduction The Philippines is one of the early “urbanizers”in the East Asia while the rural population has grown (Figures 2.2- 2.4). and Paciic region. Tracing development in the Philippines, Despite the 20 years of slower growth, urbanization rates urbanization in the country took of principally in the in the past ive years have seen strong increases and the 1960s, making the country an early and rapid-growing country’s urban population is now forecast to reach 102 urban participant in the region (Figure 2.1). However, just million (approximately 65% of the total population) by before the country’s urban and rural populations reached 2050.15 Partly due to the archipelago geography of the parity, urbanization began to slow in the 1990s. Since then country, urbanization has concentrated primarily in a just urban growth has remained positive, but slower than in a handful of regions; only the National Capital Region the previous three decades and the share of the country’s (which is entirely urban) and four other regions where population living in urban areas has overall been declining urbanization levels above the national rate.16 15 Cariño, B., & Corpuz, A. (2009). Toward a strategic urban development and housing policy for the Philippines (No. DP 2009-21). Philippine Institute for Development Studies. 16 Asian Development Bank (2014), “Republic of the Philippines National URBAN Assessment”, Asian Development Bank 8 Philippines Urbanization Review Figure 2.2 Urban vs. Rural Populations Urban population Rural Population Source: World Development Indicators, 2016 Figure 2.3 Urban vs. Rural Population Annual Growth Rates Urban population growth (annual %) Rural population growth (annual %) Source: World Development Indicators, 2016 Figure 2.4 National Population Shares by Land Type Urban population Population in urban agglomerations of more than 1m Population in the largest city Rural population Source: World Development Indicators, 2016 Chapter 2: Managing Urbanization for Efficiency and Growth 9 2.2 Urbanization Presents Much Opportunity for the Philippines Urbanization and Economic Opportunity this average relationship would suggest given its income level (Figure 2.5). In member countries of the Organization International experience suggests that well-managed for Economic Co-operation and Development (OECD), urbanization can be an important driver of productivity regions with a higher share of urban population are increases and growth. Evidence from today’s developed generally linked to a per capita GDP higher than the countries and rapidly emerging economies shows that national average; a 3.5–8 percent increase in total factor urbanization is a source of dynamism that can lead to productivity17 can be expected for every doubling of the enhanced productivity – in fact, no country in the industrial size of a city-region. A recent survey concludes that such age has sustained economic development without phenomena are not limited to OECD countries18, and rapid urbanization, and there exists a strong association indeed agglomeration economies apply equally strongly between per capita income and urbanization (Figure 2.5). in developing countries. Estimates for China suggest a 10 The Philippines is very close to the overall trend for all percent increase in productivity for every doubling of city countries, with a very slightly less urbanization level than size.19 Figure 2.5 Urbanization and Economic Development Source: Author’s calculation based on WDI dataGraph based on data for all countries. 17 In economics, total-factor productivity (TFP), also called multi-factor productivity, is a variable which accounts for efects in total output growth relative to the growth in traditionally measured inputs of labor and capital. If all inputs are accounted for, then total factor productivity (TFP) can be taken as a measure of an economy’s long-term technological change or technological dynamism 18 Asian Development Bank (2012), “Philippines: Urban Sector Assessment, Strategy, and Road Map.” Asian Development Bank; Rosenthal and Strange 2003; Black and Henderson 1999; Lucas 1993. 19 World Bank and Development Research of the State Council, People’s Republic of China (2014), Urban China: Toward Eicient, Inclusive, and Sustainable Urbanization. Washington, DC: World Bank. 10 Philippines Urbanization Review respective transport infrastructure. Empirical analysis for the Philippines provides some preliminary evidence that supports this relationship.23 For inter-city connectivity, higher levels of overall road infrastructure is correlated with increased economic eiciency, although that correlation is absent when only the highway is considered. The economic beneits of urbanization are realized through agglomeration economies based on the high density of cities. The beneits of being around other people and other businesses are typically labeled agglomeration economies, the starting point for understanding the sources of urban success (Glaeser and Joshi Ghani 2015). By enabling agglomeration economies, cities enhance productivity and spur innovation and economic diversiication. The underlying reason is density. Rising population and economic densities enable savings in transport and In the Philippines, urbanization is correlated with economic communication costs, lead to frequent interactions, enable eiciency and growth as has been found in other iner specialization and knowledge spillovers, and heighten countries. Using intensity of nighttime light per square competition in product and labor markets. Cities create kilometer of land as a measure of the density of economic viable markets for specialized business services, freeing activity20, the empirical evidence indicates urban areas irms to focus on their core competencies and take creative are associated with higher economic eiciency than non- ideas to commercial scale. Cities are also instrumental urban areas.21 Analysis on the changes in nighttime light in matching skills with job opportunities, and density intensity between the years 2000 and 2010 shows that the allows for an integrated “thick” labor market.24 With higher increases in urban land and urban population is related to concentrations of economic activities in cities, irms can the national GDP growth over that 10-year period.22 exploit economies of scale arising from being near other producers of the same or similar products (localization Empirical evidence also suggests that connectivity is economies) and from being close to producers of a wide correlated with the eiciency of urbanization. Global range of products and services (urbanization economies).25 evidence suggests that eiciency of urbanization is Box 2.1 below provides a more detailed description on largely inluenced by the level of connectivity and agglomeration economies. 20 The analysis follows the methodology developed in Ellis, Peter, and Mark Roberts. 2016. Leveraging Urbanization in South Asia: Managing Spatial Transformation for Prosperity and Livability. South Asia Development Matters. Washington, DC: World Bank. 21 Empirical research shows that measures of economic density correlate strongly with productivity (Ciccone and Hall 1996; Ciccone 2002; Roberts and Goh 2011). 22 See the Background Paper and its Annex for the full analysis 23 See the Background Paper and its Annex for the full analysis 24 World Bank; Ministry of Planning and Investment of Vietnam. 2016. Vietnam 2035: Toward Prosperity, Creativity, Equity, and Democracy. Washington, DC: World Bank. 25 World Bank (2009), Reshaping Economic Geography. World Development Report. Washington, DC: World Bank. Chapter 2: Managing Urbanization for Efficiency and Growth 11 Box 2.1 Urban Density and Agglomeration Economies Global evidence shows that density rises with the level of development, and the densest places in the world are in the richest countries. In 2005, Dublin, London, Paris, Singapore, and Vienna ranked at the top, with more than USD 200 million in gross product per square kilometer. Likewise, Tokyo-Kanagawa, New York-New Jersey, Oslo-Akershus-Vestfold, and Vienna-Mödling were the densest grid cells of 1° longitude by 1° latitude, generating more than USD30 million of gross product per square kilometer (Figure 1). 50 percent of world gross domestic product (GDP) is produced on just 1.5 percent of the world’s land, almost all of it in cities. On New York’s Wall Street and in the City of London, inancial irms, insurance companies, and banking syndicates beneit from being close to one another. Co-location stimulates the growth of other specialist services, such as legal, software, data processing, advertising, and management consulting irms. These clustered irms, by providing a thicker market for highly educated individuals, beneit from drawing on the same large pool of human capital. They also gain from the generation and difusion of knowledge amongst one another. Agglomeration efects can also occur in smaller cities with suicient specialization and transport linkages to larger urban areas. Agglomeration economies depend not just on size (a big city or industry) but also on urban interactions. They are traditionally classiied as localization economies arising from within-industry economic interactions, and as urbanization economies, arising from between-industry interactions. The reasons for producers to gain from proximity to others depend on the sharing of capital inputs, information, and labor. They also depend on improving the matches between production requirements and types of land, labor, and intermediate inputs—and learning about new techniques and products. Localization economies arise from a larger number of irms in the same industry and the same place. Spatial proximity helps because immediate access to competitors in the same sector allow irms to stay abreast of market information in negotiating with customers and suppliers. Clustered irms can also share a larger and more dependable pool of specialized labor. Urbanization economies arise from a larger number of diferent industries in the same place. A management consulting company can beneit from locating near business schools, inancial service providers, and manufacturers. Source: WDR 2009 12 Philippines Urbanization Review Figure 2.6 Urban Population by Country Source: World Bank 201527 High and Increasing Urban Density in the Philippines Within the Philippines, the Metro Manila urban Provides Much Opportunity for Structural agglomeration is one of the densest in the country and Transformation of the Economy is becoming even denser.28 Land use analysis (Figure 2.7) shows that a clear densiication process in Metro Manila The average urban population density was the second where the shares of high density areas increased drastically highest in East Asia. Due to the above mentioned from 1990 to 2014, particularly for the period of 2010-2014. dynamics of agglomeration economies, the relativity high In 1990 the high dense areas were accounting for only and increasing urban density presents a great opportunity 4.93% of the total area. In 2000 these areas increased their for the Philippines with 10,300 people per sq. km. in 2010, surface to 11.16%, in 2010 to 20.86% and inally in 2014 density is second only to the Republic of Korea’s. And ended up covering 34.75% of the total surface (Box 2.2).29 unlike the Republic of Korea’s urban population density, which has stabilized, that of the Philippines increased from 9,500 people per sq. km. in 2000.26 26 World Bank (2015), “East Asia’s Changing Urban Landscape: Measuring a Decade of Spatial Growth.” Urban Development Series, 93877 V2, Washington, DC: World Bank. 27 Ibid. 28 Metro Manila’s population density increased from 11,900 to almost 13,000 people per sq. km. between 2000 and 2010. 29 World Bank and European Space Agency/Earth Observation for Development. 2015. Slums Analyses in Metro Manila (SLAMM) Operational Documentation: Technical Note. Chapter 2: Managing Urbanization for Efficiency and Growth 13 Box 2.2 Urban Density and Agglomeration Economies Geo-spatial analysis on the extent and spatial distribution of the 15 Land Use Land Cover classes (as illustrated in Figure 2.7 below) deined on the basis of the European Urban Atlas nomenclature provides a picture of the urban growth pattern of Metro Manila, showing a clear densiication trend from 1990 to 2014: 1990-2000 – conversion of 17% of very low density urban fabric directly to very high dense urban fabric; 2000-2010 – serious densiication involving the loss of 35.54% of areas covered by low and medium density classes to higher density classes; 2010-2014 – The low and medium density classes lost an important part of their surface to the beneit of higher density classes. 41.13% of the total internal artiicial changes belong to this speciic process. Source: World Bank and European Space Agency/Earth Observation for Development. 2015 14 Philippines Urbanization Review This densiication process is associated with a structural transformation is essential for a more eicient system of transformation of the urban economy. Starting in the cities: as experienced by many developed countries such 1990s, manufacturing industries have been moving out as U.S., Japan and Republic of Korea (Box 2.3), the largest/ of the central urban areas of Metro Manila, leading to the primary cities tend to be more diversiied and service growth of industrial estates in the borders of the Metro oriented: they innovate, invent, breed new irms, and and then in 2000s, along the fringes in Cavite, Batangas expel mature industries; secondary/smaller cities tend to and Laguna, with the former industrial sites in the urban be industrially specialized: they produce or manufacture center giving way to high-rise residential and commercial and receive relocated industries from diversiied cities; buildings and mixed-use high-density enclaves, which are aiding this decentralization were transport infrastructure further spurred by the booming BPO services in recent investments, which made trade cheaper.31 years.30 According to international experience, such a Box 2.3 The Shifting Role of Major Cities in Korea In the Republic of Korea, as rural-urban migration accelerated between 1983 and 1993, the share of national manufacturing employment in large cities like Seoul, Busan, and Daegu fell from 44 percent to 28 percent, while the share in small cities and rural areas rose from 26 percent to 42 percent. Rising labor and land costs drove labor- and land-intensive manufacturing industries out of central Seoul. As manufacturing’s share in employment in Seoul fell from 32 percent in 1980 to 11 percent in 2010, the share attributable to the service sector rose from 58 percent to 81 percent. A tax credit for manufacturing irms that moved factories from Seoul to its suburbs and other cities incentivized the regional development plan. Source: World Bank and Development Research Center of the State Council 2014 30 See Chapter 5 for more details 31 World Bank (2009), Reshaping Economic Geography. World Development Report. Washington, DC: World Bank. Chapter 2: Managing Urbanization for Efficiency and Growth 15 2.3 Beneits from Urbanization are Yet to be Fully Harnessed — A 3D Perspective on the Key challenges Despite the achievements highlighted above, the economic beneits from urbanization in the Philippines could be greater. As indicated by lower economic growth during the urbanization process compared to regional neighbors, the country has not beneited from urbanization gains as much as other countries (also see Introduction). For the period 1970 to 2006, China and India demonstrated an average 6% increase in per capita GDP for every 1% increase in urban population while Vietnam and Thailand exhibited 8% and 10%, respectively; the Philippines, however, showed less than 2% increase for every 1% increase in urban population over the same time period.32 Over the last 3 decades, the Philippines’ aggregate labor productivity increased by only 10% (annual average growth rate was only 0.3%), while that of Indonesia, Malaysia, and Thailand more than doubled in the same period. While the Philippines’ growth and job creation have Density – If Not Well Managed, High Density Generates mainly been led by services, productivity of the services Congestion Diseconomies labor, which is concentrated in large cities, has persistently been less than half of that of industry.33 If not well managed, density generates congestion diseconomies associated with land scarcity and lack of basic International experience suggests that cities do well when services such as clean water and sanitation, and housing, they focus transformation on three dimensions (D’s) which increases in natural hazard risk and pollution, and rising emphasize Density, Division and Distance.34 Increased commuting costs. Bigger city size and increasing density density is relected in the growth of cities; shorter distances bring their own problems. Congestion and living costs for are important for the time and cost of commuting; and housing, food, and public services can quickly grow as fewer divisions are needed to consolidate knowledge and cities become larger; poverty and unemployment often the skills base and to bring people and irms closer to the increase and become spatially concentrated in certain institutions that support economic growth. These key areas; and infrastructure can become overburdened as issues are analyzed for the Philippines. too many residents and irms locate in a single area.35 To be truly competitive, cities needs to ind the right balance between the costs and beneits of density. 32 World Bank. 2012. Indonesia - The rise of metropolitan regions: towards inclusive and sustainable regional development. Washington, DC: World Bank; World Bank. 2014. Philippines - Country partnership strategy for the period FY2015-2018. Washington DC; World Bank Group. These are indicative statistics based on simple correlation analysis. It is important to consider that each country‘s patterns of urbanization and economic growth have been unique and contingent on a wide range of variables. 33 Usui, Norio (2012), “Taking the Right Road to Inclusive Growth: Industrial Upgrading and Diversiication in the Philippines.” Asian Development Bank. 34 World Bank, 2009, Shaping Econom 35 Muth 1969; Fujita and Ogawa 1982; Henderson 2002 16 Philippines Urbanization Review agglomeration” can seriously constrain productivity gains from urban density. This can be relected by the low service productivity that has persistently been less than half of those of industry and manufacturing in the Philippines.38 A key underlying reason for these problems is insuicient management and investment by the public sector. To get the most from density induced human and economic interactions, the public sector has a strong role in managing cities, balancing congestion diseconomies and agglomeration economies through urban planning (including public regulations) and infrastructure investment. Diferent to some other countries such China and Vietnam where the state’s control and involvement in factor markets can be excessive,39 the role of public sector in the urban development is excessively weak These issues have most clearly manifested in Metro for the Philippines. The growing urban population and Manila. Incomes, productivity, and development levels urban density were not accompanied by commensurate are higher in Metro Manila area compared to elsewhere in investments in infrastructure. Infrastructure spending was the country, but the region also sufers from congestion, minimal (less than 1 percent of GDP annually), new road high unemployment, and stress on infrastructure.36 Urban projects numbered less than 10,40 and the last completed population growth in Metro Manila continues at a very major mass rail transport project was in 2004. In recent high rate in terms of both internal growth and in-migration. years, train congestion has also worsened signiicantly. For The combination of high population density and rapid the same distance, time spent commuting by train more urbanization resulted in environmental degradation and than doubled due to long queues and slower trains (the poor quality of life. A lack of afordable housing force many result of under-maintenance).41 Regarding the land market, to live in poor environment, if not settle in areas where the most important factor for urban development, weak disaster risk is high, such as along waterways. In these land administration and management system combined blighted areas, access to public facilities such as electricity, with outdated and inefective land use planning and water and sanitationare also inadequate. LGUs, on the other regulations lead to urban growth in an ad hoc manner. hand, are unable to cope with the burden of providing for New developments take place on a discretionary and their needs. It was estimated that traic congestion costs piece meal basis without coordination with infrastructure PHP2.4 billion per day (close to US$50 million) in Metro development or basic service provision, which are Manila plus another PHP1.0 billion (approximately US$20 associated with unafordable land and housing price million) in the adjoining areas of Bulacan, Rizal, Laguna and and growth of ISFs.42 This is exacerbated by the weak and Cavite. This translates to PHP1.1 trillion pesos per year in fragmented institutions and governance for urban and the greater Metro Manila region.37 These “dis-economies of metropolitan management and service delivery.43 36 Corpuz, Arturo G., National Spatial Strategy. Government of the Philippines. 37 JICA 2014, Roadmap for Transport Infrastructure Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) 38 Usui, Norio (2012), “Taking the Right Road to Inclusive Growth: Industrial Upgrading and Diversiication in the Philippines.” Asian Development Bank. 39 World Bank and Development Research of the State Council, People’s Republic of China (2014), Urban China: Toward Eicient, Inclusive, and Sustainable Urbanization. Washington, DC: World Bank. World Bank; Ministry of Planning and Investment of Vietnam. 2016. Vietnam 2035: Toward Prosperity, Creativity, Equity, and Democracy. Washington, DC: World Bank. 40 Completed projects are the i) elevated portion of SLEX, ii) Libis-Katipunan lyover, iii) Quezon Avenue-Araneta Avenue underpass, iv) C5 extension, v) Mindanao NLEX connector, vi) LRT line 2, vii) LRT line 1 extension, viii) Diosdado Macapagal Highway, and ix) the C5-NAIA ramp. Ongoing projects are the i) NLEX-SLEX connector, ii) NAIA expressway, iii) Daang Hari highway, and iv) rehabilitation of the PNR commuter railway. 41 World Bank (2015), Philippine Economic Update: Making Growth Work for the Poor. Report No. 93530-PH. Macroeconomics and Fiscal Management Global Practice, Philippines, East Asia and Paciic Region, World Bank. 42 The issues with the land market are analyzed in details in Chapter 5 Chapter 2: Managing Urbanization for Efficiency and Growth 17 Distance - Inadequate Inter-City Connectivity (Maps 2.1). The maps show that road infrastructure Infrastructure Increases Economic Distance, (as measured by the length of built lines) is heavily Limits Market Access and Specialization concentrated in the National Capital Region and, to a lesser extent, the Cebu and Davao metro areas. A histogram The Philippines faces signiicant connectivity challenges analysis shows that not only do the largest urban areas from infrastructure bottlenecks. The inadequacy of urban have the most infrastructure, but also that outside of those and regional transportation in the Philippines remains areas, infrastructure provision is too low: for 85% of all city/ a major constraint in the movement of people and municipality level units, the road length volume is less than commodities between production and consumption 10% of that for the unit with the highest volume. Many centers as well as between urban centers. This has led to areas are still not served by roadways and there are many high domestic transport costs relative to some international places where roadway networks do not intersect with routes and has, as a whole, penalized the productivity, each other (e.g., provincial and local roads do not connect eiciency, and competitiveness of the country relative to to national roads). As a result, mobility and access to and its neighbors in East Asia. For example, the rate to move between roadways remain problematic and underscore a container from the Philippines to a foreign country (e.g., the need for an integrated transport network.46 Davao to Singapore) on a foreign lag carrier is often less than moving a container within the archipelago on a domestic carrier (e.g., Davao to Manila).44 It has limited opportunities for urban growth and regional development, sometimes at the expense of environmentally-constrained areas, because of the lack of access to other areas better suited to absorb additional or new developments. The efective urban-industrial heartland of Luzon, for example, has remained essentially unchanged since the late 1970s, conined to the Angeles-Metro Manila-Batangas corridor. Recent road extensions to Subic and improvements in the port of Batangas have extended commercial traic but these have been exceptions. Expansion of transport capacity along the northern and southern corridors to northern Luzon and towards the Bicol region, respectively, has been minimal or has even declined with respect to rail transport.45 Spatial analysis shows the inter-city connectivity infrastructure is inadequate with very uneven distribution 43 The issues with the institutions and governance are analyzed in details in Chapter 4 44 World Bank. 2015. Final report Vol. 2 of Philippine transport infrastructure development roadmap framework plan. Washington, D.C.: World Bank Group. 45 Cariño, B., & Corpuz, A. (2009). Toward a strategic urban development and housing policy for the Philippines (No. DP 2009-21). Philippine Institute for Development Studies. 46 World Bank. 2015. Final report Vol. 2 of Philippine transport infrastructure development roadmap framework plan. Washington, D.C.: World Bank Group. 18 Philippines Urbanization Review Map 2.1 Concentration and Distribution of Road Infrastructure in the Philippines Standard Deviation: SRS-Smooted road_In over AREA < -1.77e-08 (0) -1.77e-08 - -7.59e-09 (0) -7.59e-09 - 2.55e-09 (3121) 2.55e-09 - 1.27e-08 (606) 1.27e-08 - 2.28e-08 (82) > 2.28e-08 (65) Source: World Bank. 2015. Final report Vol. 2 of Philippines transport infrastructure development roadmap framework plan. Washington, D.C.: World Bank Group. Division – Economic, Social and Spatial Exclusion to capital, productive and stable employment and in Urban Areas livelihood opportunities, and are vulnerable to natural hazards especially loods. Furthermore, ISFs sufer from The internal division in urban areas, including economic, social discrimination and are seldom integrated into the spatial and social exclusion, present another key challenge broader communities, facing higher incidence of crime to harnessing the economic beneits from urbanization in and violence (See Chapter 4). Not only does this division the Philippines.47 The multiple dimensions of exclusion are worsen living standards for informal settlers, it also stymies most prominent with the informal settlers, the number of the development of a vibrant urban middle class whose which has been increasing due to large scale of migrants consumption patterns can further spur the economy. into cities in pursuit of jobs and better lives. In 2012, 5.4% of More inclusive urbanization is critical for realization of the urban population or about 2.2 million people lived in agglomeration economies as it will expand the urban informal settlements. In Metro Manila alone, an estimated middle class, which will demand better services and 1.3 million people lived in informal settlements. These lifestyles, in turn boosting domestic demand and a more informal settlers often lack access to basic infrastructure service based urban economy. and services, secure land tenure, have limited access 47 Detailed analysis and recommendations are presented in Chapter 4. Chapter 2: Managing Urbanization for Efficiency and Growth 19 2.4 Recommendations Encourage Policies that Facilitate Market Driven • Land market needs to function better for more Urbanization and Manage Urban Density eicient allocation of land through improvement in land administration and management (LAM) with Policies should focus on managing the existing urban better coordination and integration between national density and preparing for further concentration in cities. agencies involved in LAM The evidence linking density and productivity validates the importance of urbanization for growth in the Philippines. • Land use planning needs to be strengthened through Yet current challenges relect the fact that spatial planning, updating and improved implementation of the land use, infrastructure development and service delivery CLUP and Zoning Ordinance by city/municipality have not been progressing commensurately with rapid government, balancing the private development urbanization. In order to maximize the economic gains needs and overall urban spatial pattern from urbanization, policy measures should be focused on facilitating market forces that drive urbanization and • Infrastructure development needs to be coordinated make the productive factors, speciically, land, people and with land use planning and addressed as an integrated capital, more eiciently allocated within cities. urban strategy that can cater to various user groups and anticipate long-term needs based on better Based on international evidence this implies facilitating coordination between the leading national agency, workers (and their families) to move to and live where relevant line ministries, metropolitan authority and they produce and get the highest returns, and letting city/municipality governments city governments inance investments (including infrastructure) more efectively and transparently by Promote Better Public Transport Within Cities setting local taxes and allocating capital more productively, with better alignment between revenues and expenditure Within cities, investments should be focused on increasing responsibilities at each level. Moreover, the functioning of the capacity of existing road networks and promoting output markets, through transportation, logistics and trade better public transport. Urban mobility determines the facilitation, afect economic activity, and its geographic actual distance between people and jobs and is particularly concentration. When factor and output markets work important for the poor. Broadly speaking, cities should look efectively, economic density will increase, leading to toward mass transit to increase productivity, such as higher higher productivity and the sharing of public amenities. capacity bus systems (e.g. Cebu City’s Bus Rapid Transit Corresponding to the Philippines’ circumstances, system) or in the case of Metro Manila transit rail. There is an several areas should be considered as priority for policy urgent need to expand and modernize the country’s mass interventions and are discussed further in Chapter 6:48 48 More speciic policy recommendations in these areas are provided in the chapter of Land, Competitive Cities and Governance chapter in this review 20 Philippines Urbanization Review transport system. Enhancing urban concentration would complement to mass transit development in many other require multimodal public transport planning. Efective countries (Box 2.4). Compact, mixed-use, high density use of and connectivity between diferent transport development integrated into a walkable neighborhood modes such as rail, road, expressway, water, air as well as and located within a short distance key mass transit car, bus, jeepney, and others to satisfy diversiied transport stations can have the dual beneits of creating a ridership demands and provide choices for users is important.49 base that enhances the economic and inancial viability of the mass transit investment and compounding the Eicient land use through transit-oriented development accessibility beneits a mass transit system can bring to a (TOD) has been demonstrated to be a high-value city’s residents. Box 2.4 Copenhagen 1946: A Regional Framework that Anticipated Transit-Oriented Development A vision depicted by a memorable analogy. The regional plan for Greater Copenhagen was prepared on behalf of the Danish Town and Planning Institute. Under the plan, (known as the Finger Plan), urban growth would be concentrated along ive corridors or “ingers” oriented toward historical villages in the periphery, while central Copenhagen, the palm of the hand, would remain the principal regional center. The “wedges” – the areas in between the “ingers” – were to remain as green areas. The intent of the Plan was to prevent sprawl, guiding growth along ingers, which would have a radial S-train line (the irst opened in 1934) running through them. Small independent communities of 10,000 inhabitants were planned for each “inger” with commercial space, schools, and other facilities built around stations, connected to the city core by the S-train. The regional scale was remarkable at a time when planning was not geared toward such cross-municipal reach. Equally remarkable is that although the Finger Plan was a non-binding and initially private document the government’s role was critical to ensuring its success. The government safeguarded the principle of coordinated land use and transport and ensured its application in municipal plans. It also created the conditions for land markets to develop along the axes established in the plan. A precursor of coordinated land and transport planning. The Finger Plan has guided growth in the Copenhagen region for more than 60 years. The use of rail infrastructure investment to steer growth to desired areas can be considered a precedent for TOD. During the 1950s-1960s, the population of Greater Copenhagen doubled and the built-up area expanded dramatically. The principles of the Finger Plan were followed by other planning instruments, including the Outline Plan of 1960, which irst introduced the concept of multiple centers in the metropolitan area. In the 1970s, policies were included to ensure the conservation of the green wedges. The 1972 Structure Plan identiied four new nodal towns and the 1989 Regional Plan reined the concept of a multi-center structure by increasing investment to link the nodes. The “ingers” have grown longer and wider than what was anticipated originally, but it has been largely successful in absorbing the growing population and continues to be relevant in the city’s highly functional structure today. The Danish government has been involved in developing a 2007 update of the Finger Plan, already enacted into a national directive. The principles have been incorporated into national spatial planning with local authorities in charge of compliance Source: Galland, 201350 49 JICA 2014, Roadmap for Transport Infrastructure Development for Metro Manila and Its Surrounding Areas (Region III and Region IV-A) 50 Galland, D. (2013). The historical evolution of planning and metropolitan governance in the Greater Copenhagen Region. In Society of American City & Regional Planning History : 2013 Paper Abstracts. (pp. 118-119). Society of American City and Regional Planning History. Chapter 2: Managing Urbanization for Efficiency and Growth 21 Improve Inter-City Connectivity to Foster Specialization For the Philippines, growth of secondary cities would also and a More Eicient Urban System help absorb surplus labor from rural areas and alleviate migration pressures on Manila. With larger and more Low inter-city transport cost is essential for an eicient productive regional cities, there will be less pressure, and urban system under which diferent cities can diversify thus less cost, for migrant workers to travel to Manila and or specialize based on their own urbanization level and access to urban labor markets will increase throughout the comparative advantage and trade with each other. Global country. Consequently, within Manila, congestion, poverty experience suggests that an eicient urban system can concentrations, and other diseconomies should also be formulated through policies that treat cities as a become more manageable. The importance of secondary set of assets (a portfolio of places), each diferentiated cities is already recognized by the national government in by characteristics such as size, location, and density of its National Spatial Strategy.51 settlement. As experienced by many developed countries such as U.S., Japan and Republic of Korea, the largest/ primary cities tend to be more diversiied and service oriented: they innovate, invent, breed new irms, and expel mature industries; secondary/smaller cities tend to be industrially specialized: they produce or manufacture and receive relocated industries from diversiied cities (Box 2.2). Clustering of industries in secondary cites enables cost saving for irms due to relatively cheap land and labor and lead to “localization economies” (Box 2.1). Improved transport infrastructure and low transport costs are essential conditions for standardized industries to move out of high-rent centers and cluster in smaller cities. This is because irms can trade the high rents within the cities for lower rents in other locations without ofsetting those gains through higher shipping costs. Improved transport links between cities can enable irms to access local, regional, and global markets—both for buying inputs and selling outputs, reinforce agglomeration efects and generate complementary and specialized functions. 51 Corpuz, Arturo G., National Spatial Strategy. Government of the Philippines. 22 Philippines Urbanization Review beneit but also based on modeling and understanding of their impacts on the entire existing transport network and respective overall and spatial economic impacts. Unfortunately, the absence of a national database of local roadways means that there is limited ability to conduct network analysis of the entire roadway network in the Philippines.54 There is thus a need to generate Digital/GeoSpatial Comprehensive Local Road Network Maps, which would both improve the identiication of infrastructure gaps and promote evidence based planning. Areas of Future Analysis Given its natural geography and infrastructure bottlenecks, The scope of empirical analysis that has been done is limited policy measures to improve inter-city connectivity should by constraints in data availability, especially the diiculty be prioritized based on an integrated transport framework in accessing economic data at the city/municipality level that takes into account selectivity, sequencing and and the full set of irm-level data55 from the national prioritization. Prioritization of the transport modes and statistical authority. There are two areas for the future selection of locations for investments have important analysis to explore. The irst areas is to select and zoom consequences. As mentioned above, the analysis shows down to several individual cities to substantiate the causal that while productivity increases with higher levels of relationship between urbanization and economic growth overall road infrastructure, local roads can contribute to in these particular cities as well as diagnose the key binding productivity and growth more efectively compared to constraints in the factor market, such as land, labor and highways. This is consistent with evidence from China that capital, that limit the economic gains from urbanization, investments in low class roads have much larger beneit/ leading to recommendations on either broader factor cost ratios for national and urban GDP than the beneit/ market reforms or speciic targeted interventions. The cost ratios for high class roads.52 Transport markets display second area is to further analyze the relationship between network externalities, meaning that improvements to one connectivity and the system of cities through construction segment can afect the whole network. Spatial tools can of market access measures incorporating the country’s help identify the network improvements that will bring the economic geography, and identify key bottlenecks in highest positive externalities. And that, in turn, can help infrastructure investments, multimodal complementarity, city leaders identify and understand the complex tradeofs and market regulations etc. that impede a more eicient between eiciency and equity in decisions about transport network of cities, under which low transport costs infrastructure.53 Any new connective infrastructure projects allow cities to diversify or specialize based on their own should not only be assessed based on their own cost and comparative advantage and trade with each other. 52 Fan, Shenggen & Chan-Kang, Connie, 2004. “Road development, economic growth, and poverty reduction in China,” DSGD discussion papers 12, International Food Policy Research Institute (IFPRI). 53 World Bank. Planning, Connecting, and Financing Cities—Now: Priorities for City Leaders. 2013. Washington, DC: World Bank. 54 World Bank. 2015. Final report Vol. 2 of Philippine transport infrastructure development roadmap framework plan. Washington, D.C.: World Bank Group. 55 Census of Philippine Business and Industry (CBI) Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 23 Chapter 3 Improving City Competitiveness for Economic Development and Job Creation 3.1 Introduction and Approach City competiveness can be deined as the ability of city to comprehensively illustrated by the rapid rise of the BPO support job creation, economic growth and productivity industry. In less than a decade Metro Manila, Cebu city, growth. City competitiveness is afected by multiple Iloilo have emerged as the most attractive places for foreign factors, a number of which are outside of control of the direct investment (FDI) in this sector. This story illustrates city government and by nature are the prerogative of how local endowments can be utilized to become drivers the national government. The analysis on this chapter of economic growth. But rise of BPO wouldn’t have been draws on the competitive city framework which includes possible without an enabling national policy, proactive and four pillars: “institutions and regulations”, “infrastructure well organized private sector and growth-minded local and land”, “skills and innovation” and “enterprise support governments. While the story of BPOs is an unquestionable and inance.”56 It analyzes factors that constrain city example of success – a lot of issues persist that will require competiveness, the role that city governments can play, a commitment by all key actors to reform in support of the and provides policy recommendations based on both the emergence of new growth industries in Filipino cities. Filipino and international good practices in promoting city competitiveness. Analysis also looks at the enabling This chapter discusses 5 key challenges which afect environment provided at the national level to foster city economic development and job creation at the city level. competitiveness. Literature reviews, analysis of national These include; 1) poor business environment; 2) weak level data and the results of irm level surveys and focus infrastructure, land management and access to markets; 3) group meetings inform the analysis. low demand for innovation and skill match; 4) access to inance and business support; and 5) ineicient economic As discussed in previous chapters, in recent years cities planning, unclear mandate and weak governance. The have emerged as the key drivers of economic growth in analysis of these challenges is followed by a discussion of the Philippines. Growing competitiveness of cities is most recommended priority actions. 56 Source: World Bank (2015) “Competitive Cities for Jobs and Growth: What, Who and How” 24 Philippines Urbanization Review 3.2 Key Challenges 3.2.1 Business Environment: Recent Successes Some cities such as Cagayan de Oro and Barangays have and Need for Further Improvements achieved incredible progress in simplifying some aspects of the regulatory environment. However, despite local A healthy business environment is essential for growth successes – broader problems persist. and poverty reduction. There is abundant evidence that cumbersome and costly regulations, excessive Philippine business regulations remain among the most taxation, lack of fair competition, and an unstable policy complex in East Asia and present big hurdles to job environment restrict business operations, undermine creation. The World Bank Doing Business 2016 report investment, constrain the development of markets, and ranks the Philippines at only a 103rd place among 189 stile entrepreneurship.57 Better business environment economies in the overall ease of doing business. Among contributes to better growth and job outcomes. major economies in the ASEAN region, only Indonesia ranks lower (109). Across the ten topic areas covered by In the last 5 years the Government of the Philippines has the ranking, the country scores in the bottom half of the recognized the importance of simplifying and streamlining ranking for more than half of the indicators. Starting a business regulations. A number of reforms implemented at business, paying taxes, dealing with construction permits local and national level have made it easier to do business. and registering property are especially daunting. (Figure 3.1). Figure 3.1 Philippines Detailed Rankings in Doing Business 2016 Starting a business (165) Resolving insolvency (53) Dealing with construction permits (99) Enforcing contracts (140) Getting electricity (19) Trading across borders (95) Registering property (112) Paying taxes (126) Getting Credit (109) Protecting Minority Investors (155) Source: Doing Business 2016 57 See, for instance, the annual World Bank Doing Business reports for a useful summary of the literature on the importance of business environment for growth. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 25 Starting a business in the Philippines is among the most cumbersome in the world. Doing Business 2016 ranks the country at 165 out of 189 economies on starting a business. The average irm spends 29 days securing licenses required to start a business and spends around PHP 20,000 (equivalent to 16.1 percent of the country’s per capita income). Up to 18 licenses, permits, and forms have to be approved before a business can commence. In addition, the Philippines still requires a relatively high paid- in minimum capital and a minimum of ive incorporators, a practice that many countries have abolished. In many cases, irms report that they need to pay bribes or give gifts to obtain various permits and government services. Procedures for setting up unincorporated businesses (sole proprietorships), which make up the majority of businesses Zamboanga to 169 days in Manila. In Mexico, for instance, in the country, are simpler, especially in cities with one- the most eicient secondary cities such as Culiacan, Colima stop shops, but nonetheless remain cumbersome. or Hermosillo, required only 7-9 procedures and 10-40 days to grant a construction permit.59 Cities impose additional constraints on national level regulations. For instance, out of 16 steps and 29 days to Renewing the annual business permit is especially costly, incorporate a limited liability company, 13 steps and 21 slow and ineicient. All irms in the country need to renew days are processed by or at national agencies and 3 steps their local business permits every year, an unusual practice and 8 days are within the control of the LGU or city (Table for more developed countries. As part of the annual 3.1). Additionally local governments are responsible for renewal process, businesses must pay local business tax the organization of application processing. Local BPOs and fees, as prescribed by the Local Revenue Code, and can become major sources of delays, or on the opposite then show proof of multiple licenses and certiicates. can make it easier for business to deal with multiple Firms in the Philippines also need to provide more licenses requirements and agencies, as has been proven by the than their counterparts in neighboring countries such as examples of cities that have established one-stop shops Vietnam and Indonesia (The World Bank Enterprise Survey (Cagayan de Oro, Batangas etc.) LGUs also impose additional 2009). The example of Batangas, where until recently requirements on the already complex national rules on the annual business permit renewal process required the construction process.58 As recorded in World Bank 31 diferent steps, shows how complicated, costly and Group’s 2011 Sub-national Doing Business survey, Taguig cumbersome the business permit process can be (Box 3.1). City required 25 procedures to get a construction permits Similar and often even more complicated process is still while Cebu City and Pasig City required 36 procedures. the norm around the country. The time needed to get the permit ranged from 46 days in 58 Before going ahead with a construction project, an entrepreneur must obtain zoning clearance and other requirements from the LGU and other clearances from DPWH, ATO, HLURB, DOT, DENR, DOTC, DILG, PPA, Dep Ed, DOH, PHIVOLCS, LLDA, MWSS, NWRB, DAR, DA, DOLE, NHA and NCWDP. Section 302, NWR IRR. 59 World Bank “Doing Business in Mexico 2014”. 26 Philippines Urbanization Review Table 3.1 Procedures for Starting a Corporation: Average Cost and Time STEPS DAYS COST (PHP) NAT’L OR LGU** 1. Verify and reserve the company name with the Securities and Exchange Commission 1 40 N (SEC). 2. Deposit the paid-in minimum capital at the bank. 1 0 N 3. Notarize articles of incorporation and treasurer’s aidavit at the notary. 1 500 N 4. Register the company with the SEC and receive pre-registered Taxpayer Identiication 2 3,065* N Number (TIN). 5. Obtain barangay clearance. 1 500 LGU 6. Pay the annual community tax and obtain the community tax certiicate (CTC) from the 1 500 LGU City Treasurer’s Oice (CTO). 7. Obtain the Mayor’s business permit to operate from the Business Permit Licensing Oice 6 5,353* LGU (BPLO).5 8. Buy special books of account at bookstore. 1 400 N 9. Apply for Certiicate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR). 1 115 N 10. Pay the registration fee and documentary stamp taxes (DST) at the authorized agent bank 1 5,665* N (AAB). 11. Obtain the authority to print receipts and invoices from the BIR. 1 0 N 12. Print receipts and invoices at the print shop. 7 3,500 N 13. Have books of accounts and Printer’s Certiicate of Delivery (PCD) stamped by the BIR. 1 0 N 14. Register with the Social Security System (SSS). 2 0 N 15. Register with the Philippine Health Insurance Company (PhilHealth). 1 0 N 16. Register with Home Development Mutual Fund (Pag-ibig).*** 1 0 N TOTAL 29 19,638 Source: Doing Business 2016 * See Doing Business 2016 methodology for details, found in http://www.doingbusiness.org/data/exploreeconomies/philippines/starting-a-business ** Processed by National Agency (N) or Local Government Unit (LGU/city/municipality) *** Simultaneous with step 15 60 Before a business permit is issued, the applicant must secure a series of clearances such as engineering, ire safety, and sanitation. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 27 Box 3.1 Annual Business Permit Renewal Process in Batangas in 2012: An Applicant Firm’s Perspective Until 2012, the process of renewing the annual business permit in Batangas required 31 diferent procedural steps. First, an applicant irm had to irst visit the City Hall and go through 13 steps (as in the chart below). Subsequently, the applicant irm had to visit the City Treasurer’s Oice and complete additional 9 steps (chart below). Finally, he had to go back to the City Hall to complete the remaining 7 steps (chart below). Source: USAID (2014) “Investment Enabling Environment (INVEST) Project”, inal report. 28 Philippines Urbanization Review Property registration is burdensome. Property registration regulations is relected in the low rate of formal business is managed at the national level by the Land Registration entry: the Philippines is among the bottom 15 percent of Authority, which has regional oices around the countries with the lowest rate of newly registered irms as Philippines. The regional level oices, however, vary in their the Filipinos establish only two limited liability companies degree of eiciency, especially with regard to local registry per 10,000 working age people per year. In Malaysia, it is 10 of deeds and regional district oices of the Bureau of times higher.63 Internal Revenue. Registration costs also difer considerably across cities due to variations in the property transfer tax The current business environment also contributes to and notarization fees, both of which are assessed as a the stunted growth of SMEs. The country seems to be percentage of the property value. challenged by a relative dearth of medium and large size enterprises, as micro and small irms fail to grow: for Paying taxes is complex, especially as tax regulations instance, the share of more productive medium size SMEs, make no concession to business size. Micro, small and which produce 10 percent of GDP,64 represented only 0.4 medium irms (MSMEs) face high cost of compliance with percent of all SMEs and has not changed since 2006.65 It tax regulations, which do not diferentiate with regard to seems that irms prefer to stay small than to grow to avoid business size or the capacity to comply. Value Added Tax, taxes, onerous regulations and corruption. Given that for instance, needs to be declared on a monthly basis larger irms are more productive, failure of small irms to even by irms that do not have any revenues for certain grow undermines productivity, exports and job creation. periods (such as consultants or part-time lawyers). Most micro and small irms do not have the resources to employ The government has taken steps to simplify business accountants or to maintain full accounts required by the registration and licensing process, while the irst results are tax agency. Businesses must also pay local government positive more needs to be done. In 2010, the government taxes and regulatory fees, which add to the complexity, launched a national initiative, the “Nationwide Streamlining especially as cities apply diferent thresholds and tax rates. of Business Permits and Licensing Systems Reform Anecdotal evidence suggests that the tax payments are (BPLS)” and the follow up “Reform Simpliication for Local also prone to corruption, as the tax due is “negotiated” Governments” (RS4LG) to encourage cities to improve between a irm and a tax inspector, the oicial tax rates business environment. Following the implementation of notwithstanding. both initiatives, cities and municipalities were expected to process and release new business permits within 10 days A burdensome tax regime, business registration process and business renewals in 5 days. As a result compliance and a plethora of other regulations deter MSMEs from costs for irms were cut in some cities, which increased entering or staying in the formal sector.61 It is often easier irm registration.66 However many LGUs and municipalities to leave the system completely than to comply with failed to achieve suicient progress. According to USAID, the red tape, especially as the risk of being caught and many cities around the country were not compliant with penalized is low. Many irms choose to remain informal, the program targets, likely because of a combination of non-transparent and small.62 Worse, the impact of these low capacity, lack of resources and weak leadership.67 61 Aside from regulations covered by the Doing Business indicators, as evidenced by the results of the World Bank led focus groups, companies also need to grapple with obtaining importer licenses, clearing customs, complying with ire regulation, receiving sanitary permits, and complying with food and drug administration product registration.. 62 A World Bank irm-level study in Africa (Ingram, Ramachandran, and Desai, 2007, “Why do Firms Choose to Be Informal? Evidence from Enterprise Surveys in Africa”, September) found that irms’ decision to be formal is “positively correlated with perceptions regarding the availability of electricity supply, access to inance and access to land, and negatively correlated with the rate of taxation and corruption”. 63 World Bank Doing Business Entrepreneurship database: http://www.doingbusiness.org/data/exploretopics/entrepreneurship 64 http://www.dti.gov.ph/dti/index.php/resources/sme-resources/sme-statistics 65 Rafaelita M. Aldaba and Fernando T. Aldaba (2014). Toward Competitive and Innovative ASEAN SMEs: Philippine SME Policy Index 2012. 66 Project Completion Report of IFC’s DB Plus Phil Project number 553125, October 2014. 67 USAID (2014) “Investment Enabling Environment (INVEST) Project”, inal report. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 29 There have also been reforms at the city level. Within Metro two hours to complete, as opposed to 17 steps before Manila, a number of cities introduced business registration (Box 3.2). This example also illustrates that despite only and licensing reforms, which helped cut red tape and directly controlling 3 steps of business registration of improve business registration. Quezon City, in particular, 16, city governments have a very important role to play has streamlined the business registration process to only in streamlining registration procedure. While national three steps. Other cities--Batangas, Cagayan de Oro and reforms would be required to ix a number of business IloIlo--also modernized its business registration and permit environment issues, simply replicating local best practices renewal system. As a result, in Batangas, for instance, across all cities can deliver substantial improvements. registering a new business now takes only 2 steps and Box 3.2 Good Practices in Business Registration: The Case of Batangas, CDO, IloIlo and Quezon City In collaboration with the USAID, the city of Batangas, CDO and IloIlo streamlined its business registration and business permitting process. In Batangas, for instance, the steps needed to receive a new business permit were cut from 17 in 2012 to only 2 in 2014 (see the Table below). Comparison of Baseline and Streamlined BPLS for Applications for New Business Permits in Partner Cities, 2012-2014 BATANGAS ILOILO CAGAYAN DE ORO BPLS INDICATORS BASELINE (2012) 2013 2014 BASELINE (2012) 2013 2014 BASELINE (2012) 2013 2014 Steps 17 3 2 27 18 4 17 5 3 Forms 11 1 0 8 2 1 10 5 1 Signatories 22 (manual) 2 2 27 4 1 27 7 4 (digitized) (digitized) Required Documents 7 3 0 6 5 5 14 7 5 Elapsed/Processing Around 11 days 3 hours, 1 hour, About 2-3 days 17 days Walk in: 19 days Less than 30 mins - Time 21 mins 30 mins 1 hour 1 hour 1 hour Another project supported by the IFC/World Bank Group, helped Quezon City to reduce the registration process 3 steps: application, assessment and payment. The basic documents needed for the new business include DTI / SEC Registration, Barangay Clearance and Locational Clearance. QC opened a one-stop shop, where all the regulatory departments are located. In other cities in Metro Manila, including Pasig City and Taguig, business registration continues to require 6 steps. Source: USAID 2013 and the World Bank 30 Philippines Urbanization Review 3.2.2 Improving Infrastructure, Land Management and Telecommunication services, especially the Internet, are Access to Markets to Support Growth expensive and diicult to access even in major cities. The 2010 study of broadband quality has ranked Philippines Access to international markets and trade connectivity digital infrastructure in the bottom ten among 80 countries. in the Philippines is weak. In the 2016 Doing Business The cost of the Internet in Cebu, for instance, is more than report, the Philippines’ is ranked only in the 95th place in 30 times higher than in Vietnam (Table 3.2). It costs 15,000 the world in trading across borders, behind most regional pesos or more than $300 to secure a slow and unreliable peers. Bilateral trade costs are also high: the Philippines’ 5MB Internet connection in the PEZA economic zone in trade costs with Indonesia are almost twice as high as Pampanga.71 Telephone services are similarly expensive. costs between Indonesia and Malaysia. In trade with The high costs and poor connectivity result from an China, the key regional trade partner, export costs in the oligopolistic structure of the telecom sector, where two Philippines are 20 to 40 percent higher than in the region.68 major players control most of the market and the backbone Corruption adds to the costs of exports.69 The Philippines infrastructure. The potential entrance of a third market also fares the worst on overall logistics performance and player has already encouraged two incumbent players to shipping connectivity.70 Anecdotal evidence suggests that cut prices and improve service, but much more needs to internal shipping costs can be so prohibitive, that it is often be done. cheaper to send cargo from Davao to Singapore than to Manila. This leads to fragmentation of internal markets and complicates development of local supply chains. Table 3.2 Cost of the Internet Connection in Selected Cities and Countries CITY/COUNTRY COST OF THE INTERNET CONNECTION PER MBPS, IN US$ Manila 25-45 Cebu 70 The Philippines 20.35 Indonesia 16.83 Malaysia 10.29 Vietnam 2.25 USA 0.35-2.0 Source: Miradilla-Santos, M.G. (2014) Competition Issues in the Philippines Telecommunications Sector 68 Based on World Bank (2016). “Export Transaction Costs in the Philippines”, Special Focus 2, The Philippines Economic Update, October 2015. 69 In 2014, the Export Development Council (EDC) conducted a survey on the cost of exporting and found that many exporters have to pay grease money to facilitate faster transactions. 70 Based on the World Bank’s Logistics Performance Index (LPI) and the Liner Shipping Connectivity Index (LSCI). 71 World Bank interviews with irms in the Pampanga Economic Zone. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 31 Figure 3.2 Change in ICT Intensity of Employment, 2002-12 35 30 25 20 15 Percent 10 5 0 -5 -10 Moldova South Africa Costa Rica Romania Lithuania Samoa West Bank and Gaza India Philippines Latvia Malta Russian Federation Jamaica Malaysia Namibia Turkey Barbados Mauritius Macedinia, FYR Cambodia Mexico Panama Bulgaria Peru El Salvador Croatia Bahamas, The Ukraine Thailand Average, low- and middle-income countries Average, high-income countries Note: ICT intensity of employment is based on an index between 0 (no use of technology at work) and 19 (most of technology at work), averaged by occupation and weighted by employment. Source: WDR 2016 Poor access to the Internet undermines irm productivity early 2000s to one million employees today (Box 3.3). All and job creation.72 There is large international evidence that jobs are based in urban areas, especially in Metro Manila, poor Internet access undermines irm growth, productivity but also in secondary cities such as Cebu (120,000 in 2015) and job creation. In the Philippines, as a result of poor and Davao (more than 20,000 workers in 2013), IloIlo Internet connectivity, growth in e-commerce has been (40,000) and are rapidly starting to move to smaller cities slow: only 20 percent of retail irms sell online.73 Internet- and towns. BPO jobs are well paid: in 2012, an average driven expansion of digital technologies is important for salary in the BPO sector amounted to almost $9,000, three employment: since 2000, the ICT intensity of employment times higher than the country’s GDP per capita. However, has increased by 15 percent in the Philippines, above the 85 percent of the BPO revenues are generated by low- average for low and middle income economies (Figure 3.2). value added, routine jobs, mostly servicing call centers, which are susceptible to automation. To move to more Cheap and accessible Internet will be key to promoting high-value added, nonroutine and nonvoice jobs it will further growth of the city-based BPO sector. Over the last require a substantial upgrading of the telecommunications decade, thanks to the universal use of English and relatively infrastructure to lower costs, improve quality and ensure high quality of human capital, the Philippines has become reliability, alongside substantial investment in skills a global hub for BPO. Its share of the global BPO market development programs to meet growing demands of the more than doubled from 5 percent in 2006 to 11 percent industry. in 2013. At the same time, employment grew from zero in 72 World Bank (2016). “World Development Report 2016. Digital Dividends”, p. 79. 73 Ibid. Data for irms with at least 5 employees. 32 Philippines Urbanization Review Box 3.3 BPO and Jobs in the Philippines: Opportunities and Challenges from Technological Change The information technology (IT) and BPO industry in the Philippines has been a driver of economic growth and job creation in the last decade having grown at an average of 24 percent annually. Direct employment reached 1 million full-time employees in August 2014 from virtually zero in 1999, accounting for around 2.3 percent of the country’s total employment. The industry has a robust voice sector (primarily call centers), accounting for 64 percent of the industry’s revenue. Health care information management employment grew by 47 percent from 2012 to 2013. IT outsourcing revenues also grew by 52 percent from 2012 to 2013, while knowledge process outsourcing grew by 18 percent. Earnings and skill requirements vary across these sectors. Industry-speciic jobs tend to be higher skilled than those that cut across industries (such as human resources business processing), as they require more technical knowledge. In 2012, average annual compensation per employee in the industry was around US$8,849, with the highest average compensation in software development (US$17,383). It was US$8,301 for contact centers and US$7,687 for other BPOs. High-skilled, high-paid occupations—as are most research and development–related jobs in knowledge process outsourcing (such as market research and medical transcription), IT outsourcing (such as software and application maintenance), engineering services (such as engineering design and digital mapping), and creative processes (such as art production and game testing and support)—are intensive in no routine cognitive and interpersonal tasks. Middle-skilled occupations are intensive in routine cognitive tasks, mostly in non-voice BPO (such as back-oice inance and accounting or human resources), but can also include many of the jobs in voice business processing (such as customer service and technical support). Source: World Bank (2016). World Development Report. Digital Dividends. P. 109, and Capili, Miro. 2015. “The BPO Industry in the Philippines: An Overview.” Background paper for the World Development Report 2016, World Bank, Washington, DC Access to water and electricity is expensive and unreliable. practically all surveyed irms experienced blackouts More than half of businesses in Metro Manila from a sample (Figure 3.3). Electricity is also expensive, undermining report having experienced systematic power blackouts.74 competitiveness.75 Water supply is also a challenge for The situation is even worse in Cebu and Davao: in Davao, secondary cities, although less so for Metro Manila. Figure 3.3 Percentage of Companies that Experienced Either Electricity Black Out or Water Supply Problems 100% 93 90% 80% 77 70% 68 64 60% 54 50% 40% 30% 20% 18 10% 0% Electricity black out Water supply Metro Manila Metro Cebu Davao Source: The World Bank 74 The World Bank surveyed almost 100 irms in Metro Manila, Cebu and Davao. The online questionnaire is available at http://goo.gl/forms/odPr2GsKiFdwbSVk1 75 http://www.philstar.com/business/2013/10/07/1242233/phl-power-rates-among-highest-asia Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 33 Figure 3.4 Metro Manila Rail Transit Network Compared to Other Asian Cities Seoul 526 Beijing 456 Shanghai 439 Tokyo 316 Guangzhou 215 Delhi 193 Shenzhen 178 Hong Kong 174 Singapore 146 Osaka 138 Taipei 113 Bangkok 82 Manila 51 0 50 100 150 200 250 300 350 400 450 500 550 Source: Boquet Y (2013) Battling Congestion in Manila: The EDSA Problem Major cities are crippled by traic problems. Metro Commutes in Manila are longer than in other cities in the Manila’s public transport is the least developed among region. According to the Numbeo Quality of Life index, the peer cities (Figure 3.4). This is a result of many years average car commute in Manila is 58 minutes long. This is of underinvestment and the overall weakness of the similar to Jakarta and longer than Bangkok both of which Department of Transportation and Communication. are also notorious for bad traic, while commutes in Taipei Policies to reduce congestion have been inefective: the and Kuala Lumpur are half as long.78 However, anecdotal car number coding scheme in Metro Manila has little evidence suggests that commute times can be much efect on traic.76 Highway truck bans in Manila and Cebu longer: for instance, driving from Quezon City to Makati have made access to port diicult for manufacturing irms, during the morning and afternoon rush hour often takes and have contributed to declining throughput volumes in more than 2 hours. Cities have taken measures to lower Manila port.77 the commute times, through for instance, producing more reliable maps and monitoring traic congestion (Box 3.4), but the impact so far has been limited. 76 Rey Gamboa, B. (2015) “Is Metro Manila traic headache unsolvable?”, The Philippine Star. 77 Based on business interviews in Metro Manila and Metro Cebu cities 78 http://www.numbeo.com/traic/ 34 Philippines Urbanization Review Box 3.4 Good practice in Using ICT to Improve Urban Transport: Cases of Manila and Cebu Urban transport is a complex system where newly cheap information unlocks possibilities for greater eiciency. A good starting point is with the most basic foundation of planning: of the 25 largest low- and lower-middle-income cities, 92 percent do not have complete maps of their transit networks. Compiling these maps used to be time-consuming and expensive. Recently, though, Manila developed and applied a mobile phone–based application to survey and map routes, using an open-source data standard. The map powers a consumer trip-planning app and is being used by city planners to reduce redundant routes and plan a new mass transit corridor. Cebu, in turn, was able to ingest real-time taxi data to generate speed and congestion maps for the entire city. This reduced the time to analyze travel time for a bus corridor from two weeks to two seconds. Source: World Bank’s “World Development Report 2016”. The national land information system is underdeveloped 3.2.3 Low Demand for Innovation and Skill Mismatch and prone to fraud. Information about land ownership, location, boundaries, and land values are not systematically R&D, technology absorption and innovation drive available and is often incorrect as discussed in depth in productivity. There is a large economic literature, which Chapter 6. As a result, fraud abounds, which has also led shows that innovation and R&D are one of the mains to land ownership conlicts. All title disputes must go to source of productivity, economic growth, quality of life the courts, and this has resulted in delays and abuse. These and environmental sustainability. Innovation is critical issues deter investors and complicate implementation of for developed countries to sustain productivity growth, investment projects. while technology transfer is key for developing economies to catch up with developed countries.79 Innovation can LGUs do not coordinate management of land, which deters increase the quality of life in developing countries by investors. As discussed in Chapters 4 and 5, the constituent improving access to preventive health care, inancial cities in Metro Manila do not coordinate their land use services and information. It can also help make growth and investor attraction policies, which result in ineicient more inclusive by reducing information asymmetries in use of land resources and failure to build business clusters the markets, helping indigent producers to better respond across administrative boundaries. Marikina, for example, is to changing market prices and introducing new, more aiming to rebuild its shoe-making cluster, based on strong productive technologies, especially in agriculture. Finally, traditions in the industry, access to skills locally and growing given the vulnerability of many developing countries such demand for high quality garments in the Philippines. as the Philippines to natural disasters and climate change, However, the city does not have industrial land that could innovation can help mitigate risks by sharing information, attract large investors and has failed to agree an access to promoting green competitiveness and developing new, industrial land in the neighboring cities, undermining the anti-fragile agricultural production. growth prospects of the cluster. 79 World Bank (2010) “Innovation Policy: A Guide for Developing Countries” for a useful summary of the literature; World Bank/OECD (2014) Innovation and Growth: Chasing a Moving Frontier; World Bank (2008) Global Economic Prospects. Technology Difusion in the Developing World” for a useful summary. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 35 Cities are the hubs of innovative activity. Most of the global Box 3.5 What is Innovation? The Role of innovation activity takes place in cities. This is because they Governments provide the key elements of the innovation ecosystem, including people, knowledge, infrastructure, economic Innovation can be deined as a process of transforming an assets and the enabling environment. Given the falling idea or invention into a new good or a service that creates costs of ICT and easier access to IT skills, including for the value to customers and helps resolve existing problems. Innovation involves product (good or service), process, unskilled, young and unemployed, cities in less developed marketing and organizational innovation. Each of the countries can leverage human capital to create innovation four types of innovation can be divided into innovation communities that generate growth and create jobs new to the irm or new to the market or a society called technology absorption; or innovation new to the world, which represents innovation in the most explicit Filipino cities have high potential to foster innovative sense. New-to-the-world innovation shifts a notional technological frontier outward, while absorption moves activity. High level of human capital, a well-established a irm closer to the frontier. Most innovation requires university system, and vibrant BPO industry indicate that spending on research and development (R&D), but can larger cities in the country have the talent and the basic also occur without it. Innovation is thus a broader concept than R&D only. infrastructure required for innovation to happen. However, in practice, Filipino cities underperform in innovation. Metro Governments play a key role in supporting innovation. Manila, Cebu and Davao have been unable to leverage the The government’s main role is to reduce market failure substantial human capital potential to enhance innovation resulting from the divergence in private and social returns on innovation: private investors tend to underinvest in (Figure 3.5) and are struggling to create a thriving innovation because they receive only a small portion of community of young, innovative irm start-ups. This seems the beneits of a new product or service, while the society to be driven by the combined negative impact of poor at large appropriates the rest of value added through imitation. As a result, spending on R&D and innovation business environment, lack of access to early-stage inance is lower than socially optimal.80 The government can and weak access to domestic and global markets. also help irms mitigate other market failures such as on coordination failures, threshold efects or knowledge spillovers.81 The state can also drive innovation directly by Innovation is weak also at the national level, undermining funding critical technologies such as the Internet, GPS and prospects for sustained long-term growth. The Philippines other general purpose technologies and taking the lead in adopting new technologies.82 spends only 0.1 percent of GDP on R&D, behind all regional peers with the exception of Indonesia. It is also behind others in innovation inputs and outputs, as measured by, for instance, the Global Innovation Index (Figure 3.7).83 Finally, Source: Own deinition based on http://www.businessdictionary.com/ deinition/innovation.html#ixzz3lFfwrvGT and OECD/Eurostat (2005) “Oslo it lags peers in research outputs, patents and intellectual Manual – Guidelines for Collecting and Interpreting Innovation Data”, OECD, property rights. In line with international experience, over Paris. From: http://www.oecd.org/sti/inno/2367580.pdf time a growing share of productivity growth will need to be driven by innovation.84 80 For a summary of the theoretical and empirical literature, see, for instance, Hall, Bronwyn H. and Lerner, Josh. (2009). “The Financing of R&D and Innovation”. NBER Working Paper No. w1532. September. 81 World Bank (2008) Global Economic Prospects. 82 Mazzucato, Mariana (2013) The Entrepreneurial State: Debunking Public vs. Private Sector, Anthem Press. 83 The Global Innovation Index focuses on ive pillars that encourage innovation: institutions, human capital and research, infrastructure, market sophistication, and business sophistication. Two additional pillars capture actual evidence of innovation outputs: knowledge and technology outputs and creative outputs, https://www.globalinnovationindex.org/content/page/framework/ 84 OECD (2015). The Future of Productivity; Rahul Anand, Kevin C. Cheng, Sidra Rehman, and Longmei Zhang. 2014. “Potential Growth in Emerging Asia”. IMF Working Paper WP/14/2, 36 Philippines Urbanization Review Figure 3.5 Contrast Between Strong Performance of the Metro Manila on Human Capital, and Poor Innovation Outcomes EU Human Capital Index Patents registered 100 140 90 120 80 Patents per 10,000 population 100 EU Human Capital Index 70 60 80 50 60 40 30 40 20 20 10 0 0 Manila Jakarta Kuala Lumpur Bangkok Taipei Mumbai Seoul Buenos Aires Lima London New York Tokyo Manila Jakarta Kuala Lumpur Bangkok Taipei Mumbai Seoul Buenos Aires Lima London New York Tokyo Source: EIU Human Capital Index, Science’s Global Urban Competitiveness Report (GUCR) (2012) Figure 3.6 R&D Expenditure, % of GDP, 2011-12, Figure 3.7 Global Innovation Index score, 2015 Versus TFP Growth 2002-12 7 70.0 China 6 60.0 Average TFP growth 2002-2012 (in percent) 5 50.0 40.0 4 30.0 3 Indonesia India Philippines 20.0 2 Malaysia Thailand 10.0 1 Vietnam 0.0 0 Singapore China Malaysia Vietnam Thailand Philippines Cambodia Indonesia 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 Research and Development Expenditure (in percent of GDP) Source: Rahul Anand, Kevin C. Cheng, Sidra Rehman, and Longmei Zhang. 2014. “Potential Growth in Emerging Asia”. IMF Working Paper WP/14/2, January; The Global Innovation Index 2015 Efective Innovation Policies for Development. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 37 The impact of increased innovation on the Filipino irms likely that innovation can have a strong impact on irm would likely be substantial. Evidence from a survey of irms productivity, especially in the cities, which host the majority in Europe and Central Asia suggests that innovation in irms of companies. Given the country’s level of development that innovate the least and that are in traditional sectors and the still signiicant distance to the global technological such as food processing, is likely to more than double frontier, highest returns are likely to result from technology labor productivity. (Figure 3.8). Given the low economic absorption, i.e. innovation new to the irm and the country complexity of the Philippines’ production structure (“imitative innovation”) rather than innovation new to the and exports (Figure 3.9) and their low productivity, it is world (“frontier innovation).85 Figure 3.8 Innovation Can Have the Biggest Impact Figure 3.9 Economic Complexity of the Filipino on Low Innovation-Intensive Firms Production and Exports is Low 7 30 300 China Percentage of irms engaged in product innovation Impact of product innovation on productivity (per cent) 6 Average TFP growth 2002-2012 (in percent) 25 250 5 20 200 15 150 4 India 10 100 3 Indonesia 5 50 2 Philippines Malaysia 0 0 1 High-tech and medium Medium low-tech Low-tech sectors Vietnam Thailand high-tech sectors sectors 0 -0.5 0.0 0.5 1.0 Percentage of irms engaged in Impact of product innovation on Economic Complexity Index product innovation productivity Source: EBRD (2014). Transition Report. Chapter 2 “Innovation and Firm Productivity”. Chart 2.3; Source: EBRD (2014). Transition Report. Chapter 2 “Innovation and Firm Productivity”. Chart Rahul Anand, Kevin C. Cheng, Sidra Rehman, and Longmei Zhang. 2014. “Potential Growth in 2.3; Rahul Anand, Kevin C. Cheng, Sidra Rehman, and Longmei Zhang. 2014. “Potential Emerging Asia”. IMF Working Paper WP/14/2; Growth in Emerging Asia”. IMF Working Paper WP/14/2; 85 World Bank (2008) ibid; IMF (2016) Fiscal Monitor. Fiscal policy for innovation. 38 Philippines Urbanization Review Weak collaboration between business and science is one the reasons for weak innovation at the city and national level. The university system seems to lack incentives for academics to focus on research, especially commercially oriented, and produce high quality outputs. The on- line survey of business has found that in all of the major cities businesses rely on personal networks and business associations as sources of information required for innovation, but rarely reach out to academic institutions. (Figure 3.10) Most universities have little to do with the private sector. The public inancing for research lacks volume, clear priorities and critical mass. There are also weaknesses in protection of intellectual property rights, startup environment and strength of social capital. As a result, research outcomes are insigniicant and cooperation with the private sector is negligible. Figure 3.10 Key Sources of Information for Business Innovation Metro Manila Metro Cebu Davao City 80% 40% 80% 70 36 36 70% 35% 70% 60% 30% 29 60% 55 50% 25% 50% 43 41 40% 20% 40% 34 30% 27 15% 14 30% 23 20% 10% 20% 10% 5% 10% 9 0% 0% 0% Universities, Government Personal networks Business Universities, Government Personal networks Business Universities, Government Personal networks Business research institutes agencies, support associations, research institutes agencies, support associations, research institutes agencies, support associations, networks networks networks Source: The World Bank Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 39 Box 3.6 Assessment of the Philippines’s Research Capacity and Innovation Ecosystem In 2014, USAID-funded project assessed the quality of the university research and innovation ecosystem based on a survey of stakeholders. It found that there has been an ongoing progress in improving the research ecosystem, but also that there were substantial weaknesses that needed to be addressed for the innovation support system to function eiciently and produce results. Speciically, assessed across six pillars of the report’s deinition of an innovation ecosystem, the Philippines does relatively well on general education and human development, but is weak across the remaining ive pillars, including intellectual property rights, startup environment and social capital (see Figure below). FACTOR SUPPLY DEMAND ENABLING ENVIRONMENT Education and Human Capital Development Research and Knowledge Creation Transfer of Know-How between Universities and Industries (Extension) Intellectual Property: Protection, Licensing and Commercialization Startup and Spin-of Companies Collaboration: Knowledge Sharing, Trust, Social Capital KEY POOR EXCELLENT Source: World Bank’s “World Development Report 2016”. Access to high-risk inance is also limited. High-risk capital Public support system for innovation seems to be helps to inance start-ups, nascent technologies and fragmented and lacks critical mass of skills and resources. new business models. Business angels, seed funds and The Philippine government supports innovation mostly venture capital funds are one of the key driving factors of through iscal incentives (reduced tax rates, tax deductions the success of Silicon Valley and other leading innovation and income tax holidays) and grant programs ofered by ecosystems in the world. However, high-risk inancing in a myriad of public institutions.86 Currently there are 28 the Philippines is largely missing. While there are no oicial institutions providing innovation support programs.87 Yet, data, anecdotal evidence suggests that there are only a few the system seems fragmented, without a critical mass venture capital funds in the country, with a total annual and grossly underfunded. For instance, the largest R&D investment of less than $[20] million dollars, a negligible program managed by DOST had a budget of only around fraction of the country’s total banking sector assets and the $30 million in 2009, raising questions about its impact; country’s nominal GDP of more than $330 billion in 2015. an R&D budget of another governmental agency, DOH, amounted to only $0.6 million.88 86 There are many institutions involved in innovation policy: for instance, the Presidential Coordinating Council for Research and Development founded in 2007 coordinates work of DA, DBM, DOE, DENR, DFA, DOH, DND, NEDA, DTI, CHED, CICT, NAST and NRCP. 87 DTI (2015) Programs and Services for Micro, Small and Medium Enterprises. https://drive.google.com/ile/d/0B0ilL7KAK3i5MUEtWDNRemNrSEk/view 88 Estrella Alabastro, “R&D in the Philippines: Issues and Recommendations”, Powerpoint presentation. 40 Philippines Urbanization Review There is also little policy prioritization and coordination. substantial numbers of high quality graduates. However, Each government agency seems to have its own R&D almost half of companies surveyed by the Bank across policy, priorities and instruments and be focused basic the three largest cities report diiculties in inding quality science rather than enterprise innovation. There is also workforce, suggesting a mismatch between graduates’ no framework for impact evaluation, including of the skills and the needs of the business community (Figure efects of the substantial tax expenditures resulting from 3.11). The survey results and anecdotal evidence conirms tax breaks and tax privileges. Finally, there seems to be a that the skills mismatch can be observed in all major cities, low level of awareness among the policy makers of the even though speciic issues and skills shortages vary.89 This critical importance of innovation for long-term growth: the inding is corroborated by other studies90. The country also government’s last innovation strategy dates back to 2007. produces relatively few graduates in science, technology, engineering and mathematics (STEM) and there are Despite relatively high educational attainment, there particular shortages in subjects critical for innovation, is also a mismatch of skills. The Philippines has a well- including IT. Finally, despite several support programs, the developed educational system, which produces large Filipino diaspora is hardly leveraged for technology transfer, knowledge sharing and global networks. 4+8+64v 4+2+68v 7+4+9v Figure 3.11 Share of Firms Identifying Problems with Finding Quality Workforce Manila Cebu Davao 4% 14% 14% 7% 18% 18% 14% 29% 32% 36% 36% 79% Very diicult Diicult Somewhat Easy Very easy Source: The World Bank 89 Refer to the full background paper on city competitiveness for further details. 90 World Bank (2010) Philippines Skills Report: Skills for the Labor Market in the Philippines. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 41 3.2.4 Limited Access to Finance and Figure 3.12 SME Loans to GDP and Contribution to GDP, 2014 Business Support 70.0 Access to inance is key to economic growth 60.0 51 and development. There is large literature that SME Contirbution to GDP (%) 50.0 57 highlights the casual relationship between access 40.0 171 to inance and growth.91 Poor access to inance 9 61 weighs especially heavily on MSMEs, preventing 30.0 the majority of micro and small rural enterprises 20.0 After adjusting for the size of the economy and SME’s contribution to GDP, Thailand leads the region in the from growing.92 Because MSMEs often lack 10.0 domain of SME lending acceptable forms of collateral and transparent accounting practices, they are considered too 0.0 0 10 20 30 40 50 60 70 risky for lending. Cities often lack leverage to SME Loans to Total GDP (%) improve the banking and inancial system, however they can run small grant programs SME Loans and help businesses with accessing information Source: Deloitte (2015) “Digital banking for small and medium-sized enterprises: Improving access to inance for about their inancing options. Cities can also play the underserved”. an important role in providing other targeted forms of business support. Figure 3.13 SME Loans Growth Rate 2011-2014, CAGR in % The banking sector in the Philippines is stable, 12% USD billion CAGR proitable and well capitalized. This creates an 171 Thailand is the outlier with loan volumes of 153 important base for private sector growth. The 146 USD 171 billion and SME loans-to-SME GDP 133 Filipino banks have high capital ratios, high ROE ratio of 105% and comfortable liquidity.93 8% 12% CAGR 11% CAGR CAGR 61 48 51 52 57 57 But banks hardly lend to MSMEs. Lending to 46 47 50 36 41 6% 42 CAGR MSMEs represented only 3 percent of GDP in 8 9 9 9 2013, behind all regional peers. In Thailand, the regional leader, SME inancing represented 34 Indonesia Malaysia Philippines Singapore Thailand SME Loans to 9% 55% 9% 36% 105% percent of GDP. SME lending in the Philippines SME GDP (2013) also grew slower during 2011-2014 than in the 2011 2012 2013 2014 region, increasing by only 6 percent a year. In Thailand, it increased at a pace twice as fast. Source: Deloitte (2015) “Digital banking for small and medium-sized enterprises: Improving access to inance for the underserved”. (Figures 3.12 and 3.13) 91 For a useful summary of literature, see, for instance, Demirgüç-Kunt, Asli and Levine, Ross (2008). “Financial Sector Policies, and Long-Run Growth”. World Bank Policy Research Working Paper Series. 92 See, for instance, Stein, Peer; Ardic, Oya Pinar; Hommes, Martin. 2013. Closing the credit gap for formal and informal micro, small, and medium enterprises. Washington, DC : International Finance Corporation. 93 Llanto, G. M. 2015. Financial Inclusion, Education, and Regulation in the Philippines. ADBI Working Paper 541. Tokyo: Asian Development Bank Institute, SME inance forum. http://www.smeinanceforum.org/data-sites/ifc-enterprise-inance-gap 42 Philippines Urbanization Review framework result in an overly conservative stance of the regulators in setting guidelines for credit operations. The bankruptcy process is slow (it takes around 6 years to complete a bankruptcy case), bankruptcy administration costs are high (38 percent of assets), and expected creditor recoveries are at around 21.4 cents to a dollar. Despite the 2013 revision of the bankruptcy framework95, bankruptcy procedures continue to be so ineicient that creditors hardly ever use it. These factors make SME inancing risky in the Philippines. Lack of comprehensive credit information system add to limited supply of credit. The scope, accessibility, and quality of credit information through public or private bureaus in the Philippines is limited.96 Signiicant legal reforms have recently been implemented but their impact will depend on the quality of implementation.97 Financial sector The largest banks are wary of lending to MSMEs. Among groups within the banking industry have set up their own the largest and most-established banks, loans to micro and private credit bureaus, but they have a limited capacity to small enterprises represented only 4 percent of their overall share data across diferent banking groups and data are lending portfolio. The predominant part of the lending is generally only for negative credit performance records. channeled to low-risk large domestic and international The fragmented nature of the credit information industry companies. Many large banks do not meet the legal target prevents lenders from obtaining reliable and complete for the MSMEs portfolio to represents at least 8 percent of the credit history on existing and potential borrowers. loan portfolio. The share of MSMEs lending is much higher among the cooperative banks, amounting to 23 percent of There are also deiciencies in registration of collateral. the portfolio, but the cooperative banks are much smaller Registration of both movable and immovable (land and and limited in their capacity to ramp up lending.94 There is property) collateral legal framework and registration also a need to reform the existing guarantee instruments system also pose a signiicant obstacle. Registration of to refocus it on providing guarantees to micro and small moveable collateral is time-consuming and costly and enterprises. inancial institutions often cannot verify if a particular collateral is registered because various Registry of Deeds Limitations in bank supervision framework and lack of oices are not centralized. Land registration and titling adequate bankruptcy and debt resolution framework are fragmented into diferent registries, making debtor undermine credit growth for SMEs. Lack of legal protections searches and inancing diicult, and property rights for bank supervisors and an inadequate bank resolution insecure (see Chapter 6). 94 Deloitte (2015) “Digital banking for small and medium-sized enterprises: Improving access to inance for the underserved”. 95 An up-to-date bankruptcy framework, Republic Act 10142 “Financial Rehabilitation and Insolvency Act,” which aimed for a faster and more orderly rehabilitation or liquidation of inancially distressed companies and individuals was passed in 2010 and implemented in 2013. 96 Deloitte (2015) “Digital banking for small and medium-sized enterprises: Improving access to inance for the underserved”. 97 Credit Information Corporation established by Republic Act 9510, also known as the “Credit Information System Act,” passed in 2008 began operations in 2015 Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 43 The national-level system of public support for SMEs is Cities also provide business support services, but their grossly fragmented. There are more than 60 national- impact is not clear. Quezon City, Pasig and Davao City all level institutions mandated to support SME development, have agencies and departments responsible for various including more than 30 institutions supporting technology types of business support provision (Table 3.3). Many and production, 10 institutions supporting SME marketing, of them seem to respond to the real needs of the SMEs and more than 10 supporting regulations and incentives.98 (see Box 3.7). However, the program budgets are small, In addition, there is a newly established nationwide the penetration of services among SMEs is low, and network of Go Negosyo centers, which aim to help SMEs the awareness about the support programs is weak, as by (i) informing about business registration, (ii) providing conirmed by focus group discussions with the private business advisory services on product development and sector. Given the lack of monitoring and evaluation investment promotion, market linkages and access to frameworks, it is not clear how efective the services are technology, inancing, and management training, (iii) and and whether city level ofer complements the national serving as a support sharing facility and a one-stop shop support system or duplicates it. for MSME services.99 Table 3.3 Business Support Services at the National Level and in Selected Cities THEMATIC SUPPORT NATIONAL LEVEL SUPPORT LOCAL LEVEL SUPPORT PUBLIC AND PRIVATE INSTITUTIONS100 QUEZON CITY PASIG CITY DAVAO CITY Marketing 12 - - 1 Regulations / Incentives 14 1 - - Institutional Development 12 1 1 1 Finance Program/ Credit 22 1 1 1 Facility101 • Micro-inancing • SME inancing Microinance-oriented rural/ 472 NCR = 75 Davao and cooperative banks102 Cebu = 1 Source: The World Bank 98 https://drive.google.com/ile/d/0B0ilL7KAK3i5MUEtWDNRemNrSEk/view 99 By early 2016, 152 Go Negosyo centers were established across the country and serviced more than 30,000 SMEs. Yet, it is not clear yet whether the new centers will be able to materially help MSMEs development. 100 List of Institutions/Agencies providing business support. Link: https://drive.google.com/ile/d/0B0ilL7KAK3i5MUEtWDNRemNrSEk/view 101 Source: Financing Programs for MSMEs, https://drive.google.com/ile/d/0B0ilL7KAK3i5bGIwb1V2b2dvS1U/view 102 Micro-inance oriented rural banks (331). Cooperative banks (143). Source: BSP Report 2015. http://www.bsp.gov.ph/downloads/Publications/2015/ StatRep_2Sem2015b.pdf 44 Philippines Urbanization Review Box 3.7 Examples of Local Business Support Programs: Quezon City In 2012, Quezon City a created Business Development and Promotion Oice and adopted a Magna Carta for Micro and Small Business Enterprises to provide a wide framework of policy and services support for small businesses in the city. QC also created the Sikap Buhay Entrepreneurship and Cooperative Oice (SBECO). The SBECO conducts business trainings and consultations for city’s small and medium enterprises, and assists the city in the development of an SME Roadmap to guide the SME’s plans for growth and expansion. SBECO manages an entrepreneurship and micro-inance program known as the Puhunan Pangkabuhayan ng Sikap Buhay (PPSB), which is a non-collateral interest loan facility for small entrepreneurs in partnership with several cooperatives. The program has a budget of around 5 million USD a year and over the last 11 years it has supported more than 64,000 entrepreneurs. SBECO partners with Go Negosyo centers to provide additional trainings for micro entrepreneurs. While the headline loan repayment rate of 95% seems impressive, the efectiveness of the program and its impact is not clear. Source: World Bank interviews with the city, http://quezoncity.gov.ph/index.php/news/61/446-puhunan-pangkabuhayan 3.2.5 Ineicient Economic Planning, Unclear Mandate empowered second tier of government. (See full and Weak Governance discussion section 5). The cities are the most self-suicient LGUs when it comes to revenue collection. In 2014, more City level actors can play a decisive role in promoting than half of city budgets came from their own revenue, competitiveness. Global experience shows that cities can while other LGUs collected less than a quarter of their improve private sector performance by focusing strategic budgets and had to rely heavily on the Internal Revenue planning on economic outcomes, striving to improve Allocation (IRA) transfers.104 That said, despite substantial eiciency in policy implementation. Even if powers of revenue independence, the overall city revenues are low city governments are limited, they can expand their in line with the nationwide overall tax intake.105 As a result, ability to inluence growth outcomes through building many city-level economic development programs, with a partnerships with the private sector or collaborating across possible exception of a few most developed cities in Metro administrative boundaries.103 (See Annex Box 1. The city Manila, are under-resourced and fail to reach a critical mass wedge framework) to tangibly support the private sector. The Philippines has a relatively decentralized form of A lack of clarity on the economic development functions governance with signiicant powers given to LGUs. among government levels undermines eiciency. De jure Highly urbanized cities in the Philippines are a strongly and de facto regulations do not clearly delineate the role of national and city governments in promoting private sector 103 “City Wedge” framework helps understand how cities can improve governance to achieve better economic outcomes. See World Bank, 2015, City Competitiveness. 104 Source: National Resource Government Institute (2016) Philippines Revenue Sharing, Case Study 105 In 2014, the Philippines collected only 13.7% of GDP in tax revenue, as opposed to, for instance, [25%] of GDP in Malaysia. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 45 growth and job creation. There are a large grey zone of Cities delivery models for economic development are functions, which are often duplicated between the city and fragmented. Multiple departments deliver services and national government agencies. This issue cuts across many projects that contribute to economic development, sectors as discussed in Section 5. In the case of economic but lack coordination. (see Box 3.8) Global best practice development, the duplication in functions include suggests that the best results for economic development investment promotion, investor services, MSME support can be achieved by, inter alia, introducing “transversal services, skills and even industrial policy (Figure 3.14). For management”, when key economic development targets instance, in Davao, investment promotion activities of the are translated into objectives for various government local branch of branch of the national Department of trade departments, lined to budget allocation and coordinated and Industry overlap with the functioning of the Davao by delivery units. Baltimore city stat and PEMANDU Investment Board and there is little coordination. There are delivery unit ofer examples of global best practice. many other examples across the country. Figure 3.14 The Distribution of Economic Development Functions between Local and National Authorities Grey Area Investment promotion City Government National Government Investor services and incentives Jurisdiction Jurisdiction MSME support services Local procurement Trade policy MSME loans and access to inance Municipal property services Import-Export regulations management Cooperatives development Legal framework and requirements Issuing business permits and for business regulations construction permits R&D support and facilities Labor Market regulation Agricultural extension services Business incubation Large scale infrastructure Local infrastructure Industrial policy Small roads Local services and infrastructure Skills Source: World Bank based on analysis of local government code and public sector interviews 46 Philippines Urbanization Review Box 3.8 Examples of Local Business Support Programs: Quezon City City hall structure is complex and economic development functions are fragmented. There are 48 departments in the QC city hall, which are Vice Mayor Mayor Special Bodies broken down into 3 clusters (see igure below). (Presiding oicer of (Local Chief Executive) (QCDA, QC - EDIB) Economic development and business support the City Council) functions are spread across various branches without obvious means of coordination. Skills development and MSME support are under alleviating poverty departments; economic City Council development planning and tourism promotion is (38 councilors and City Administrator under building up the city branch, and business ex-oicio members) permitting and incentives implementation is within competing on efectiveness branch. Additional investment promotion and development investment functions are given to special bodies that are not integrated into the Competing governance structure. A 29 people strong LEIPO Alleviating Poverty Build Up the City on Eiciences will also be established soon and will complicate Departments Departments Departments the landscape even further. The special economic development bodies need better coordination with the rest of the - Sikap Buhay - Market - City Treasurer’s city hall. Quezon City has two special economic Entrepreneurship Development Oice development bodies that sit outside the regular and Cooperative Administration city structure and report exclusively to the Mayor. Department Department -Business Permits and Both of them present interesting innovations in Licensing Oice economic government for the Philippines, but - Scholarship and - Cultural and Tourism it is unclear to what extent their activities will Youth Development Afairs Oice follow key priorities for the city, Program - City Planning and Quezon City Development Authority (QCDA), a - Public Employment Development Oice government-owned and controlled corporation Service Oice with an authorized capital stock of PhP 1 billion, primarily serves as the enterprise vehicle and investment arm of the city. It will provide the Quezon City government with a vital entity for providing additional investments that will enable the city to generate employment opportunities for its residents focused on proprietary investments. Economic Development Investment Board (QC-EDIB) was initiated after adoption of the new city investment incentives code in 2013. Its task is to develop policies to enhance the business climate, attract investors and promote existing businesses in the city. Source: World bank based on review of Quezon City oicial web site and report documents Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 47 Cities also lack capacity and often willingness to take charge recently been streamlined and ofers an improvement of economic development. Until recently the cities were from previous approaches, economic development not required to have an economic development oice. planning remains inefective as the new strategic planning Cities still implemented certain economic development model does not encourage prioritization. The approach projects and ofered business support services, but they encourages development of a long list of projects covering tended not to have a systematic approach that tied it to each of thematic areas, rather than clear priorities.110 core development objectives. In 2010, a new law made it mandatory for cities to establish Local Economic and Economic development plans do not seem to be the Investment Promotion Oices (LEIPOs) to plan and key priority for cities. According to the current structure coordinate economic and investment promotion policy.106 of local planning documents, Comprehensive Land Use However, the implementation of the law has been slow: Plan (CLUP) is at the top of the local planning hierarchy, some cities have yet to establish LEIPOs, while in other cities while the Comprehensive Development Plan is of a the capacity of the newly established oices is limited.107 lower priority (Annex 3). The CDP itself includes a plan for ive diferent sectors, among which only one focuses on Finally, corruption remains a major concern at the local economic development. Global best practice suggests government level. In 2012, 68% of respondents of the various local plans should inform and reinforce each other, local government perception survey reported that they rather than exist in a predeined hierarchy.111 On many thought that their government was corrupt. Around 15% of occasions understanding of future trajectory of economic respondents have experienced corruption, while 66% have development of the city is required for making land use heard of it.108 Focus group discussions have also conirmed decisions. For example New York has made a decision to that businesses perceive corruption to be widespread and allocate land on Roosevelt Island to a university on the inimical to their development prospects. basis of a strategic decision to support development of high-tech economy in the city.112 Ineicient Planning for Economic Development Lack of transparency of planning limits accountability Efective strategic planning is an important element of of local governments. The development plans are not city competitiveness. Good strategies help cities organize published on LGU websites and are diicult to obtain their eforts around key priorities, streamline allocation by stakeholders and the local public. As a result, it is of resources and galvanize public-private coalitions.109 diicult for the public to hold government accountable While the strategic planning system in the Philippines has for implementation of programs listed in the plans and for achieving the objectives. 106 Memorandum Circular 2010-113 107 USAID (2013) Rapid Training Needs Assessment of LEIPOs of the Cities of Batangas, Iloilo and Cagayan de Oro 108 Socal Weather Station (2012) Survey on Good Local Governance 109 World Bank (2015) “What makes a good city strategy?” 110 Bureau of Local Government Development (2008) Rationalizing the Local Planning Process 111 World Bank (2006) Local economic development: A Primer. Developing and implementing local economic development strategies and action plans. 112 Mulas, V. (2015) New York city: transforming a city into a tech innovation leader 48 Philippines Urbanization Review Public-Private Collaboration and the Role of Business Associations Box 3.9 Good Practice: Cebu Education Development Foundation for Information Techonology: Business Associations can Business associations are well positioned to engage in Play a Pivotal Role productive coalitions with the government. Each of the cities analyzed in this report has several active business One of the most striking examples is CEDF-IT (Cebu Education association, including local chapters of the Philippines Development Foundation for Information Technology. When the association was established Cebu had minimal presence Chamber of Commerce, Chinese Philippine Chamber of of the IT industry. However the association foresaw the Commerce and a wide range of sector speciic associations, opportunity and invested into improving quality of tertiary IT education, early IT skills development and ensuring job including IBPAP. These associations vary in the level of prospects for IT graduates. CEDF-IT played a major role in sophistications and size: most of them have at least several attracting key international BPO and IT companies to the city over the last 15 years leading to development of a cluster hundred members in each respective city and ofer a wide employing 800,000 people in Metro Cebu area. Today CEDF- range of services to the members, including trainings, IT is working to promote innovative entrepreneurship in the city. This example illustrates the extraordinary high potential business advice, lobbying and others. In most cases, these of private sector institutions as drivers competitiveness associations are independent, self-funded and suiciently improvements. stafed, which puts them in a great position to represent the business community in collaboration with city oicials. There is still much scope for local governments and Box 3.10 Performance Governance System (PGS) business communities to collaborate efectively. Business can Help Address Challenges of associations in Metro Manila cities seem not be strongly Accountability involved in city governance. In most cases of cities around PGS is a management tool for local governments designed the country, engagement of private sector is limited to by Institute for Solidarity in Asia (ISA). PGS uses a balanced consultations, while the private sector representatives scorecard methodology to link key development targets of a local government into target indicators for each of the maintain a rather negative view of the local government. employees and hold them accountable for delivering. Metro Cebu is a positive example even beyond the First adopters of the PGS (San Fernando City, IloIlo City and example of CEDF-IT. Level of collaboration between private Marikina City) have substantially improved revenue collection and public actors appears to be much higher. For instance, and eiciency of service delivery. IloIlo reduced time required for business registration by 86%, and built a healthier economic Mandaue Chamber of Commerce has played a role in environment that helped city quadruple its manufacturing initiating the introduction of Performance Governance output. System in the city hall (Box 3.10). In addition, business chambers are now playing a leading role in promoting and Source: Morrel. J (2010) The Performance Governance System in the Philippines: lobbying the establishment of Mega Cebu Authority for Building the Capacity of Local Institutions; Centre for International Private Enterprise. greater horizontal coordination. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 49 Coordination between LGUs and its Efect on instruments, diferent investment strategies and diferent Economic Development land management strategies. As a result, costs of scaling business across Manila are high, which creates a Fragmented metropolitan governance undermines disincentive to growth. Additionally, spatial fragmentation productivity. An OECD study has shown that metropolitan of the metro area limits the potential for development of areas with fragmented governance structures tend to have industrial clusters that could become drivers of innovation lower levels of productivity: For a given population size, a and productivity growth. Without a common economic metropolitan area with twice the number of municipalities development and investment promotion strategy, cities is associated with around 6% lower productivity.113 in Metro Manila often compete against each other for attracting businesses by ofering costly tax incentives and discounts on land prices. Government in metropolitan areas in the Philippines is deeply fragmented, limiting the beneits of agglomeration. As discussed further in Chapter 4, Metro Manila is a key While the ive broad constraints discussed in this chapter example of ineicient administrative fragmentation. apply to most of the cities in the country, the conditions Across Metro Manila businesses need to abide by of each city are intrinsically unique. Table 3 shows the diferent registration requirements and processes in expert’ judgment of the main constraints to private sector each of the constituent cities, diferent business support development in the three selected cities. Table 3.4 “Traic Light Signal” Overview of Key Constraints in Major Metropolitan Areas of the Philippines GOVERNANCE FOR ECONOMIC LOCAL INSTITUTIONS AND LOCAL INSTITUTIONS AND INNOVATION AND SKILLS ACCESS TO FINANCE AND DEVELOPMENT REGULATIONS REGULATIONS INFRASTRUCTURE BUSINESS SUPPORT AND LAND GOVERNMENT EFFICIENCY PUBLIC-PRIVATE COLLABORATION CROSS-BOUNDARY COLLABORATION TRANSPORT ELECTRICITY AND WATER LAND SKILLS INNOVATION SYSTEM ACCESS TO FINANC BUSINESS SUPPORT SERVICES Metro Manila Metro Cebu Davao City Source: The World Bank 113 OECD (2015) The Metropolitan Century. Understanding Urbanization and Its Consequences. 50 Philippines Urbanization Review 3.3 Recommendations business support and innovation, and reforming institutions for economic development. But before ofering detailed recommendations in each of these areas it is important to stress three key conditions for promoting city competitiveness in the Philippines. Local economic development eforts should aim to leverage competitive advantages of cities. While discussion of sectoral compositions of city economies is outside of the scope of this report, it is critically important that local economic development eforts should be informed by understanding of the structure of the city economy, the trend of structural transition and the core competitive advantages of the city. Filipino cities reveal While a number of issues discussed in this chapter are clear patterns of economic specialization. Metro Manila already being addressed through multiple reforms, the seems to have a comparative advantage in advanced persistence of the problems indicates that more needs to business services, including in inancial, professional and be done both at local and national level to improve the ICT services. In particular, the BPO sector (“administrative business environment, access to land and markets and and support services”) has been growing at a fast pace in upgrading of infrastructure, strengthening innovation the recent years and now accounts for more than a third of systems and addressing skills mismatch, improving formal employment (see Box 1 on the growth of the BPO access to inance and business support services, and industry). Manila could maximize spillovers by moving up strengthening local institutions for economic development. the value chain in the BPO industry to provide more and The background paper on City Competitiveness ofers better jobs, especially in high value added services such as policy recommendations in all of these areas, and accounting, reporting and remote process management. discusses priority areas of action in the biggest cities of The same applies to Metro Cebu (and speciically Cebu the Philippines. In this report the recommendations focus City) where BPO is one of the two sectors of specialization, on areas which are most likely to ofer quick results in which in 2015 accounted for 120,000 jobs. Private sector terms of improving city competitiveness and where cities reforms would also help promote manufacturing in Metro themselves have a very important role to play as they are Cebu and help new competitive sectors to emerge in less dependent national reforms. These include improving Davao, which does not seem to have a clear industrial the business regulatory environment, strengthening specialization.114 Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 51 Involvement of the private sector can ensure much more efective and fast competitiveness reforms in cities. Examples from Philippines and elsewhere around the world show that private sector can play a critical role in boosting local competitiveness. Private associations can provide training to entrepreneurs and potential employees, attract investors to the city, provide services to entrepreneurs and start-ups, lobby national government on behalf of the city. The well-organized private sector associations in Filipino cities have all that it takes to complement and even drive the reform eforts of local governments. The critical element is overcoming animosity between public and private actors, identifying shared goals for city development and coordinating eforts. would be enhanced by increasing the rewards for the best National government should strengthen incentives for local performing cities from 3 million peso to, for instance, 100 governments to promote economic growth. While there million peso. In the longer term following measures should are many examples of successful reforms to improve the be considered: introducing further revenue sharing from business environment address skills challenges or increase growth of national business taxes, requirements of greater transparency of local government, only a limited number of transparency through publication of strategic plans and cities around the country have followed the good practices. progress reports, and possibly extension of political cycle. This raises questions about the political economy of the process and the possible lack of incentives. This may be Improving the Business Environment due to the short, 3-year electoral cycle, insuicient public pressure driven by a relatively weak civil society as well as There are a number of ways through which cities can large political and economic rents resulting from sustaining improve the business environment. Domestic and the status quo. National authorities should apply tools international examples suggest that cities have a key available to them to push and incentivizes local authorities. role to play in optimizing the processing of business The immediate actions may include strengthen national permits, streamlining inspections, improving access to indexes and designations. The introduction of private information about business regulations and enhancing sector respondents would strengthen the existing Cities communication with the private sector. The Philippine and Municipalities Competitiveness Index, while the proile cities could learn from best practices developed by other of the national “Seal of Good Local Governance (SGLG)” cities in the country and abroad. (see Box 3.11) 114 Metro Cebu refers to Cebu City, Mandau City and Lapu- Lapu City; Cebu City refers to Cebu City LGU and Davao City refers to Davao City LGU. Metropolitan areas are used as a unit of analysis in this report. Oxford Economics data used for descriptive statistics and international benchmarking only includes Cebu City, and excludes Mandaue and Lapu-Lapu. For structural analysis of Metro Cebu, PSBI data aggregated from irm level for all three LGUs is used. While the PSBI sample of irms is not representative at the LGU level, it is still the best approximation. However the tree LGUs considered combined account for 75% of jobs in the Central Visayas region, for which sampling is representative, which limits the possible margin of error. 52 Philippines Urbanization Review Box 3.11 Business Registration Reform Options: International Best Practice There is a wide range of business registration reform options that are available for countries seeking to improve their business registration systems. These include: 1. Standardizing incorporation documents. Without standardized registration documents and clear guidance on how to complete them, the registration process can be discretionary, cumbersome, and costly and result in high rejection rates. In Estonia in 2006, processing time at the registry fell from 15 days to 1 with the introduction of standardized documents. Approximately 65 countries now have standardized incorporation forms. 2. Reducing or eliminating minimum capital requirements. Minimum capital requirements generally do not achieve any of their underlying objectives. Far from being beneicial, some studies ind that minimum capital requirements have counterproductive efects on entrepreneurship. Consequently, since 2005, 57 economies have reduced or eliminated this requirement. 3. Making the registration process transparent and accountable. The easier it is to access information about a regulation, the easier it will be to comply with the regulation. In more than 90 percent of high-income economies, fee schedules can be obtained from agency websites, notice boards, and brochures. 4. Integrating registration systems and introducing unique identiication. In most countries, in addition to registering with the business registration authority as a business entity, an entrepreneur must also obtain tax and VAT registrations from the tax administration, social security or pension authority, or municipal authority. A number of countries have therefore moved toward integrated registration systems that allow entrepreneurs to complete one application form for all authorities and introduced a unique identiication denomination (UID), which is then used for all transactions with the authorities. 5. Creating a one-stop shop. The one-stop shop (OSS) provides a single interface for business start-ups, a mechanism that has gained popularity in many economies. Today about 83 economies around the world have some kind of OSS for business registration, including 53 economies that established or improved their OSS in the past eight years. 6. Introducing ICT. Today, 110 economies use information and communication technology (ICT) for business registration services ranging from online name search to online business registration, annual returns iling, and electronic transmission. Use of ICT makes the registration system faster and more cost-efective, it also enhances data integrity, information security, transparency of the registration services. SOURCE: World Bank (2013) “Reforming Business Registration. A Toolkit for Practitioners”. At the National Level company startups, (iv) moving toward a ixed registration fee that covers only administrative costs, and (v) removing Further simplify business registration, licensing and antiquated mandatory practices of having the BIR stamp business permit renewal. Reform areas include (i) the company’s invoice and account books. International standardizing requirements and procedures, (ii) reducing good practice has also favored disassociating business tax or abolishing the paid-in minimum capital requirement, collection from business permit renewal. (iii) making the use of notaries and lawyers optional for Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 53 Introduce a simpliied tax regime for micro enterprises. develop the BPLS into a single nationwide approach The tax exemptions ofered by the Barangay Business to business registration and licensing. It should lobby Enterprise 2003 Act provide a foundation from which to for changes in national legislation whenever necessary further simplify the tax regime including such measures would allow for a more coordinated and consistent as replacing the value-added tax (VAT), percentage tax, regulatory environment. In the medium run coordination and income tax with a single business tax on turnover and of regulatory environments within metropolitan areas ofering a simpliied system of accounting and reporting. should be made a priority. Metropolitan development Introducing online tax iling and payments would also authorities (after they are established and empowered) help to streamline the process.115 should harmonize requirements for business registration, construction permitting and property registration in At the City Level metro areas (primarily Metro Manila and Metro Cebu) so that business permits issued by one of the LGUs within a metro area allows for operation across the metro area. For Improve the eiciency of BPLOs and strengthen example, opening a second shop in a diferent LGU within e-government. City-level business and property registration a metro area should be a matter of a one-step process. procedures can be streamlined by adopting one-stop There is also an opportunity to harmonize local business shops for business registration and renewal, (following the tax rates across metro areas and for DILG to work with BIR examples of, for instance, Quezon City and Cagayan de to create a system for LGU business tax revenue sharing Oro) and gradually introducing a comprehensive online within the metro area that would allow for such simpliied system. In addition, training staf, expanding performance- regime. based incentives, and introducing on-line applications and payments can all improve the capacity of BPLOs as can posting updated information about registration Strengthening Innovation Systems and requirements, cost and processing time online. Many of Business Support these measures can be achieved by fully implementing the Philippine Business Registry (PBR) and linking all cities Cities have a big role to play in enhancing innovation and to it. The local governments should aim to implement the harmonizing business support. International evidence recommendations developed by the BPLSproject of DILG suggests that in some instances locally provided services and DTI. One way for DILG to improve incentives it is by are more accessible for businesses and can help address linking compliance with BPLS monitoring indicators with speciic needs of irms, however national programs can access to the Performance Challenge Fund for LGUs. be more eicient at providing basic services due to scale efects. Cities can also play an important role of helping Coordinate regulatory requirements and processes across businesses navigate and access services that are provided metropolitan areas. In the long run the Department by national agencies. The challenge is in striking the of Interior and Local government (DILG) should aim to right balance between national and local provision to 115 For good practices on paying taxes, see http://www.doingbusiness.org/data/exploretopics/paying-taxes/good-practices 54 Philippines Urbanization Review maximize accessibility and efectiveness.116 The cities can At the City Level help develop the community of entrepreneurs, strengthen access to high-risk inance and improve collaboration Leverage national support programs and introduce between universities in city-level business. They can also additional programs to address speciic local needs. Cities use procurement to support innovative startups and can leverage the Negosyo center as a single point of SMEs.117 access to national and local support programs. By focusing on informing local irms about national government’s At the National Level support programs, providing small grants to prepare and submit applications for funding to these programs Consolidate the business support system and introduce (“grants for grants”), and adding extra funding to national a monitoring and evaluation framework to track grants obtained by local irms, cities can avoid the cost of its efectiveness. The government should consider duplicating national-level programs. Additional programs establishing a lagship entrepreneurship agency, which should only be developed to address speciic local needs, would consolidate most or all of the national level support for which national programs are not available. programs managed by multiple agencies. It should continue to expand the network of Go Negosyo centers Expand technology infrastructure, networking, and access as one stop shops for business support, but upgrade the to high-risk inance. By creating networking spaces, scope and quality of services available to enterprises. accelerators, incubators and shared services facilities to Finally, DTI should develop a robust M&E framework to leverage the large pool of qualiied labor, cities can spur improve government’s ability to evaluate efectiveness of innovative startups and expand technology absorption. support. Upgrading skills and attracting talents through skill bootcamps, “rapid trainings”, mentorship programs, Expand incentives for collaboration between universities collaboration with universities and attraction of diaspora, and business. Measures include the recently announced as well as strengthening access to high-risk inance by Commission on Higher Education (CHED)’s secondment supporting business angels and co-inancing seed and program between science and the business community, VC funds can all serve to promote entrepreneurship. strengthening the role of cooperation with business in the Additional support and conditional co-funding to cities funding algorithms for public universities, and increasing for such initiatives might be available from such agencies funding for applied, commercial research. as DTI. (See box 3.10 for an example of comprehensive innovation support at city level) 116 Centre for Cities (2013) Support for Growing Businesses, London 117 Mulas et al. (2015) argue that “coding and hardware skills that previous¬ly took years to learn can now be taught in weeks”; Mulas, Victor; Minges, Michael; Applebaum, Hallie Rocklin. 2015. Boosting tech innovation ecosystems in cities: a framework for growth and sustainability of urban tech innovation ecosystems. Washington, D.C.: World Bank Group. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 55 Box 3.12 Developing Ecosystem for Startups: EMPLOYMENT GENERATED IN NEW YORK CITY BY THE TECH STARTUP ECOSYSTEM (2003-13) The Case of New York PERCENT GROWTH IN EMPLOYMENT 2003 - 2013 New York is an example of a global city and a inancial center that has developed a thriving digital technology entrepreneurship ecosystem, U.S. TOTAL EMPLOYMENT now the second-largest tech startup ecosystem in the United States (after Silicon Valley) with US$ 4.5 billion venture capital investment in startups in 2014. The ecosystem created over 2,200 tech companies, NYC TOTAL EMPLOYMENT US$ 18.1 billion in successful startup exits, and 50,000 jobs (around one percent of the city’s workforce) in the startups and ten times more in the supporting industries (Figure X). NYC TECH ECOSYSTEM EMPLOYMENT The City of New York government has been heavily involved in the 0 5 10 15 20 development of the ecosystem that has underpinned this growth. It has deliberately taken an ecosystem approach to address four main areas of weakness: (i) lack of technology-specialized talent, (ii) 58,000 105,000 TECH INDUSTRY INDIRECT JOBS insuicient sources of seed capital for startups, (iii) lack of physical TECH JOBS space for entrepreneurs, and (iv) a limited and uncoordinated 150,000 83,000 community of tech-led innovators and entrepreneurs. In addressing TECH NON-TECH INDUSTRY TECH JOBS all of these areas its philosophy has been to act as an enabler and to INDUSTRY NON-TECH 145,000 build the market (Table 7). JOBS INDUCED JOBS 541,000 TOTAL JOBS GENERATED Comparison of Baseline and Streamlined BPLS for Applications for New Business Permits in Partner Cities, 2012-2014 KEY GAPS TARGETED POLICIES Lack of tech talent City universities did not STEM Education and Tech Introduce STEM academies, and produce engineers and Campus Cornell-Technion Innovation technical graduates Institute Lack of seed capital Seed capital funds did not NYC Seed Fund Seed Capital fund to invest in invested in NYC companies NYC based tech startups Lack of afordable space Oice space too expensive for Network of Incubators Network of co-working spaces startups with accelerators and network of mentors Small and disorganized tech Tech community was small and Competitions and Open Data and Big App community atomized Promotions Competitions, promotion Campaigns for building role models, support of Mayor to community Source: Mulas, Victor; Minges, Michael; Applebaum, Hallie Rocklin. 2015. Boosting tech innovation ecosystems in cities: a framework for growth and sustainability of urban tech innovation ecosystems. Washington, D.C. : World Bank Group. 56 Philippines Urbanization Review Use procurement to support innovative startups and SMEs. Modify the structure of the local planning system Cities can use annual procurement budgets to support the and guidelines for LGUs to give priority to economic growth of city-level innovation and entrepreneurship by development targets. The CLUP and CDP should have equal expanding the importance of technology in procurement weight in LGUs planning. Local economic development speciications and expanding the use of irm size limits in targets should become top priority in the CDP along procurement tenders. They could also experiment with with social development and poverty reduction targets. pre-commercial procurement to fund new ideas and Guidelines for development of efective plans should focus technologies and organize competitions for the most on introducing best proactive practices: detailed analytics, technology intensive and eicient solutions to city-level prioritization, SMART goals and clear M&E frameworks. problems. At the City Level Strengthening Local Institutions for Economic Development Strengthen the LEIPOs. LEIPOs should be given more power and capacity to identify economic development At the National Level priorities and programs and coordinate activates of various department. Promote metropolitan governance. “UK city deals” a model which encourages city councils to work together more Facilitate systematic dialogue with the private sector. efectively provides an example of combining prescriptive Cities can leverage the global best practice in conducting measures with incentives for collaboration that the national public-private dialogue to engage in a systematic policy- government (DILG) could apply to promote collaboration oriented, transparent and inclusive dialogue with business between neighboring LGUs. Additionally, by supporting associations.118 Box 3.11 below shows best practice bottom up collaboration initiatives, like the Mega examples of structuring local governance to promote Cebu Metropolitan Development Agency, the national cross departmental thinking and engage private sector for government can help promote better metropolitan improving private sector growth. governance. 118 World Bank (2015) Public Private Dialog for City Competitiveness. Washington DC: The World Bank. Chapter 3: Improving City Competitiveness for Economic Development and Job Creation 57 Box 3.13 Organizing for Economic Development Cities around the world have used various institutional structures to develop economic development strategies, pursue a competitiveness agenda, engage private sector in policy delivery and facilitate successful implementation. Economic Development Agencies Economic development agencies (DAs) can be deined as, “legal, non-proit structures, generally owned by the public and private entities of the territory”.66 DAs are usually given a range of clearly deined functions that may include branding and international promotion; investment attraction and retention; business start-ups and growth; human capital development; real estate, urban and infrastructural development; social or green development initiatives and others. DAs are accountable to a group of actors that is broader than the city government. DAs help establish economic development at the key objective for the city and attract private sector talent and knowhow to carrying out economic development functions. Economic development agencies have proven themselves eicient at delivering trans- formative change. Barcelona Activa (the economic development agency of Barcelona Municipality) helps set up over 700 companies employing over 1500 a year. New York Economic Development Corporation activities have facilitated $22.9 million of private investment in 2008 alone.67 Delivery Units Delivery Units (DUs) are implementation structures established at the center of government in order to drive improvements in perfor- mance. DUs have a mandate to use the authority of the chief executive—the center of government—to lead “the political and technical coordination of government actions, strategic planning, monitoring of performance and implementation, and communication of the government’s decisions and achievements.”68 Such units usually do not have a narrowly deined focus, rather they are given authority to deliver on a set of priority targets or indicators. DUs help design clear responsibility and accountability structures, and link diferent public sector interventions to the key development priorities through transparent monitoring and evaluation and improved coordination. DUs have a potential to drive innovation and eiciency improvements in policy implementation. Baltimore’s CitiStat has changed the perfor- mance paradigm in the city governance by introducing clearer performance objective, a robust monitoring system and a performance based budgeting system. Public-Private Boards for Economic Development Public-private boards serve as a platform for information sharing and consultation, but depending on the context they can have a strong inluence in deining development priorities and implementation.69 Additionally public-private boards can help surpass the geographic or functional limitations of typical local government agencies. Experience of Local Enterprise Partnerships in the UK reveals that while this units can be very eicient at leading and coordinating local economic development eforts, in other cases they can fail lack of clearly deined purpose, shortage of resources and leadership.70 Source: Gashi, D., Atkinson, J (2015) Guide to implementation of city competitiveness interventions. Background paper to World Bank (2015) Competitive Cities for Jobs and Growth: What? Who? & How? 119 Clark et. al., Organizing Local Economic Development, 2010:28. 120 Ibid. 121 Shostak et. al., When Might the Introduction of a Delivery Unit Be the Right Intervention, 2014: 3; Watkins, Center of Government Reforms, 2014: 1. 122 OECD, Governing the City: Policy Highlights, 2015: 4. 123 Bolton T. (2011) Sink of Swim? What next for local enterprise partnerships?, Centre for Cities, London 58 Philippines Urbanization Review Chapter 4 Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 4.1 Introduction and Context: Urbanization and Poverty in the Philippines Urbanization is one of the most signiicant drivers of Figure 4.1. Analytical Framework development. It can provide a pathway out of poverty and for Inclusive Urbanization125 act as an engine of growth. High urban densities can reduce transaction costs, make public spending on infrastructure and services more economically viable, and act as an economic hub that attracts investments and talents. But if Economic Inclusion not well managed, urbanization can give rise to inequality Jobs, skills dev, education, access to inance etc. and exclusion which afects a city’s competitiveness and opportunities for growth. Inclusive urbanization, where everyone can reap the Social Inclusion Spatial Inclusion beneits, is critical to city competitiveness and growth. Crime & violence Afordable and & housing, prevention, urban poor basic services, slum Policies to recognize the rights of the poor to the city community organization, upgrading, land mgt. etc. and allows them to participate in, contribute to, and participatory planning, etc. enjoy the beneits of urbanization are important for inclusion.124 Inclusive urbanization requires an integrated multi-dimensional approach that addresses three key dimensions of inclusion – economic, spatial, and social. services. Social inclusion relates to fundamental principles Economic inclusion relates to addressing poverty and of equal rights and participation of the marginalized in the providing economic opportunities such as jobs, sources of development process. The three dimensions of inclusion livelihood, and access to inance. Spatial inclusion refers to are interrelated and mutually reinforcing. Policies must improved access to land, housing, infrastructure and basic therefore address all three aspects. 124 M. Watanabe (2016). Closing the Gap in Afordable Housing in the Philippines: Experience of the National Summit on Housing and Urban Development” Presidential Commission for the Urban Poor (PCUP) Newsletter (forthcoming) 125 World Bank (2015). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 59 Today, half of the Philippine’s population lives in cities. The proportion will continue to increase to reach 84% by 2050.126 Philippine cities generate 70% of the GDP, of which 36% is generated in Metro Manila alone.127 Urbanization has often helped reduce poverty by providing new job opportunities and raising incomes of the poor. Indeed, poverty incidence for urban areas (12.5%) was less than half of the national poverty incidence (25.2%) in 2012.128 Yet as cities fail to keep pace with the rapid urbanization in the Philippines, multi-dimensional poverty in urban areas is deepening and widening. With in-migration of those aspiring for better lives from rural areas to urban centers came surges in demand for jobs, housing, infrastructure and basic services in major cities. Yet, the Government has been unable to address the increased demand given the accelerated pace. The result has been proliferation of Not all informal settlers are income poor, but many are informal settlers in urban areas without adequate access to vulnerable to external shocks that can easily push them decent living conditions. The number of informal settlers below the poverty line. An estimated 25% of the informal in the Philippines has increased gradually, from 4.1% of settlers in the country are income poor based on 2012 total urban population in 2003 to 5.4% in 2012.129 In 2012, Family Income and Expenditure Survey (FIES).131 The rest 5.4% of the urban population or about 2.2 million people are living above the poverty line but residing in poor lived in informal settlements in the Philippines. In Metro living conditions. But this data needs to be interpreted Manila alone, an estimated 1.3 million people, or close with caution. Informal settlers are usually minimum wage to 11% of the population in the region, lived in informal earners and contractual workers whose incomes vary settlements.130 based on seasonality or job availability with no protection. Those engaged in small businesses sufer from unsteady 126 UN Habitat (2015), Achieving Sustainable Urban Development Philippines Project Brief. Manila. 127 Oxford Economics. 128 FIES (2012). 129 FIES 2003, 2006, 2009, 2012. 130 FIES (2012). Informal settlers are deined in this chapter as households that responded that they are living in “own house, rent-free lot without consent” or “rent-free house and lot without consent”. 131 WB staf calculations based on FIES (2012). 60 Philippines Urbanization Review levels of income. Many of them have limited savings that Government estimates that over 104,000 informal settler are exhausted in the event of any external shocks such families (ISFs), or about 520,000 people equivalent to 40% as natural disasters. Informal settlers are therefore highly of the ISFs in Metro Manila, live in danger areas, exposing vulnerable to experiencing episodes of income poverty themselves to recurrent looding. Furthermore, ISFs sufer especially with external shocks.132 from social discrimination. They are seldom integrated into the broader communities, perceived as “problems”,133 are Informal settlers also sufer from multiple forms of exclusion. rarely involved in oicial decision-making and face higher They often lack access to basic infrastructure and services, incidence of crime and violence. The igure below shows secure land tenure, have limited access to capital, productive that ISFs’ perceived problems include threat of eviction, and stable employment and livelihood opportunities, and crime and violence, natural hazards, and access to services. are vulnerable to natural hazards especially loods. The Figure 4.2 Issues Faced by Informal Settlers in Metro Manila Diiculty in accessing transportation Diiculty in accessing clean water Diiculty in accessing medical services Diiculty in accessing good schools Prostitution Diiculty in accessing health... Poor road conditions Men hassline women on the street Natural hazards Vandalism, petty theft, drug... Threat of eviction 0 400 800 1200 1600 2000 Manila Quezon Muntinlupa Source: World Bank (2016). Metro Manila Urban Slum Survey 132 Ballesteros (2010). 133 “Change the paradigm!” Opinion piece by Mary Racelis, Philippine Daily Inquirer (2015). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 61 4.2 Key Challenges 4.2.1 Economic Exclusion Aspects of economic inclusion relate to addressing income Figure 4.3 Urban Poverty Trend poverty and providing economic opportunities through 25.0 employment. 20.1 20.0 17.0 17.4 a. Urban Poverty 15.0 17.8 12.8 12.7 12.5 Percent 10.0 Between 2003 and 2012, urban poverty in the Philippines 5.9 4.3 remained largely unchanged, while national poverty 5.0 decreased slightly.134 Urban poverty incidence has 4.5 4.2 0.0 remained relatively stagnant over the past decade 2003 2006 2009 2012 regardless of which poverty lines are used.135 However, once population growth is taken into consideration, there Oicial $1.90/day PPP $3.10/day PPP is a slight increase (1 percentage point) in the share of the Linear ($1.90/day PPP) Linear ($3.10/day PPP) urban poor.136 Among the urban poor, 9% reside in Metro Manila or NCR, Luzon (excluding NCR) and the Visayas Source: FIES 2003, 2006, 2009, and 2012, WB staf calculations account for close to a quarter each, and Mindanao alone accounts for more than 43%. Figure 4.4 Share of Urban Poor (%) While urban poverty incidence may be relatively low, disparities in living conditions are most evident in urban 2012 9.0 23.7 23.6 43.8 areas compared with rural areas. With no or low paying jobs, migrants are unable to aford decent housing and 2009 8.3 28.6 24.0 39.1 adequate access to services, resulting in prevalence of 2006 10.6 23.9 25.3 40.3 informal settlements. Shelter inequalities depict signiicant polarization in the distribution of wealth and resources 0 200 40.0 60.0 80.0 100.0 in cities. In most cities, but most pronounced in Metro Manila, informal settlement communities with no security NCR Rest of Luzon Visayas Mindanao of tenure and inadequate access to basic services coexist with exclusive, fully serviced, and gated communities. Source: FIES 2003, 2006, 2009, and 2012, WB staf calculations 134 World Bank (2016). 135 The following poverty lines have been used for analysis in the Philippines, US$1.90/day international poverty lines at 2011 PPP, $3.10/day in 2011 PPP , and the national poverty lines which are set broadly following the cost of basic needs approach. The total poverty line (computed for each domain or rural/urban area per province) is the minimum cost to meet 1) basic food needs that satisfy the nutritional requirements set by the Food and Nutrition Research Institute (FNRI) and 2) basic non-food needs such as clothing, housing, transportation, health and education expenses. 136 FIES (2003, 2006, 2009, 2012). 62 Philippines Urbanization Review Figure 4.5 Number of Years Living Majority of the people are forced to remain in informal in Informal Settlements settlements for decades given the lack of afordable housing options. A survey on ISFs in three cities of Metro 26.7% 27.7% Manila shows that 54% have been living in the informal 30.0 24.3% 25.0 settlements between 11 and 40 years, whereas 24% 20.0 17.1% responded that they moved within the last ive years.137 15.0 This implies that while there is new inlux of migrants, 10.0 3.6% majority remain in informal settlements for decades. The 5.0 0.6% main reason for staying is because be they income poor or 0.0 1-5 6-10 11-20 21-40 41-60 61-86 not, they have no other afordable housing options near years years years years years years their jobs and thus remain stuck in informal settlements for a long time.138 Source: World Bank (2016). Metro Manila Urban Slum Survey b. Jobs Figure 4.6 Unemployment and Underemployment (Urban vs. Rural) Unemployment rate remains relatively low but underemployment rate is high in urban areas. 2005 2014 Unemployment and underemployment rates in the 30.0 Philippines were at 6.8% and 18.4% in 2014, respectively, 25.0 24.2 while in urban areas, they were at 8.8% and 14.7%.139 20.0 22.4 15.0 17 14.7 Unemployment and underemployment rates in urban 10.0 10.5 areas have improved over the years, as have those in 8.8 5.0 5 4.8 rural areas, but the improvement has been modest. For 0.0 Urban Rural Urban Rural both rural and urban areas, males, workers with higher educational attainment, and the youth have the highest Unemployed Underemployed incidences of unemployment, while the poor have the Source: LFS 2005 and 2014 highest incidence of underemployment.140 137 World Bank (2016). Metro Manila Slum Survey. (Mimeo) 138 Ballesteros (2010) 139 Labor Force Survey (2014) 140 World Bank (2013). Philippine Development Report (2013). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 63 Urban poor sufer from high underemployment, though casual labor, which is informal by nature, and sufer from signiicant regional variation exists. Based on 2012 Labor unstable income. This is consistent with the overall inding Force Survey (LFS) and FIES data, both urban poor and in the World Bank Philippine Development Report 2013 urban non-poor have an average unemployment of 8.7%. that due to long history of policy distortions, agricultural The gap between the two groups is the highest in NCR productivity has remained depressed, manufacturing has at 17.8% for urban poor compared to 9.4% for urban non- failed to grow sustainably, and a low-productivity, low- poor. Underemployment is high for both urban poor and skill service sector such as petty retail trade and public urban non-poor groups, but particularly so for the urban transportation has emerged as the dominant sector of the poor whose underemployment rate is twice as much economy.142 While actual reasons for the regional variation (29%) as that of urban non-poor (14.7%). In NCR, the in unemployment and underemployments are unclear, diference is even starker, where underemployment of one possible explanation could be that underemployment the urban poor (37%) is almost three times that of urban rates tend to be higher in regions that are relatively more non-poor (13%).141 High underemployment rates among urbanized because there tend to be more job opportunities, urban poor are also more noticeable in Regions IV-B, V, VI, despite their informality. NCR does not it this explanation, and CARAGA. This signiies that many urban poor work however, and merits further analysis in the future. but they are predominantly engaged in part-time or Figure 4.7 Unemployment Rates (Poor vs. Non-Poor) among Urban Population per Region 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 NCR CAR I - ILOCOS REGION II - CAGAYAN VALLEY III - CENTRAL LUZON IVA - CALABARZON IVB - MIMAROPA V - BICOL REGION VI - WESTERN VISAYAS VII - CENTRAL VISAYAS VIII - EASTERN VISAYAS IX - ZAMBOANGA PENINSULA X - NORTHERN MINDANAO XI - DAVAO REGION XII - SOCCSKSARGEN ARMM CARAGA TOTAL Unemployed Poor Unemployed Non-poor Source: FIES and LFS 2012 141 LFS (2012) and FIES (2012). 142 World Bank (2013) 64 Philippines Urbanization Review Figure 4.8 Underemployment Rates (Poor vs. Non-Poor) among Urban Population per Region 60.0 50.0 40.0 30.0 20.0 10.0 0.0 NCR CAR I - ILOCOS REGION II - CAGAYAN VALLEY III - CENTRAL LUZON IVA - CALABARZON IVB - MIMAROPA V - BICOL REGION VI - WESTERN VISAYAS VII - CENTRAL VISAYAS VIII - EASTERN VISAYAS IX - ZAMBOANGA PENINSULA X - NORTHERN MINDANAO XI - DAVAO REGION XII - SOCCSKSARGEN ARMM CARAGA TOTAL Unemployed Poor Unemployed Non-poor Source: FIES and LFS 2012 Many urban poor are trapped in low-wage and low- sector such as in the BPO industry, which caters to highly productivity jobs in the informal service sector. More than educated workers, or manufacturing sector which only 75% of the Filipino workers nationwide are informally employs about 8% of the total labor force.144 Informal wage employed, as deined as self-employed workers (not workers lack employment contracts and social insurance, including employers), unpaid family workers, and wage and are not protected against unfair dismissal. Wages tend workers with no written contract, social insurance, or to be signiicantly lower than formal jobs and often below protection from dismissal. Two thirds of urban jobs are minimum wage. For example, a majority of workers (56%) informal, and among wage workers, 6 out of 10 are hired are low-paid in the informal sector, with only a minority informally.143 The informal service sector has become (7%) in the formal sector. These informally employed the dominant source of employment for the majority of people face high degrees of vulnerabilities to income the urban poor who cannot ind work in formal service luctuation and external shocks. 143 Rutkowski (2015). 144 World Bank (2013). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 65 Figure 4.9 Shares of Informal Employment to Total Employment (Rural vs. Urban) 100 80 60 40 20 0 NCR CAR I - ILOCOS REGION II - CAGAYAN VALLEY III - CENTRAL LUZON IVA - CALABARZON IVB - MIMAROPA V - BICOL REGION VI - WESTERN VISAYAS VII - CENTRAL VISAYAS VIII - EASTERN VISAYAS IX - ZAMBOANGA PENINSULA X - NORTHERN MINDANAO XI - DAVAO REGION XII - SOCCSKSARGEN ARMM CARAGA TOTAL Urban Rural Philippines Source: FIES and LFS 2012 The urban poor are afected by informality and low wages opportunities.146 Those without secondary education face due to low levels of education compared with urban non- a signiicant employment challenge as they are not eligible poor. Low levels of education are clearly correlated with to join vocational skills training ofered by Technical urban poverty with 35% of the urban poor belonging to Education and Skills Development Agency (TESDA) households with heads with less than primary education accredited institutions, and many employers require a compared to 20% of urban near-poor and 7% of urban minimum of high school completion. Share of informal non-poor.145 Workers with less than secondary education employment among urban poor is signiicantly higher face substantially worse labor market prospects than those than urban non-poor’s informal employment in NCR and who complete high school. Their earnings are signiicantly CALABRAZON, while in other Regions, it is the other way lower, and the risk of poverty is much higher. Based on a round. Average daily wage for the urban poor is less than survey of 3,000 ISFs in Metro Manila, 67.7% of the surveyed half of that of the urban non-poor across all regions. ISFs have less than secondary education, limiting their job 145 World Bank (2016). 146 World Bank (2016). PHP 66 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 100 200 300 400 500 600 Poor NCR I - ILOCOS REGION CAR II - CAGAYAN VALLEY Source: FIES and LFS 2012 Source: FIES and LFS 2012 I - ILOCOS REGION III - CENTRAL LUZON II - CAGAYAN VALLEY IVA - CALABARZON Non-poor Urban non-poor informal employment III - CENTRAL LUZON IVB - MIMAROPA IVA - CALABARZON V - BICOL REGION IVB - MIMAROPA VI - WESTERN VISAYAS V - BICOL REGION VII - CENTRAL VISAYAS VI - WESTERN VISAYAS VIII - EASTERN VISAYAS VII - CENTRAL VISAYAS Urban poor informal employment IX - ZAMBOANGA PENINSULA VIII - EASTERN VISAYAS X - NORTHERN MINDANAO IX - ZAMBOANGA PENINSULA XI - DAVAO REGION X - NORTHERN MINDANAO XII - SOCCSKSARGEN Figure 4.11 Average Daily Wage of Urban Poor vs. Urban Non Poor XI - DAVAO REGION NCR XII - SOCCSKSARGEN CAR ARMM ARMM CARAGA Figure 4.10 Shares of Informal Employment among Urban Poor vs. Urban Non-Poor CARAGA TOTAL TOTAL Philippines Urbanization Review Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 67 The low levels of income result in urban poor having Research shows that most urban poor prefer formal wage higher total expenditure than total income, suggesting employment should there be opportunities. In a qualitative that they borrow to inance their day-to-day expenses.147 study conducted by the World Bank on livelihoods for the Factoring in all possible sources of income such as incomes ISFs, majority of the respondents noted that they prefered from interest and dividends, as well as remittances from stable regular wage labor in the formal sector rather than abroad, urban poor’s total expenditure is higher than their engaging in risky micro-enterprise development, and that total income as shown in igure 6.12 below148, suggesting many poor are engaged in self-entrepreneurship “out of that they are permanently in the red and are borrowing necessity”.149 The challenge is that most of the formal, well- paid jobs are taken by well-educated, high-skilled workers, to inance their expenditures. This makes them extremely and urban poor face a signiicant hurdle in landing any vulnerable to external shocks. The urban poor also spend formal jobs without high school degrees. less – a combined 3.3% of the total expenditure on human capital investments such as health and education Much of the livelihood support provided for the ISFs has compared to the non-poor (7.9%), partly due to their low focused on micro-enterprise development that has been levels of income and partly as they have more access to designed without suicient market analysis, leading to free health and education. suboptimal results. Various livelihood interventions have been provided in the past to ISFs by diferent actors including the Government, NGOs, and development Figure 4.12 Total Household Income and Expenditure partners. Yet not many of them have been successful. of the Urban Poor (in Php, 2012) This is partly because many livelihood interventions have 350,000 focused on microinance supported micro-enterprise 300,000 development. Studies show that without a sound market 250,000 analysis, business management skills, and appropriate 200,000 personal characteristics, it is diicult to sustain a proitable 150,000 micro-enterprise.150 Furthermore, many interventions have 100,000 been “labor supply-driven”, focusing primarily on what the 50,000 0 ISFs want to do, or what skills they already possess, rather Urban Poor Urban Non-poor than focusing on what the market needs. This approach has resulted in mismatches between the supply of skills and Total expenditure Total income the demands of the economy.151 For example, TESDA has Source: FIES and LFS 2012 been providing free or subsidized livelihood skills training to many ISFs on bead accessory making, rug making, or cosmetology without any market assessment. This has resulted in may trainees unable to sell their products or services upon completion of the training.152 147 World Bank staf calculations based on FIES 2012. 148 No quantitative data on urban poor’s levels of saving is available in FIES. However, qualitative studies have shown that urban poor have minimal savings. 149 World Bank (2014) and Hwang, H. (2014). “Emerging Lessons from Urban Livelihoods Interventions”. (Mimeo) 150 World Bank. (2014). “Supporting Self-Employment and Small-Scale Entrepreneurship”. Washington, DC: World Bank. 151 World Bank. (2013). “World Development Report: Jobs”. Washington, DC: World Bank. 152 Focus group discussions with ISFs residing in Pandi, Bulacan, and Trece Martires, Cavite. 68 Philippines Urbanization Review 4.2.2 Spatial Exclusion Manila, which houses almost 40% of the total informal settlements in the country. Many ISFs are confronted The spatial dimensions of inclusion in the context of this by physical, economic, social, legal and environmental study refer to access to land, housing, infrastructure and risks on a day-to-day basis. Aside from the current need, basic services in cities, as well as exposure to natural HUDCC anticipates that in 2017 the total housing needs hazards. These remain major challenges, afecting the will reach 6.3 million households.153 The private sector also living conditions of the urban poor. estimates that 12.5 million housing units will be needed by 2030 given the pace of urbanization in the country and the current demand-supply trends and analysis.154 As with a. Land and Housing other developing countries, the pervasiveness of informal settlements in the country can be traced to low income, Informal settlements are the most visible manifestation unrealistic and inadequate urban planning, lack of serviced of multi-dimensional poverty in the Philippines. The land and afordable social housing, and a dysfunctional largest concentration of informal settlements is in Metro legal system.155 Figure 4.13 Concentration of ISFs by Region Source: National Housing Authority 153 Housing and Urban Development Coordinating Council (2015). “Projected Housing Need 2011-2016.” Housing Summit, Quezon City, Philippines. 154 CREBA (2015). “The Philippine Housing Industry Roadmap: 2012-2030”. Philippines. 155 National Informal Settlements Upgrading Strategy Comprehensive Assessment Report, 2014. Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 69 Spatial analysis on the distribution of ISFs in Metro Manila156 housing is still a major problem as manifested by the large shows that the informal settlements are not distributed number of ISFs, increased demand for rental housing, the evenly in Metro Manila. Quezon City has the biggest share concomitant rise in rental rates. High land prices partly of the total area of the informal settlements (34%) but is due to lack of strategic land use planning and functioning also the largest municipality and is followed by Taguig City land market, as well as the low income capacity of families which includes 10% of the area of the ISF. San Juan City, in the cities hinder many households to participate in Makati City and Pateros have less than 1% of their area government and private housing projects. Thus, about half covered by ISFs.157 of NCR households do not own the land they occupy.158 The number of ISFs has been rising as many opt to build Informal settlements arise due to lack of afordable substandard dwellings in private and public lands so as to accommodation available on the formal market and access be close to their employment or livelihood source. ISFs list to productive jobs for the new arrivals. In spite of the large threat of eviction as their biggest concern. tract of land currently allocated for residential use, lack of 2+4+2037v Figure 4.14 Tenure Arrangement of ISFs Do not have any ownership or rights to the lot or dwelling unit 3.6% 7.3% Own the dwelling unit Own the lot 10.6% 42.4% 2.1% Own the lot and dwelling unit Rights to the dwelling unit Rights to the lot 34.0% Source: World Bank (2016). Metro Manila Urban SLum Survey 156 The spatial analysis was conducted by GIM under the technical partnership between the World Bank and the European Space Agency. GIM used advanced semi-automated Object-Based Image Analysis to process very high resolution satellite images (i.e. Pléiades data, spatial resolution of 50 cm) on the basis of certain characteristics and identify and delineate the informal settlements. The maps are currently the most recent and detailed view on a selected number of informal settlements, as these were taken from satellite imagery in 2014. 157 GIM (2015). “Slums Analysis in Metro Manila Operational Document”. Brussels. 158 World Bank (2016). 70 Philippines Urbanization Review Over the years, the Government has developed a number rise buildings in-city or near-city. Initial reaction from the of social housing programs for the urban poor, but they ISFs has been positive, but outcomes remain to be seen as are limited and have not been very successful. Despite the repayment rates are quite high and questions remain as to magnitude of the ISFs, the Government has only allocated how afordable HDH housing are. a staggering 0.1% of the total GDP for the housing sector between 2000 and 2014. This makes Philippine public Many local government units (LGUs) have failed to respond spending on housing the lowest compared to its peers to the challenges of ISFs and instead have looked to the in Asia such as Singapore, Thailand, and Malaysia.159 central government to lead or worse, to relinquish their Moreover, the outcomes of social housing programs have responsibilities for social housing. Many LGUs are reluctant been mixed at best. The Government has predominantly to properly allocate adequate resources to the housing opted for of-city resettlement through National Housing sector, except perhaps for their own employee housing. Authority (NHA) due to lack of available land and high land City planning and housing policy remain uncoordinated, prices in cities. However, of-city resettlement has often both at the national and local levels. There have been been implemented against the wishes of the ISFs and has a number of housing projects developed through resulted in perverse socio-economic impacts such as loss engagement from diferent civil society organizations of livelihood, lack of adequate access to basic services, (CSOs) such as the Gawad Kalinga program, but they fail and disruption of social networks. A ive-year longitudinal to achieve scale. study that compared the bottom 30th percentile of ISFs who were resettled of-city and those that remained in- Key constraints to afordable housing boil down to four city found that after ive years, the income gap between inter-related issues: (i) land availability; (ii) afordable the two groups rose to more than 50%. The study also housing inance; (iii) governance; and (iv) lack of inclusive found that of-city resettlement resulted in increased costs urban development that optimizes land use. For urban of transportation to work, schools, and health facilities.160 centers in the country, availability of land is a constraint. Social Housing Finance Corporation (SHFC) has been This is further complicated by lack of accurate land providing afordable inancing for predominantly on- information and costly and complex processes to make site, in-city shelter upgrading through its community land available for social housing. The housing inance mortgage program (CMP). However, the number of CMP framework needs to be revisited to expand the reach projects are limited. Moreover, many CMP sites become down-market to allow lower-middle income class to access blighted, as communities only manage to take out loans formal inance and give the low-income class access to for land acquisition and lack the inancial capacity to government subsidized inancing. For governance, there borrow for site development or housing, let alone set aside is a need to provide incentives and technical support to funds for estate management. CMP has thus been termed LGUs to promote their proactive role in social housing. It by some as “going from slums to slums”. SHFC has recently is also crucial to ensure that land use planning is inclusive, introduced the High Density Housing (HDH) program disaster resilient, and sustainable. that aims to resettle ISFs from danger areas to medium- 159 C. Habito (2016). “Public Housing Expenditures in Selected Asian Countries, 2000-2014”. Manila. (Mimeo) The study compared public housing expenditures as a percentage of GPD between 2000-2014 for 9 Asian countries, namely Singapore, Nepal, Mongolia, Indonesia, Sri Lanka, Thailand, Malaysia, Bangladesh, and Philippines. 160 John J. Carroll Institute of Church and Social Issues (JJCICSI). (2008) “A Study of Resettled Families’ Perceptions of Vulnerability and Resilience to Disasters” (Draft Report). Manila. Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 71 Figure 4.15 Main Sources of Drinking Water for ISFs in Metro Manila Public/street faucet only 0.5% Coverep deep or shallow well only 0.8% Water vendors & fetched from main... 0.8% Handpump/machine-assisted pump 0.9% Those connected to a neighbor only 3.2% Piped connection & water vendors 4.8% Fetched water from neighbor only 10.7% Piped connection only 32.5% Water vednors only 45.9% Source: World Bank, 2016. Metro Manila Slum Survey b. Access to Basic Services and Social Safety Net control.163 In the Philippines, ISFs pay 9-13 times more for the delivery of water than households living in adjacent Access to clean water, among other basic services, is a fully serviced neighborhoods.164 serious problem for the ISFs. Almost half of ISFs get water through vendors, 11% fetch water from neighbors, and 3% ISFs’ lack of access to proper sanitation aggravates water share the connection with their neighbors.161 The major pollution causing health problems. While access to basic constraint that prohibits ISFs from accessing potable water sanitation is high, 93% of the urban poor sampled report is the connection fee. New connection fees are equivalent having access to water-sealed septic tanks165, many of them to US$97 and US$176 in Manila West and Manila East, are improperly designed and hardly maintained, allowing respectively.162 Additionally, there are administrative human waste to pollute the water. In Metro Manila, only requirements such as proof of land title, which prevent about 15% of the sewage is treated, and all other pollutants many households from connecting individually. In such are drained into rivers.166 The water pollution is often a cases, households share utilities but they are charged a cause of gastro-intestinal problems, skin ailments, cholera, higher tarif rate. Yet the cost of water from small scale typhoid and other infectious diseases.167 service providers can be extremely high, with no quality Figure 4.16 Access to Sanitation Facilities by ISFs in Metro Manila Pit latrine (open or close pit 0.4% No toilet/open defecation 2.3% Water sealed, other/no depository 4.1% Water-sealed (lush or pour/lush), sewer/septic tank 93.1% Source: World Bank, 2016. Metro Manila Slum Survey 161 World Bank (2016). Urban Slum survey. 162 ADB (2014) 163 “Baker, Judy, ed. 2009, “Opportunities and Challenges for Small Scale Private Service Providers in Electricity and Water Supply, Evidence from Bangladesh, Cambodia, Kenya and the Philippines, World Bank, Washington, D.C. 164 Ballesteros, M. (2010). “Linking Poverty and the Environment: Evidence from Slums in Philippine Cities”. Philippine Institute for Development Studies; Manila. 165 World Bank (2016). Metro Manila Slum Survey. 166 E. Gozun (2010). “Water and Sanitation Policy Notes”. Philippine Urban Consortium. 167 Ballesteros (2010) 72 Philippines Urbanization Review Majority of ISFs have access to electricity, but high tarifs and surface waters, resulting in health issues.171 When solid pose a signiicant inancial burden. The Philippines has a waste collection is diicult, such as in many cramped very high electricity rate – the ifth most expensive in the informal settlements, nearby water bodies like creeks and world, averaging at $0.24 per kilowatt-hour in 2012.168 rivers become convenient dumping grounds.172 Some of The high electricity rate forces many ISFs to resort to the uncollected garbage on the streets also inds its way to shared connection or “jumping”, illegal connection to creeks and rivers through underground and open drainage neighbors or public electricity. 46% of the ISFs have their systems. All this hampers water discharge during the rainy own connection, 37% only have shared connection that season which in turn contributes to looding, perversely leads to higher premium, and 14% say they are illegally afecting the ISFs living along waterways. connected from their neighbors or public electricity.169 Some people spend as much as US$100/month to pay Transportation costs weigh heavily on the urban poor, for their electricity from their average monthly household being the second highest expenditure item for a income of about US$507 (Php.22,835) in NCR in 2012.170 household. Without any intervention, traic demand will likely increase by 13% in 2030, and transport costs then Improper solid waste management exacerbates health are estimated to 2.5 times higher.173 As it is, transportation issues and looding. Water pollution is prevalent especially costs accounts for 15% of the total household expenditure in Metro Manila. In Metro Manila, only 10% of the 7,000 for ISFs. This amount is equal to about a kilo of rice or three tons of solid waste generated daily basis is recycled or cans of sardines, enough for a day’s meal.174 In addition to composted while the rest are either hauled to the city’s the inancial costs, there is the time cost, as well as physical dumpsites (where many urban poor live and work as and psychological cost associated with traic congestion scavengers), dumped into nearby water bodies such as especially in Metro Manila where commutes can be creeks and rivers, or burned on the streets. Leachate from lengthy. Over 80% of the ISFs in Metro Manila spend 30-60 solid waste contaminate the soil as well as both groundwater minutes one way to commute to their work.175 Figure 4.17 Time Spent for Commute to Work by ISFs in Metro Manila (in Minutes) 30.0 50.6% 25.0 20.0 30.0% 15.0 10.0 8.5% 6.9% 3.9% 5.0 0.0 0 - 30 31 - 60 61 - 90 91 - 120 121 - 300 Source: Metro Manila Slum Survey 168 International Energy Consultants. (2012) “Regional Comparison of Retail Electricity Tarifs”. Meralco. Manila. 169 World Bank (2016). 170 FIES 2012. 171 Ballesteros (2010) 172 World Bank (2016). “Philippines Metro Manila Flood Management Project” Project Appraisal Document. 173 JICA (2014). 174 Ateneo School of Government. (2014). “Inclusive Mobility Network Action Plan”. Manila. 175 World Bank (2016). Metro Manila Slum survey. Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 73 Figure 4.18 Educational Attainment of ISFs in Metro Manila 2500 30.6% 30% 2000 21.5% 25% 20.0% 1500 20% 11.7% 9.7% 1000 10% 5.0% 500 0.6% 0.4% 0.2% 0.2% 5% 0.0% 0 0 No education Pre-school Some elementary... Elementary... Some high school High school... Some college College graduate Post graduate Don’t know No data Manila No. Quezon City No. Muntinlupa No. Total No. Total % Source: Metro Manila Slum Survey Access to education is also limited due to inancial Many urban poor beneit from conditional cash transfer constraints. As mentioned before, a survey of 3,000 ISFs though the amount is relatively small. Introduced in 2007, in Metro Manila found that 22.4% had up to elementary Pantawid Pamilyang Pilipino Program (Pantawid Pamilya), school education or lower, 30.6% were high-school drop- which is managed by the Department of Social Welfare outs, and 46.7% had completed secondary education or and Development (DSWD), provides cash in exchange higher. Given that ISFs especially in urban areas responded for compliance with age-speciic health and education that they have physical access to schools176, the factor conditions, such as receipt of pre- and post-natal care, that limits their access to education seems to be inancial. immunization, and 85% attendance rate at daycare, In the Philippines, public education is provided for free primary, or secondary schools. Since its inception, it has from kindergarten to 12th grade. However, surveyed ISFs reached 4.2 million households, or approximately 21% of responded that expenses for textbooks, school supplies, the country’s total population. It has a budget of US$1.5 uniform, lunches, and transportation costs are often a billion, equivalent to 0.5% of the GDP.178 Beneiciaries burden they cannot aford.177 Moreover, for the very poor are poor households with children aged 0-18 and/or families, the opportunity costs for sending children in early with pregnant women that have permanent address, teens and above can be high, resulting in an elevated high identiied through Listahanan, the national household school drop-out rate. targeting system. In 2013, among poor households with children 0-14, the coverage rate was 58%. Of the program’s 176 World Bank (2016). 177 World Bank (2016). 178 P. Acosta and R. Velarde (2015). “An update of the Philippine Conditional Cash Transfer’s Implementation Performance”. World Bank Philippine Social Protection Policy Note No. 8. Manila, Philippines. 74 Philippines Urbanization Review found that the program reduced the poverty rate among the beneiciaries by 6.5 percentage points and the national income inequality as measured by Gini coeicient by 0.5 points. The program has also inluenced behavioral change among beneiciaries.182 CCT beneiciary households were also ofered skills training and cash-for-work assistance ($6.60/day or 75% of the prevailing daily wage rate) or micro capital assistance for sustainable livelihoods ($220/ family) under DSWD’s Sustainable Livelihood Program as a complementary measure. A modiied conditional cash transfer (MCCT) program that targets the urban poor among others has also been piloted, though results have been mixed. To address poor households that were not included in the Listahanan, such as homeless families who were not enumerated due to lack of permanent address, as well as indigenous total beneiciaries, 65% are income poor and 35% are people and other vulnerable groups, the government non-income poor, while ISFs only represented 4.4% of piloted the Modiied CCT (MCCT). As of April 2016, MCCT the beneiciary households. Targeting accuracy is high has beneitted 5,214 homeless families, of which 3,519 compared to CCT programs in other countries. Listahanan are from NCR, in addition to indigenous people and other used the “pockets of poverty” methodology179 to identify vulnerable families.183 MCCT ofered additional support for the poor in urban areas. This has proven a challenge, housing in the form of balik probinsya ($1,540) for those however, with inclusion errors at 37%, 15 percentage points who want to return to their province of origin, and rental higher than 22% in rural areas.180 On average, Pantawid subsidies worth $88 a month for a maximum of 6 months. Pamilya beneiciary household received a monthly grant Only fewer than half of the beneiciaries availed themselves of Php.703.5 (US$16.4) in 2013, which corresponds to of the rental assistance, and of those, only 30% were able 11.6% of beneiciary households’ monthly income from to continue renting a house on their own accounts, and the poorest quintile in the same year. This is lower than 20% returned to the streets as they were not able to sustain the beneit level of around 23% of potential households’ themselves. Only 32% accessed cash-for-work activities income which the program intended to achieve at the time and 16% received skills training, facilitation of employment of its design in 2006, which is on par with CCT programs in or capital assistance.184 While a more in-depth evaluation other countries such as Brazil and Mexico.181 Nevertheless, to understand the reasons for low uptake is needed, the Pantawid Pamilya has proven efective. Impact evaluation 179 L. Fernandez (2012). “Design and Implementation Features of the National Household Targeting System in the Philippines.” World Bank Philippine Social Protection Note No. 8. Manila, Philippines. 180 U. Gentilini (2015). “Entering the City: Emerging Evidence and Practices with Safety Nets in Urban Areas”. World Bank, Washington D.C. 181 P. Acosta and R. Velarde (2015). The relatively low transfer size is partly explained by the fact that the Government prioritized coverage of all poor households with children over updating beneits level to adjust for inlation rate to maintain a reasonable program budget. 182 For details, see A. Orbeta, et al. (2014). “Keeping children healthy and in school: Evaluation the Pantawid Pamilya using Regression Discontinuity Design. Second Wave Impact Evaluation Results”. 183 As of April 2016, MCCT had 237,859 household beneiciaries with the following breakdown: (i) 5,214 homeless households; (ii) 182,055 indigenous people households; and (iii) 50,590 other vulnerable households such as disaster afected families. 184 Gentilini (2015). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 75 results imply that given the chronic nature of poverty the Deicient infrastructure such as lack of drainage or proper urban poor face, exposure to longer-term interventions maintenance of it, as well as clogged waterways due to may be more important in helping address the structural lack of efective solid waste management compound the challenges of urban poverty.185 problem. Almost half of the ISFs surveyed in Metro Manila report that they are afected by constant looding.186 The c. Exposure to Hazards looding can have signiicant impacts on livelihoods, cause costly damages to housing and assets, and increase health risks due to prolonged exposure to water pollution. People Many slums have been built on river loodplains or along cope with the reduced income by: (i) taking on additional the shorelines, exposing ISFs to recurring loods. Due to or temporary jobs where available; (ii) reducing food government’s poor enforcement of land use planning consumption; and (iii) taking out multiple loans. Despite and regulation, many slums have developed near water these coping strategies, income remain insuicient to bodies. This has exposed ISFs to constant looding. cover basic consumption needs in most cases.187 Figure 4.19 Issues Faced with Flooding by ISFs in Metro Mania Others 0.4% Not afected 0.7% Goods get spoiled 0.7% Water supply disruption 2.4% 3.6% Temporary evacuation Fewer customers for business 3.9% Household members get sick 4.7% Electricity disruption 6.2% Insuicient food supply 6.7% Unable to work at home 13.1% Damaged/ruined house parts 17.4% Children unable to attend school 19.0% Unable to travel to work 21.1% Source: Metro Manila Slum Survey 185 Gentinili (2015). 186 World Bank (2016). Metro Manila Slum survey. 187 Institute of Philippine Culture (2011). “The social Impacts of Tropical Storm Ondoy and Typhoon Pepeng.” Manila. 76 Philippines Urbanization Review 4.2.3 Social Exclusion The dimensions of social inclusion relate to fundamental principles of equal rights and participation of the marginalized in the development process. In the context of the urban areas in the Philippines, particular aspects of crime and violence and social cohesion are issues afecting social inclusion of the urban poor. a. Crime and Violence Crime and violence can take a heavy toll on social and economic development. Violence can incur strong, negative impacts on economic development by drastically reducing growth and producing long-lasting detrimental social impacts188, creating a vicious cycle of violence and Fire is one of the primary man-made disasters that afects poverty. Economically, it discourages investment and the ISFs. While no statistics are available, ires that burn diverts public resources from development toward law hundreds of houses in slums are quite common. Fires are enforcement and support for victims. For example, in 2005 usually caused by unattended candles and gasoline lamps, in Guatemala, the direct costs of violence, concentrated malfunctioning Liqueied Petroleum Gas (LPG) tanks, predominantly in the capital city, was estimated at US$2.4 cooking stoves (charcoal stoves), ireworks, and faulty billion or 7.3% of the national GDP.189 It is estimated that electrical wiring. In most cases, ire spreads throughout if Jamaica and Haiti reduced their crime levels to those the community in minutes and can last for several hours of Costa Rica, their annual GDP growth could increase by before suppressed. Various factors contribute to the rapid 5.4%.190 Socially, violence, or the mere fear of it, stigmatizes spread of ire. First, slums are often highly congested with certain neighborhoods, erodes social cohesion, limits houses close to each other and pathways too narrow people’s mobility, and negates citizens’ trust in a state that for ire ighters and trucks to enter. Second, most houses cannot protect them.191 are made of light materials like scrap wood, cardboards, tin roof, and tarpaulin that are highly inlammable. Fires Globally, crime and violence are more pronounced in damage the houses and assets, and displace families, urban areas and are compounded by their rapid growth. A further impoverishing the urban poor and pushing the study estimated that 60% of urban dwellers in developing vulnerable poor below the poverty line. and transitional countries have been victims of crime over a ive-year period, with victimization rates reaching 70% 188 World Bank (2009) 189 UNDP (2006). 190 UNODC and World Bank (2007). 191 World Bank (2011). “Violence in the City: Understanding and Supporting Community Responses to Urban Violence”. Washington D.C. Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 77 in parts of Latin America and Africa.192 It has also been female rates for all age groups.197 Men commit majority established that even in regions with relatively low levels of violent crimes from domestic violence to homicide, of urban violence, such as Western Europe, urban violence although the rates of nonfatal victimization by violence are is higher than rural-based violence.193 As centers of social, more equal by gender. Women are much more vulnerable political, and economic power, cities can be hot spots for to sexual and domestic violence.198 violence and conlict. The stark inequalities in cities can contribute to frustration, and rapid growth can accumulate Crime and violence in the Philippines signiicantly risk factors and intensify the potential for violence. increased in 2013 compared to previous years. Philippines Unmanaged growth transforms power relationships is not safe, but not strikingly unsafe, ranking at 62nd in the and creates new social and economic opportunities (or 2012 world global homicide rate ranking, which is widely inequalities), which, combined with weak state security considered the most accurate indicator of overall levels presence, can foster criminality and violence. The impacts of violence in a country. Compared to the world average are especially pronounced in cities where institutions are homicide rate of 6.2 per 100,000 people, homicide rate fragile.194 While there is still much to be learned about in the Philippines was 8.8, though it is much higher than the relationships among diferent patterns of city growth, the Asian average of 2.9.199 Government data on homicide economic growth, and expression of violence, the city’s shows that it more than doubled in 2013 compared to the growth rate appears to have a stronger relationship with previous year. Other serious crimes, which the government homicide rates than does its size or density.195 terms as index crimes, also tripled while less serious non- index crimes increased by more than six-fold in 2013.200 Some groups are impacted more, or diferently, by urban Reasons for the signiicant increase in crime and violence violence than others. In most cases, areas that struggle in 2013 are unclear. The overall trend of crime rates follows the most with crime and violence are often areas that are a similar trajectory as the homicide rate. Alarmingly, the the poorest.196 There are also clear gender dimensions. crime solution eiciency rate halved in the same period Globally, male homicide rates are roughly double the though the reasons are unclear. 192 Shaw, M., J. van Dijk and W. Rhombert (2003). “Determining trends in global crime and justice: An overview of results from the United Nations Survey of crime trends and operations of criminal justice systems”. Forum on Crime and Society. 193 World Bank (2011) 194 World Bank (2011). 195 World Bank (2011) 196 Winton (2004) 197 WHO 2008 198 WHO 2008 199 United Nations Oice of Drugs and Crime (UNODC). Global Study on Homicide. 200 Index crimes, as deined by the Philippine National Police (PNP), include murder, homicide, physical injury, rape, and crimes against property such as robbery, theft, car-napping/carjacking and cattle rustling. Non-index crimes are violations of special laws such as illegal logging or local ordinances. 78 Philippines Urbanization Review Figure 4.20 Incidence of Homicide Figure 4.21 Crime Rates (per 100,000 People)201 7000 6409 1500 6000 5520 4947 1000 5000 4000 3726 3375 3022 500 3000 2000 0 1000 2009 2010 2011 2012 2013 2014 - 2009 2010 2011 2012 2013 2014 Philippines Index crimes Non-index crimes Source: Philippine Statistics Authority Source: Philippine Statistics Authority Drug related crimes are prevalent in the Philippines, is located) with 48.8% of the barangays afected. Of the in particular in NCR. According to the Philippine Drug 19,432 drug personalities arrested in 2015, 87.6% were Enforcement Agency (PDEA), Philippines remains to male.204 Of the minors involved, 93% are in the age bracket be both a producing and consuming country of illegal of 15 – 17.205 drugs. Based on the data on drug-related arrests, shabu (methamphetamine hydrochloride) remains the most Yet, people’s average perception of safety has improved abused illegal drugs in the country. In 2015, 95.5% of drug- since 2013, possibly masking the regional discrepancy. related arrests were linked to shabu, followed by marijuana According to Numbeo’s crime index206, perceptions of both at 4.3%.202 As of December 2015, out of the total 42,036 safety and crime in the Philippines has improved since 2013. barangays in the country, 11,321 or 26.9% were drug- The discrepancy between the oicial data and perception afected”203 or have drug-related cases irrespective of the data could mean that the oicial data is inaccurate, or that volume. Among them, NCR remains to be the region with there is a representation bias in Numbeo users. Another the highest number of “drug-afected” barangays, where plausible explanation could be that the national average an estimated 92.3% of barangays were afected in 2015, crime rate masks the regional disparity, notably the rural- followed by the relatively highly urbanized regions of urban disparity. Region IV-A with 49.3% and Region VII (where Cebu city 201 Index crimes, as deined by the Philippine National Police (PNP), involve crimes against persons such as murder, homicide, physical injury and rape, and crimes against property such as robbery, theft, carnapping/carjacking and cattle rustling. Non-index crimes, on the other hand, are violations of special laws such as illegal logging or local ordinances.206 Numbeo is the world’s largest crowd-sourced database of user-contributed data about cities and countries ranging from consumer prices, perceived crime rates, quality of health care, to traic quality. Data from Numbeo has been used as a source in hundreds of major newspapers around the world, including Forbes, The Economist, The New York Times, and BBC. 202 Philippine Drug Enforcement Agency (PDEA) (2015). “2015 Annual Report”. Manila. 203 According to PDEA, a barangay is said to be drug-afected when there is a drug user, pusher, manufacturer, marijuana cultivator or other drug personality “regardless of number in the area. There are three basic degrees as to how a barangay is afected by illegal drug activities --slightly afected, moderately afected, and seriously afected. Barangays are considered slightly afected if there are identiied drug users in the community but no known drug pushers or traickers are operating in the area while moderately afected if at least a suspected drug pusher or traicker is operating in the barangay. A barangay is seriously zafected if at least a drug laboratory, den, dive or resort is suspected to exist in the community. 204 PDEA (2015). 205 PDEA (2015). 206 Numbeo is the world’s largest crowd-sourced database of user-contributed data about cities and countries ranging from consumer prices, perceived crime rates, quality of health care, to traic quality. Data from Numbeo has been used as a source in hundreds of major newspapers around the world, including Forbes, The Economist, The New York Times, and BBC. Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 79 Figure 4.22 Perceptions on Crime and Safety in the Philippines 80 60 40 20 0 2012 2013 2014 2015 2016 Crime index Safety index Source: Numbeo Disaggregated data shows that crime rates in NCR, which perception of improved safety, such perception is not is highly urbanized, was 52% higher than the national shared among the urban poor. As shown in igure 6.16, rate in 2010.207 Numbeo data shows that Quezon City, crime and violence is cites as the second most serious Zamboanga, Bacolod, Manila, and Cebu in that order have threats following eviction for the ISFs. Poor children and the highest crime rates in the country. Globally, Quezon youth who don’t go to school are prone to falling prey to City and Zamboanga City rank 43rd and 48th unsafe exploitative gangs that engage in delinquent and risky cities. These two cities with the highest crime rates in the behaviors. Substance abuse claims some 1.4 million youth Philippines vary in population size at 2.8million and 807,000 (15 – 30 years) who have used or sold illegal drugs. Of respectively. But interestingly, both cities experienced 700 Metro Manila street children surveyed, 40 % admit to a high population growth between 1990 – 2010 at 2.6% using prohibited drugs.210 Surveys stress that the greater and 3.1%, well above the national average of 2.1%.208 This number of out-of-school youths or young men without supports the hypothesis that the city’s growth rate seems jobs had a negative impact on the overall sense of security to have a stronger correlation with homicide rates than the in the community. The linkages between youth idleness size or the density. That is because cities that grow quickly include: (i) increased drug use; (ii) increased gang violence; are more likely to experience a convergence of factors that and (iii) in isolated instances of more violent crime (“hold- increase the risk for destabilizing levels of violence if they ups”). People also highlighted that the living condition in are not appropriately addressed.209 their areas (such as narrow, maze-like streets, lack of street lighting) make it more diicult for police to control crime Crime and violence disproportionately afect the urban and violence.211 poor, in particular male youth. Despite the general 207 Philippine Statistics Authority (PSA). 208 PSA 2010 Census on Population and Housing. 209 World Bank (2011). 210 GOP-UNICEF 1997 211 IPC (2011) 80 Philippines Urbanization Review time. Community-based organizations that rally members around speciic issues such as home-owners’ associations (HoAs) are more likely to be able to reach out to a broad spectrum of households in the bigger heterogeneous communities rather than generic community groups.212 Where there are no active CSOs or government assistance, many urban poor communities remain unorganized. Social cohesion is disrupted when there is a signiicant inlux of new settlers. It is not uncommon for a split to emerge between longer-time residents and new migrants, strengthening the notion of “us” versus “them”.213 Often times, deterioration in law and order is attributed to “other” sub-groups. Overcrowded schools and health facilities, and competition over customers (for service providers such as tricycle drivers) can also be sources of tension between the old and new communities. b. Social Cohesion ISFs’ relationship with and inluence on LGUs, especially Urban poor communities’ social networks are built around the barangay government, critically depends on whether kinship, and accordingly, common issue-based community they are organized and whether they have any kinship ties. organizations work best to mobilize the broader Formal institutions that are important for the slum dwellers community. Rural migrants move to cities through their include purok (ward) leaders, barangay captains, and social networks such as family and friends, and typically barangay councilors. How good the relationship with these end up in homogenous communities that are from the institutions is, and how much leverage the slum dwellers same regions. Yet, as slums grow, many kinship-based can have, varies greatly by how well the community is groups come together creating a broader heterogeneous organized, whether they have any conduits such as CSOs settlement. As such, primary social support networks and that can act as a bridge between the community and the solidarity mechanisms for the urban poor exist mostly LGU, and whether there are any kinship ties. If they don’t within smaller sub-groups, connected by kinship ties have any strong ties with the local governments, they are or by the fact that particular groups of households had often excluded from oicial decision-making process. moved into an area from the same areas at the same 212 World Bank (2011). SIM. 213 World Bank (2011). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 81 4.3 Recommendations Inclusive urbanization is important to city competiveness. Help the urban poor access formal jobs by providing A large number of the population in informal settlements market-driven skills training and placement services are low-income workers that provide critical labor and in close collaboration with the private sector. contribute to the productivity and growth of cities. A key aspect of a city’s competitiveness is its ability to be As noted above, majority of the urban poor prefer stable inclusive, ensuring that all residents are able to share in regular wage labor in the formal sector rather than engaging and contribute to rising prosperity. Addressing urban in risky micro-enterprise development, and many poor are poverty and inequality remains an important challenge engaged in self-entrepreneurship “out of necessity”.214 It is for the Philippines and will require a holistic approach thus essential that government provides employement that integrates all dimensions of inclusive urbanization – support to the urban poor. Such support, however, needs economic, spatial, and social. to be provided in a “market demand-driven” manner unlike the conventional “labor supply-driven” approach which has Economic Exclusion resulted in mismatches between the supply of skills and the demands of the economy.215 Efective interventions One of the key interventions to help alleviate the multi- must take into account: (i) matching of livelihoods/jobs dimensional poverty that urban poor face is to address the with people’s skills, interests, and mobility; (ii) presence of urban poor’s jobs challenge. That is, to address the urban a steady market to buy people’s services or products; (iii) poor’s high underemployment rate due to informality so quality of the end product and/or skills; and (iv) placement as to allow higher and more stable income. The challenge services for employment, with a focus on providing is that due to low educational attainment and low levels waged employment opportunities in formal sector to at of skills, urban poor face a signiicant hurdle in landing least one household member to ensure stable household productive formal jobs. The report thus recommends income.216 Such endeavor should be undertaken with a short-term approach to: (i) provide skills training and strong collaboration with the private sector to tailor the placement support for the low-educated, low-skilled skills training to the employers’ need and ensure access to urban poor tailored to the preference and proiles of employment post-training. A robust tracer study to track ISFs but in line with market demand; and (ii) expand the trainees’ retention and career projection is needed social protection through cash-for-work programs using to shed more light on which industry yields the largest a properly designed public works program to provide returns on investment. income support to the unskilled poor. Longer-term approach includes undertaking structural measures to generate more formal sector employment opportunities for the urban poor. 214 World Bank (2014) and Hwang, H. (2014). “Emerging Lessons from Urban Livelihoods Interventions”. (Mimeo) 215 World Bank. (2013). “World Development Report: Jobs”. Washington, DC: World Bank. 216 Environs. (2015). “Final Report on the NHA Livelihood Program”. Manila. 82 Philippines Urbanization Review Expand Formal Sector Employment while Raising the Incomes of those Informally Employed In the longer-term, there is a need to create more formal jobs which are accessible to the urban poor. This entails some structural changes that are beyond the scope of this study. According to the World Bank’s Philippine Development Report 2013218 which looked quite extensively on this issue, some of the recommendations to generate more formal jobs include the following: (i) reinvigorate the manufacturing sector to create more formal jobs to low-skilled, low-educated urban poor; (ii) simplify regulations in business registration and licensing, tax regime, and access to inance to encourage rapid growth of businesses, especially the micro-, small and medium enterprises (MSMEs) in the formal sector that can generate more jobs; and (iii) make labor market regulations Expand Cash-For-Work Programs to Provide Income more responsive to job creation, especially for small and Support to the Unskilled Urban Poor to Smooth their labor-intensive irms. Income Variability Provide Financial Support to Facilitate Secondary A properly designed public works program can be Education Completion an efective means to provide income support to the unskilled urban poor, especially to compensate the unstable income. The government can use Listahanan Completion of high school education is critical in securing to target the right beneiciaries for such cash-for-work job opportunities. Support to alleviate the inancial programs, and communities can identify public works burden of uniforms, school supplies, education materials, that will beneit them. In addition to augmenting income, and transportation costs would greatly enhance the such a program can enhance beneiciaries’ employability chances of more urban poor youths to complete higher by providing them with labor market experience and by education.219 Pantawid Pamilya is already providing cash providing innovative technical and life skills training. These grants for education up to high school, but it may be programs, however, need to ensure that: (i) wage is set worth considering increasing the grant amount to further below the market rate to ensure self-targeting of the poor; encourage completion of secondary education. (ii) set a clear timeframe and exit strategies for participants; (iii) types of infrastructure are those that beneit the local urban poor communities; and (iv) work is labor-intensive.217 217 World Bank (2013) 218 World Bank (2013) 219 Environs (2016). “Brieing Paper No.2: Livelihood Interventions”. Paper prepared under the World Bank TA to National Housing Authority. Manila, Philippines. Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 83 Spatial Exclusion Urban poor sufer from inadequate access to land, afordable housing, basic services, and are vulnerable to hazards. Given the magnitude of ISFs, it is vital that opportunities for afordable housing and secure tenure are sustainably expanded, and key services and infrastructure are provided. To achieve this, a number of inter-related interventions are proposed. Close the gap in afordable housing and provide access to basic services for the ISFs. Housing is a basic human right as recognized in the Universal Declaration of Human Rights.220 The state, being the main institution entrusted with the responsibility of promoting the common good and rights of its people, has • Establish an integrated land and ISF information to make housing as broadly accessible as possible. Housing system through citywide participatory mapping. Lack needs to be embedded in the broader goal of inclusive of a current inventory of ISFs, their locations, status and sustainable urbanization. Housing should not only be of the land they occupy, as well as inventory of idle about the physical structure but also the development of land that can be used for social housing impedes thriving neighborhoods and communities where capital government from taking swift action and increases (social, physical, and other forms) are created, making the transaction costs. LGUs and communities can, with them conducive venues for people to be fully human adequate training, undertake citywide participatory and alive. The unit of measure in an efective and eicient mapping and shelter planning, systematically shelter program therefore should not be the number of collecting land information and socio-economic data houses produced or the loans taken out but the number of all the slums in a city, and developing an integrated of communities that have improved.221 Accordingly, land information system with complete land records while the recommendations below center on provision of and overlays of relevant data (such as hazard maps) housing and basic services, they should be implemented from relevant agencies such as Department of along with recommendations to address economic and Environment and Natural Resources (cadastral social exclusions to provide holistic solutions. information) and Land Registration Authority/Registry of Deeds (ownership information) to be managed by LGUs but available to public.222 220 United Nations (1948). Universal Declaration of Human Rights. New York. 221 World Bank (2016). “Closing the Gap in Afordable Housing in the Philippines: Policy Paper for the National Summit on Housing and Urban Development”. Washington D.C. 222 World Bank (2016). “Closing the Gap in Afordable Housing in the Philippines: Policy Paper for the National Summit on Housing and Urban Development”. Washington D.C. 84 Philippines Urbanization Review • Provide infrastructure and site development for formal but blighted communities and informal communities that are in the process of securing land tenure. Primary and secondary infrastructure development should be undertaken under the leadership of the LGU to ensure consistency with city-level planning. Tertiary infrastructure such as small-scale water supply, drainage, sanitation, solid waste management, footpaths, ire safety measures, sidewalks and street lights are also needed. Identiication and prioritization of tertiary infrastructure could be carried out in a community-driven manner to empower the poor. Disaster risk reduction will be mainstreamed through design and implementation to reduce the poor’s exposure to both natural and man-made disasters. • Expand connective infrastructure to allow neighboring • Provide grants in the form of serviced land, help areas to beneit from urbanization, including of-city secure property rights on safer grounds, and provide resettlement sites. Properly planned and managed home improvement grants for low-income informal urban development with good connectivity between communities. For a fundamental overhaul of the economic hubs and neighboring areas will help housing inance system, the government needs decongest the city center and expand residential to create an enabling environment to expand the areas. Better connectivity between large-scale of- housing inance system down-market to reach middle city relocation sites and economic centers will reduce and lower-middle income households, so that they can attrition rate of social housing. access formal housing and do not capture subsidized housing or inance. Low income households that cannot access formal housing or inancing, however, • Help the rental housing market grow. Home ownership will require a more direct government intervention. is a major investment and not all households are This includes provision of support to secure property ready to invest and may opt for rental housing. The rights (through programs like CMP), provision of government should conduct more research to serviced land or if on-site, support to slum upgrading, understand the status of both formal and informal and home improvement grants including for room rental markets, and review rent control and any extensions for rent.223 other restrictive regulations, taxes, or subsidies that discourage rental investments for diferent segments of the society.224 223 World Bank (2016). 224 World Bank (2016). Chapter 4: Promoting Inclusive Growth by Creating Opportunities for the Urban Poor 85 Strengthen Institutions that Underpin Afordable Housing and Inclusive Urbanization A coherent assignment of institutional roles and functions in managing the urbanization processes at both the national and local level is absent. Local Government Code (LGC) and Urban Development and Housing Act (UDHA) spell out that LGUs have the primary responsibility for providing housing assistance and conducting an inventory of lands to identify sites for social housing. Yet multiple responsibilities coupled with limited land and institutional capacity, made more pronounced by their dependence on national government for logistics and inances, overburden a majority of them. Hence LGU constituents, most of all the ISFs wanting to be engaged in their development process, ind diiculty accessing technical and logistical support from government.225 Concrete cases would Social Inclusion show nonetheless that when given technical support, LGUs are able to efectively carry out their planning roles as demonstrated by initiatives such as the Citywide Identify and Design Appropriate Interventions Community Upgrading Strategy piloted in three LGUs in to Address Crime and Violence Based on Robust Metro Manila.226 There is thus a need to strengthen support Diagnostics for the LGUs. Additionally, the mandates of key shelter agencies need to be reined, and an authoritative body Anecdotal evidence suggests that urban poor male youth that oversees overall urban development needs to be that are idle are afected by crime and violence more than identiied or created. Finally, there is a need for continued others. Drug abuse is also pervasive especially in NCR. support to develop and implement key policy reforms in However, there is no comprehensive diagnostic on the the areas of urban development planning, housing inance, drivers, impacts, proiles of perpetrators and victims of land use management and administration, disaster risk crime and violence in the Philippines, which allows the management etc. government to design appropriate interventions. There is 225 World Bank (2016) 226 A program spearheaded by the World Bank, the Citywide provides technical assistance to LGUs and builds multi-stakeholder partnerships at the city level toward addressing the housing needs of poor communities. The pilot LGUs are Muntinlupa City, Barangay 177 of Caloocan City, and District 6 of Quezon City. 86 Philippines Urbanization Review thus a need to collect more data to better understand these irrespective of their preference. There is suicient history issues. Such evidence will allow the government to choose and experience of organizing urban poor communities from a wide range of interventions– be they sector-speciic into HoAs, and there are good CSOs that can assist the approaches such as criminal justice or cross-sectoral communities. The major challenge is who will provide approaches such as social prevention interventions or TA funds to support community organizing. SHFC’s HDH environmental design227– that have proven efective in program has built in provisions for CSOs’ TA costs, but this Latin America and Africa, and tailor them to the Philippine remains a small fraction. It is recommended that HUDCC context. ensures all public housing projects build in TA costs for community organization and strengthening. Facilitate Technical Assistance to Help Organize Urban Poor Communities around Collective Priority Empower the Communities and Engage them in Issue of Housing the Local Development Process through Citywide Mapping and Community-Driven Slum Upgrading Community-based organizations that rally members around speciic issues such as home-owners’ associations It is well established that communities can be efective if (HoAs) are more likely to be able to reach out to a broad empowered to undertake planning and decision-making spectrum of households in heterogeneous urban of their own afairs. By providing hands-on facilitation, communities rather than generic community groups.228 capacity building, and engaging them in community- Given the signiicance and magnitude of the need for driven mapping and slum upgrading, and providing afordable housing, organizing communities around opportunities to engage with LGU oicials, urban poor the housing agenda is likely to gain traction from the communities will be empowered and social cohesion ISFs. Beneits of organizing communities have also been within the community will be strengthened. Increased proven in that while under the national resettlement social cohesion can nurture mutual trust that helps mitigate program, organized communities developed a People’s crime and violence. Moreover, increased interaction Plan and had a voice in their resettlement, while those between the LGU and the communities helps generate unorganized ended up being resettled in large-scale of- social capital which can be harnessed by LGUs toward city resettlement sites mixed with numerous communities advancing local development and housing initiatives. 227 World Bank (2011). “Crime and Violence in Central America: A Development Challenge Volume I”. Washington, D.C. 228 World Bank (2011). SIM. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 87 Chapter 5 Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 5.1 Introduction and Context Strong institutions are critical to the efective management fragmentation among various oversight and sectoral of cities, the delivery of eicient urban services and agencies at the national level has exacerbated the weak infrastructure, and the establishment of an enabling institutional environment for urban development. The environment for business and job creation. Strong continuing expansion and population growth of urban institutions are needed to design and support policies for areas throughout the country heightens the urgency for land and housing markets, raise and equitably redistribute adopting comprehensive urban policy and institutional revenues, and promote a safe and sustainable urban reforms that will enable the country to harness the beneits environment both at the national and local levels. In of urban development and mitigate negative externalities. practice, there are many challenges in governing cities, particularly for metropolitan areas that include multiple Urban areas in the Philippines are characterized by higher jurisdictions, and require numerous municipalities levels of metropolitan fragmentation compared to the for collaborative planning, decision-making, and rest of countries in East Asia.229 As a consequence of rapid implementation. Examples of core urban issues that urbanization, urban growth inevitably expands beyond the spill over across municipal boundaries include urban original boundaries of cities to neighboring jurisdictions. transport, urban infrastructure, disaster risk mitigation and Among urban areas in the Philippines with populations management, and climate change adaptation. exceeding 100,000, only one-third are “contained” within a single jurisdiction compared to an average of 60 percent in A number of underlying institutional and governance the rest of East Asia. Speciically among the smallest urban issues at both the national and metropolitan levels in the areas with populations ranging from 100,000 to 500,000, Philippines stand out as binding constraints which have which are classiied as “contained” in almost 80 percent of limited the country from optimizing the beneits of urban cases in East Asia, only 37.5 percent are “contained” in the development. Even as the share of the national population Philippines. living in urban areas has expanded to around 50 percent, urbanization in the country has never been guided by a Metro Manila provides a prime example of the challenges of comprehensive urban development policy supported metropolitan fragmentation wherein the socio-economic by a clearly deined institutional framework. Institutional and functional urban space does not correspond to a single 229 Metropolitan fragmentation describes the transition from “contained” urban areas, where the built up area is contained within a single municipal boundary, to “spillover” and “fragmented” urban areas (World Bank 2015). For “spillover” urban areas, one jurisdiction contains more than 50 percent of the total built up area while the remaining urban area is divided among smaller jurisdictions (e.g., Hangzhou in China, Nha Trang in Vietnam, and Bandung in Indonesia). For “fragmented” urban areas, no jurisdiction accounts for more than half of the built-up area (e.g., Jakarta, Tokyo, and the Pearl River Delta urban area in China). 88 Philippines Urbanization Review jurisdiction. Oicially, Metro Manila is a special development municipalities with an aggregate urban population of 16.5 and administrative region composed of 16 cities and one million. In the cases of Cebu and Angeles, the respective municipality. However, in reality, the contiguous built-up metropolitan areas are each spread out over 13 individual urban area of Metro Manila encompasses 84 cities and cities and municipalities. Table 5.1 Fragmentation among Urban Areas in the Philippines URBAN AREAS URBAN LAND AREA WITHIN ADMIN URBAN POPULATION NUMBER OF LGUS (SQ. KM.) BOUNDARY (SQ. KM.) (THOUSANDS) TOTAL CITIES MUNIS Fragmented Manila 1,275.0 6,037.8 16,521,948 84 30 54 Cebu 161.4 1,014.2 1,527,407 13 6 7 Angeles 185.8 1,386.8 683,176 13 3 10 Dagupan 36.6 323.8 213,323 7 1 6 Spillover Bacolod 78.6 902.2 538,628 4 4 0 Iloilo 39.4 220.4 337,552 4 1 3 Baguio 46.4 875.1 316,654 4 1 3 Cagayan de Oro 47.3 643.4 268,087 3 1 2 Cotabato 11.8 298.1 242,993 2 1 1 Marawi 6.0 145.4 136,994 3 1 2 Tarlac 43.8 943.2 133,092 3 1 2 Cabanatuan 27.6 333.8 112,614 2 1 1 Batangas 26.6 365.1 114,349 3 1 2 Kabankalan 25.6 984.3 114,300 2 1 1 Contained Davao 76.3 2,228.0 826,172 1 1 0 Zamboanga 39.1 1,468.4 350,889 1 1 0 General Santos 67.8 477.0 269,341 1 1 0 Lucena 15.8 91.1 185,455 1 1 0 Iligan 13.1 652.5 141,727 1 1 0 Tagum 21.2 181.3 138,986 1 1 0 Butuan 12.1 670.0 106,491 1 1 0 229 Metropolitan fragmentation describes the transition from “contained” urban areas, where the built up area is contained within a single municipal boundary, to “spillover” and “fragmented” urban areas (World Bank 2015). For “spillover” urban areas, one jurisdiction contains more than 50 percent of the total built up area while the remaining urban area is divided among smaller jurisdictions (e.g., Hangzhou in China, Nha Trang in Vietnam, and Bandung in Indonesia). For “fragmented” urban areas, no jurisdiction accounts for more than half of the built-up area (e.g., Jakarta, Tokyo, and the Pearl River Delta urban area in China). Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 89 Increasing mismatches between socio-economic (functional) areas and administrative (spatial) jurisdictions within rapidly expanding urban areas require efective governance solutions at the metropolitan level that are currently missing in the Philippines.The efective and eicient provision of core urban services with metropolitan-wide dimensions requires formal and functional mechanisms for efective inter-jurisdictional coordination. Cost eiciencies rooted in leveraging economies of scale in the delivery of urban services represent a primary motivation for adopting a metropolitan-wide governance structure. For capital- intensive services such as transport infrastructure, solid waste disposal, water supply, and sewerage, the cost per unit of providing services tends to decrease as the quantity of the service provide increases (Bahl 2013). The need to manage externalities among certain urban services within a metropolitan area, whereby the beneits or costs of a speciic service in one jurisdiction spill over to the residents of another jurisdiction, is another reason to consider the However, with the exception of Metro Manila, there are adoption of a metropolitan-wide governance structure no other metropolitan areas in the Philippines that have (Slack 2007). For urban infrastructure (such as roads) and formal institutional structures enacted through national services (such as air pollution regulation) that create have policies (Manasan and Mercado 1998). In the case of the spillover impacts to non-residents, individual jurisdictions Metro Manila Development Authority (MMDA), which was will tend to undersupply the infrastructure and service established to coordinate planning and service delivery in because they will only account for the costs and beneits Metro Manila, the chronically poor quality of metropolitan- accruing to them without fully considering the external wide core urban services, such as traic management, impacts of budgetary and policy decisions (Bahl 2013). solid waste management, road infrastructure, and lood control and drainage, clearly indicates that the current metropolitan governance model has not functioned efectively. 90 Philippines Urbanization Review 5.2 Key Challenges There are a number of key challenges related to governance of a vision and deined strategies for proactively managing and institutions that are hampering successful urbanization. urban development and expansion. Furthermore, These include: (i) absence of a comprehensive national the absence of well-functioning inter-jurisdictional urban policy; (ii) absence of a lead agency for urban coordinating mechanisms within metropolitan areas in the development; (iii) weaknesses in the iscal decentralization country can also be attributed to the absence of a national framework; and (iv) metropolitan fragmentation and weak urban policy. mechanisms for inter-jurisdictional coordination. The development and adoption of a national urban policy 5.2.1 Absence of a Comprehensive National is critical as the Philippines continues along a path of Urban Policy rapid urbanization. The Housing and Urban Development Coordinating Council (HUDCC), through the Housing and An efective national urban policy (NUP)—including Land Use Regulatory Board (HLURB), one of its attached legal foundations, capable institutions, and inancial agencies, is mandated to prepare a National Urban instruments—is critical to design and build productive, Development and Housing Framework (NUDHF) to provide livable, and resilient cities (UN Habitat 2014). An NUP a macro framework for urban development and housing.230 deines the overall intentions and policies of the national While three iterations of the NUDHF have been prepared government with respect to cities and metropolitan since 1992, its adoption as an efective policy framework regions to make them function better—economically, has not been prioritized by administrations governing the socially and ecologically; to leverage the urbanization country. By itself, HUDCC has been constrained in its ability process for national development; and to guide it towards to implement NUDHF recommendations due to its limited sustainable patterns. capacity and authority as a coordinating body, and its focus on housing issues as the main priority for its policymaking and operations. The Philippines has historically lacked an efective and comprehensive national urban policy that deines a vision for urban development that is supported by strategies As a result, the NUDHF has not functioned in practice as an and linked actions to realize the potential and to tackle efective policy instrument for the national government to the problems arising from the concentrated growth of guide urban development and direct public interventions population and economic activity. The spatial pattern of in urban areas. Essentially, the NUDHF serves as a strategy urbanization in the Philippines has evolved with an over- paper that is not linked to an overarching national concentration of development in Metro Manila and an urban policy that deines the overall intentions of the underdevelopment of secondary cities, a result of the lack national government with regard to urban development, including the institutional framework deining the roles 230 The current version of the NUDHF for 2009-16 lays out a vision for “an urban system that (i) facilitates economic production; (ii) develops and strengthens local comparative advantages; and (iii) provides all urban residents with an improving quality of life” and includes recommendations in ive areas: urban competitiveness; poverty reduction; afordable housing; sustainable communities; and performance-oriented governance. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 91 and responsibilities of key national oversight and sectoral urban development framework for land-use planning agencies. Without a national urban policy on which it can in the country. In practice though, NEDA has minimal be anchored, the NUDHF will remain a severely limited authority to enforce the NFPP; hence, relevant National policy instrument. Government Agencies (NGAs) and Local Government Units (LGUs) have not uniformly adopted the framework. Other national-level plans are potentially relevant for urban development but due to the absence of a Key lessons from international experience indicate that comprehensive national urban policy, their efectiveness it is not suicient for a national urban policy for the as policy instruments is limited. The National Economic Philippines to include just technical prescriptions, such as and Development Authority (NEDA) is responsible for those detailed in the NUDHF and NFPP. As elaborated in preparing a six-year Philippine Development Plans Box 5.1, it is essential that a national urban policy takes into (PDP) to correspond to development priorities of ruling account critical political and institutional issues and deines administrations. However, NEDA’s focus on urban a political champion as well as the proper institutional development has been weak in recent decades. In the and administrative arrangements to enable its efective current PDP for 2011-16, a set of “urban development implementation. In the context of a unitary state such as policies and strategies” based on the NUDHF is merely the Philippines, the development and implementation a short sub-section within a much longer section on of a national urban policy is likely to be limited without Social Development. The National Framework for Physical a formally-designated institutional leader within the Planning (NFPP) for 2001-30, in theory, serves as a strategic structure of the central government. Box 5.1 Guiding Principles for the Development of a National Urban Policy The development of an NUP must be responsive to the national context and sensitive to the political culture and dynamics in a country. While global experience indicates that there is no single model or approach guaranteed to produce a desirable outcome that can be replicated in diferent situations, there are several key lessons and principles that emerge from global experiences. Firstly, it is imperative that central governments recognize the unique threats and opportunities from rapid urban growth and understand that the complex challenges faced by cities cannot be solved by spatially blind sectoral policies. Secondly, a political champion for the urban agenda can have diferent institutional locations, and there is no perfect model. Whatever structure is created has to be able to win support across diferent departments to ensure that suicient resources of all kinds are mobilized to make a diference. Any structure also requires leaders who believe in the urban agenda and who are capable of persuading others to support the case – building a coalition of interests. Without high-level political support and vision, an NUP may achieve little in practice because of inertia and resistance to change. Thirdly, implementing an NUP means a sustained technical process of building the legal foundations, institutional capabilities, administrative procedure and inancial instruments to pursue this agenda efectively. A NUP may also need aspects of established legislation (such as old land-use planning regulations and laws governing the ownership, use, and development of land) to be altered so that it is more relevant to contemporary conditions and better equipped to deal with growing informality. Fourthly, the proactive engagement of cities is critical to achieve national urban policy goals. Efectively implementing an NUP requires strong partnerships among national and sub-national governments as well as the decentralization of selected powers, responsibilities, and resources to city and metropolitan-level institutions. Source: UN Habitat, 2014 Source: UN Habitat, 2014 92 Philippines Urbanization Review 5.2.2 Absence of a Lead Agency for Urban Development Due to the absence of a lead agency for urban development, formal mechanisms for both horizontal coordination Institutional fragmentation among various oversight and (across sectoral agencies) and vertical coordination sectoral agencies at the national level has exacerbated (between national agencies and LGUs) within urban areas the dysfunctional institutional environment for urban are very weak. Given the unitary system of government in development. The absence of a functional institutional the Philippines, various sectoral agencies play major roles framework, including a clearly designated national agency in the key urban sectors, including transport management, accountable for urban development and formally deined roads and bridges, solid waste management, housing, coordination mechanisms for relevant oversight and and social services. From the perspective of LGUs, sectoral agencies within metropolitan and urban areas, the cumulative bureaucratic and administrative costs has led to duplications and overlapping mandates among of coordinating with numerous sectoral NGAs232 are these agencies and LGUs (ADB 2014). signiicant for capacity-strained local bureaucracies. Weak coordination between national and local government, both functionally and spatially, for planning, regulation, Although several oversight national agencies have service provision, and investments contributes to the poor responsibilities directly related to urban issues, no single planning and quality of urban infrastructure and services in agency is fully accountable for the development and cities and urban areas. enforcement of urban development policies. HUDCC is notionally responsible for overseeing urban development issues in the Philippines but its focus has historically The creation and empowerment of a lead agency been on the administration and delivery of housing, mandated to oversee urban development in the speciically the supervision and coordination of four Philippines is needed to ensure the efective development shelter agencies.231 The Department of the Interior and and implementation of a national urban policy, which is Local Government (DILG) exercises extensive oversight essential to reverse the poor urbanization outcomes related authority over LGUs. However, its mandate is not speciic to to competitiveness, mobility, poverty and inequality, and cities and urban areas; hence, its policies and programs are environmental quality. Such an entity is needed to directly designed for and implemented among the broad universe address the fragmented institutional structure at the of LGUs. Finally, in its capacity as the national economic national and local levels. A lead agency is crucial to oversee development and planning agency, NEDA has not focused the implementation of a national urban policy, including on urban development as a strategic priority in recent providing oversight and support for the development of medium-term development plans. functional metropolitan governance arrangements among the major urban areas in the country. Such institutions have been created in developing countries in recent years to address urban issues. 231 These are the National Housing Authority, the National Home Mortgage Finance Corporation, the Home Guaranty Corporation, and the Home Development Mutual Fund. 232 These include the departments of Transport & Communication (DOTC), Public Works & Highways (DPWH), Environment & Natural Resources (DENR), Health (DOH), Social Welfare & Development (DSWD), and National Housing Authority (NHA). Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 93 Box 5.2 Examples of National Urban Policies South Korea’s NUP has evolved through three phases. The irst involved explicit spatial concentration and sectoral focus because resource limitations prevented spreading investment more evenly across the country. The country’s rapid socio-economic development is attributable in large part to an industrial modernization strategy pursued by the government from the 1960s to the 1980s, geared largely to boosting exports. Due growth pressures and high infrastructure costs, the government sought to de-concentrate jobs and people away from the Capital Area in the 1980s and 1990s to pursue “balanced territorial development.” Finally, growth demands and inlated house prices in the Capital Area forced the government to respond by constructing ive additional new cities around Seoul in order to relieve the housing shortages, accompanied by a massive increase in apartment building. The government’s housing program was accompanied by a policy to relax government controls on mortgage lending by inancial institutions, allowing more people to aford home ownership. Both initiatives contributed to a dramatic increase in the supply of housing over a relatively short period. During the 2000s, South Korea’s NUP shifted again towards trying to improve the quality of urban development, including livability, amenities, safety and environmental quality. This was partly a response to the previous emphasis on quantitative economic growth and the resulting inferior character of the built environment in many urban areas. One of the main lessons emerging from South Korea’s experience is the importance of aligning territorial planning, urban policy, housing programs and the provision of land for development. This example demonstrates the substantial beneits that can be derived if urban policy reinforces and contributes to economic development, with suicient land and housing made available in the right places. Following the adoption of the 1988 Constitution, which included a chapter on urban policy, Brazil enacted a law called the Statute of the City in 2001 to promote equity and access to urban land. The law facilitated more democratic city management by making land- use planning mandatory throughout each city and subjecting development decisions to social control and participation. Furthermore, the law ensured that the social function of urban land and buildings was put before their commercial value by removing part of the land from the market. Urban planning has henceforth been seen as a collaborative process of shared decision-making and negotiation among diferent interests, rather than a top-down, technocratic activity undertaken by government experts, private developers or commercial investors. Colombia is a highly urbanized (75-80 per cent) country that has gradually developed a NUP to match the scale of its urban challenges. Two successive national development plans have set clear priorities for urban development. These are relected in the 2005 “Livable Cities” Strategy, which focused on improving access to afordable land and housing, increasing water and sanitation services, and improving public transport. The strategy was reinforced when government responded to the global inancial crisis with a major program of public investment to enable the construction of a million houses over a ive-year period, starting in 2011. Additional reforms sought to develop new and innovative ways to inance urban infrastructure, such as public-private partnerships. Colombia has also learned from Brazil’s Constitution and urban laws by taking steps to facilitate more efective land readjustment and redevelopment. Special Zones of Social Interest were established to reduce the legal minimum plot size for houses and allow informal settlers to regularize dwelling conditions with less threat of speculation and eviction. Australia’s irst broad-based NUP was approved in 2011 following a period of extensive research and consultation. It was a response to a series of looming challenges in the major cities, including the escalating cost of housing, rising fuel costs, urban sprawl and its impact on infrastructure networks, transport systems, road congestion, uneven access to job opportunities and the natural environment. National government involvement was vital because of the limited iscal capacity of the states and local government. The NUP sought to address the broader issues of managing the big cities better, improving their contribution to national economic performance, and reducing their carbon emissions. It had four pillars - productivity, sustainability, livability and governance. A novel feature of the NUP was the clear rationale established for the national government to get directly involved in a way that went well beyond that of a single, stand-alone department or spending program, as in the previous urban initiatives. Coordination went to the heart of the NUP in order to ensure a wide-ranging, sustained impact on mainstream government policy, in particular to ensure that urban infrastructure considerations became a more important feature of the government’s agenda. This was achieved by setting up an elaborate architecture for institutional alignment across key departments and agencies, including special committees and reporting arrangements. Ghana is an example of a country that has prioritized the adoption of its NUP as its urban population has grown beyond 50 percent. After a four-year period of technical analysis, policy reviews, workshops and extensive domestic and international consultation, the irst ever NUP was launched in March 2013, along with a ive-year detailed Action Plan. The preparatory work included a public advocacy campaign to make the case for better-managed urbanization. The broad aim of the NUP is to promote sustainable, spatially integrated and orderly development of urban settlements, with adequate housing and services, and eicient institutions. Extensive investment in urban infrastructure funded by national government and managed by municipalities is intended to alleviate severe congestion in the big cities and create a sound living and working environment to accelerate the country’s all-round development. The implementation of the NUP is supposed to be coordinated by the Urban Development Unit within the Department of Local Government and Rural Development; however, there are no institutional mechanisms in place to encourage other government departments to follow the NUP. Consequently, the NUP at present is a coherent policy without an institution to implement it efectively. National and local forums have been set up to put urban issues on the agenda of other departments and external stakeholders but it is too soon to assess their efectiveness. Source: UN Habitat, 2014 94 Philippines Urbanization Review a. Misalignments between Local Expenditure and Revenue Assignments Misalignments between expenditure assignments and local revenue assignments undermine local government capacity for eicient local service delivery. The Local Government Code of 1991 (LGC) statutorily devolved to LGUs the principal responsibility for providing and inancing services in a wide range of areas: • Land use planning • Enforcement of laws on environment protection, pollution control, small-scale mining, and forestry • solid waste disposal system • Primary and tertiary health care services & hospitals 5.2.3 Weaknesses in the Fiscal Decentralization • Social welfare services Framework Contribute to the Poor Enabling • Low-cost housing and mass dwellings Environment for Urban Service Delivery • Agricultural & ishery research & extension services • Community-based forestry The intergovernmental iscal system supporting local • Investment support services government units (LGUs) has not been conducive to • Industrial research and development services improving local service delivery. Structural weaknesses • Municipal buildings, cultural centers, and parks in the institutional and legal framework for iscal • Municipal infrastructure (local roads & bridges, school decentralization constrain the capacities of LGUs to buildings, health facilities, housing, water supply, efectively and eiciently provide urban services. communal irrigation, drainage, sewerage, lood Furthermore, an institutional environment characterized by control) overlapping accountabilities across levels of government, • Public markets, public cemetery, slaughterhouses and the absence of standards for service delivery, and poor municipal enterprises availability of information on service delivery provides • Sites for police and ire stations and substations and weak demand-side and supply-side incentives for LGU the municipal jail performance. • Support for education, police & ire services & facilities • Communication and transportation facilities • Tourism facilities and other tourist attractions Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 95 Local tax assignments in the Philippines are weak in higher tax rates compared to provinces and municipalities. terms of providing local iscal autonomy to LGUs. Local The broader discretion in rate-setting together with the tax assignment in the Philippines has been assessed to larger tax bases inherent in most Philippine cities due to be generally consistent with the conventional criteria for the concentration of economic activity has led to wide assessing appropriateness: economic eiciency, equity, disparities in local revenue mobilization between cities, on and administrative feasibility (Manasan 2004). However, one hand, and municipalities and provinces, on the other. among the local tax bases, only the real property and From 2001 to 2013, aggregate local revenues of cities business tax bases provide substantial local revenues. The averaged 0.77 percent of GDP while the corresponding LGC limits the power of LGUs to set tax rates by specifying averages for provinces and municipalities were just 0.14 loors and ceilings on the tax rates. Furthermore, the LGC percent and 0.24 percent, respectively (Manasan and Avila allows LGUs to adjust tax rates only once every 5 years and 2014). On average, cities are able to raise local revenues by no more than 10 percent. (mainly from real property and business taxes, which comprise 75 percent of own-source revenues) to fund In general, relative to other types of LGUs, cities enjoy the majority of local expenditures whereas provinces and productive property and business tax bases and are municipalities are heavily reliant on the internal revenue less dependent on iscal transfers to inance recurring allotment (IRA) for approximately 80 percent of operating expenditures. Importantly, cities are generally allowed to set income. Table 5.2 LGU Own-Source Revenues as a Share of Total Operating Income 2011 2012 2013 2014 Provinces 17.1% 18.8% 19.3% 18.8% Cities 52.2% 55.7% 57.2% 55.7% Municipalities 19.2% 19.2% 20.7% 19.2% Total 32.1% 34.8% 36.0% 34.8% Source: Bureau of Local Government Finance, Department of Finance 96 Philippines Urbanization Review Box 5.3 Overview of Intergovernmental Transfers Internal Revenue Allotment. The Local Government Code institutionalized the internal revenue allotment (IRA), which is the primary transfer of shared revenues from the national government to LGUs. The Code mandates that 40 percent of national internal revenues based on the collections of the third iscal year preceding the current iscal year shall be allotted to LGUs. The IRA is irst subdivided among the diferent levels of LGUs using the following distribution: provinces (23 percent), cities (23 percent), municipalities (34 percent), and barangays (20 percent). The shares for each level of LGU are then allocated horizontal for provinces, cities and municipalities based on the following formula: population (50 percent), land area (25 percent), and equal sharing (25 percent). For barangays, the horizontal sharing is based on: population (60 percent) and equal sharing (40 percent). The IRA is an unconditional block grant that is automatically released to the LGUs ive days after the end of each quarter. The LGC provides conditions for the national government to withhold a portion of the IRA during periods of national iscal distress, although these cases have been very rare and there have been such cases in the past 15 years. The key restriction imposed by the LGC is for LGUs to set aside 20 percent of their IRA allocation for a local development fund. The IRA represents the primary source of income for the vast majority of LGUs (see Table 5.2). However, the current formula does a poor job of compensating for the varying levels of iscal capacities across LGUs, often worsening the horizontal resource imbalances across LGUs. (Manasan, 2007). The data shows that on average the IRA distribution to the provinces is highly regressive, allowing those provinces with the highest own- source revenues to receive three times more IRA than those with the least own-source revenues. The distribution becomes somewhat less regressive for municipalities and progressive for cities. Non-IRA Transfers: LGUs also beneit from ad hoc grants from national government agencies, legislative funds, and foreign donors and creditors to support various local services. While these non-IRA transfers are cumulatively much smaller in scale compared to the IRA, there is no consolidated central tracking of data available that can be used to estimate the scale and distribution of such transfers. A study conducted to analyze the quantity and composition of non-IRA transfers to LGUs in 2003 estimated that the aggregate total for these transfers was equivalent to over 20 percent of the total IRA transfer for that year. The largest component of this total, comprising 61 percent, was funded by Priority Development Assistance Funds (PDAF) of legislators and the funds were mainly used to inance local infrastructure. However, the PDAF was declared unconstitutional in 2013 and has been discontinued beginning in iscal year 2014. There is generally less transparency in the non-IRA funding systems, which has adverse efects on LGU planning and budgeting, and less information available for these miscellaneous transfers. In the past ive years (2011-2016), reforms were initiated by key oversight national government agencies that have attempted to utilize additional iscal transfers to LGUs as leverage to strengthen both supply-side and demand-side systems for local government accountability and created a space for genuine participation in municipal and city planning. • Through the Performance Challenge Fund (PCF), DILG provides small capital grants as incentives for LGUs that meet minimum standards in transparency and inancial accountability (through the annual assessment of a “Seal of Good Financial Housekeeping”). • On a much larger scale, the Bottom-Up Budgeting (BUB) program was jointly developed by DBM, DILG, NAPC, and DSWD to facilitate poverty reduction by providing funding for local poverty reduction programs of LGUs that are conditioned on an annual participatory planning process where municipal and city governments identify priority poverty reduction projects jointly with local civil society organizations, leading to the development of annual Poverty Reduction Action Plans that are funded by transfers. The program was piloted in April 2012 in 600 cities and municipalities with high concentrations of poverty. The program has been scaled up since to cover 1,590 LGUs as of 2016 (covering all LGUs in the country except for those in the Autonomous Region of Muslim Mindanao), with an annual budget allocation of approximately PhP 24 billion, which is equivalent to 5.5 percent of the IRA allocation for 2016. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 97 Table 5.3 City-Level Own-Source Revenues as a Share of Total Operating Income 2011 2012 2013 2014 Highly Urbanized Cities (33) 65.0% 70.5% 70.7% 69.8% • Metro Manila (16) 75.5% 78.5% 79.7% 79.3% • Non-Metro Manila (17) 42.9% 51.4% 50.0% 47.5% Component Cities (111) 30.5% 35.2% 35.1% 34.7% Source: Bureau of Local Government Finance, Department of Finance The largest cities with relatively more expansive iscal reliant on the national government for major public bases are more iscally autonomous compared to infrastructure investments, such as major road and bridge smaller, secondary cities. The aggregate iscal data hides construction, drainage and lood control facilities, housing, discrepancies among the 145 LGUs in the Philippines and solid waste management facilities. In 2014, aggregate that are classiied as cities. For the 33 relatively large and capital expenditures of cities totaled less than USD500 urbanized cities that are classiied as highly urbanized cities million, which was equivalent to just 0.18 percent of GDP. (HUCs), own-source revenues account for approximately Importantly, as evidence of the preeminent role of the 70 percent of total operating income, with the rate being national government in public infrastructure investment, even higher among the 16 cities of Metro Manila. In the aggregate capital expenditures of cities was equivalent contrast, the remaining 111 cities that are relatively smaller to just 5.6 percent of budgeted infrastructure outlays of and less urbanized remain heavily reliant on the IRA for the national government in 2014. Critical reforms to the almost two-thirds of their operating income. LGC are necessary to strengthen local revenue autonomy, including the constrained taxing authority with respect to Nonetheless, cities generally lack the iscal capacity to rate setting, the limited productivity of devolved tax bases, independently undertake major urban infrastructure and the complexity of the local business tax structure and projects. Even the largest cities in the Philippines remain other user fees (Manasan and Avila 2014). 98 Philippines Urbanization Review Table 5.4 Distribution of Provinces & Cities by Age of Real Property Values, as of June 2014 AGE OF REAL PROPERTY VALUES PROVINCES CITIES NUMBER SHARE NUMBER SHARE Over 10 years 19 23.8% 58 40.3% 6-10 years 28 35.0% 46 31.9% 5 years or less 33 41.3% 40 27.8% TOTAL 80 100.0% 144 100.0% Source: Bureau of Local Government Finance, Department of Finance; Manasan and Avila, 2014 b. Weak Performance Orientation of the Finance (BLGF) of the Department of Finance recently Intergovernmental Fiscal System began publishing real property tax accomplishment rates (RPTAR) for LGUs, which are calculated using actual real Evidence suggests that the intergovernmental iscal property tax collections and collection targets based on transfer system provides weak incentives for optimizing assessed real property values. In 2014, only 30.5 percent local taxing powers. Studies have consistently found that of assessed cities achieved the BLGF RPTAR performance LGUs have not maximized the revenue-raising powers target of 90 percent. In fact, only half of the assessed cities aforded to them by the LGC (Manasan 2007 and ADB 2012). were able to achieve an RPTAR of 75 percent. Among Although LGUs are required to update their schedules of Metro Manila cities, only ive were able to achieve the BLGF market values every three years, data from 2014 indicates performance target while a total of 10 out the 16 cities that more than 72 percent of cities maintained schedules were able to reach the 75 percent threshold. of market values that were more than 5 years old (Manasan and Avila 2014). Furthermore, very few LGUs have revised The presence of signiicant unconditional central transfers their local revenue codes since the passage of the LGC in through the Internal Revenue Allotment (IRA) has been 1991 even though they are allowed to adjust rates every 5 found to create disincentive efects for local revenue years and some taxes are not indexed to inlation. mobilization (Manasan 2004). Data from BLGF indicates that cities that were on the irst quintile in terms of IRA In spite of the relatively large real property tax bases of cities, per capita allocation in 2014 (i.e., cities which enjoy the evidence suggests that they have not fully optimized local highest average IRA transfers per capita) have a lower revenue collections. As part of its heightened LGU iscal average Real Property Tax Accomplishment Rate (RPTAR) performance assessments, the Bureau of Local Government of 73 percent compared to cities on the ifth quintile (i.e., cities with the lowest average IRA transfers per capita), Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 99 which have an average RPTAR of 84 percent. Furthermore, national survey data from 2011 and 2012 indicates high rates of “Satisfaction with the city/municipal government” (75 and 73 percent, respectively) as well as high rates of “Satisfaction with local oicials (Mayor)” (82 and 76 percent, respectively) (Social Weather Station 2012). Collectively, these indings suggest that the IRA and other national assistance appear to provide suicient resources for many LGUs to provide a minimum level of service without having to optimize local revenue bases. In general, land management issues and weak technical capacity at the LGU level are also additional constraints to maximizing real property tax collections. The complex structure of local business taxes also constrains the local tax administration capacity of LGUs (Manasan and Avila 2014). The resistance to update schedules of market values and local revenue codes is also attributed to political resistance from constituents and the fear of losing residents and roles in the provision of sub-national infrastructure and businesses to other jurisdictions due to tax competition. services, creating a complex institutional environment that undermines the establishment of clear lines of accountability. Particularly in metropolitan areas where c. Ambiguity in Local Service Delivery the need for coordination is heightened, the absence of a Responsibilities lead agency for urban development means that there is no single national government agency tasked to coordinate De facto ambiguity in service delivery arrangements the delivery of urban services. Issues of ambiguity in between national and local government weaken systems service delivery arrangements and weak national-local for public accountability. While core local public services coordination mechanisms have been assessed in detail were statutorily devolved to LGUs, broad exceptions in for other critical urban services such as solid waste the legal framework allow national government agencies management (NEDA 2008), water and sanitation (World to implement public works and infrastructure projects Bank 2013), urban transportation (ADB 2012, JICA 2014, and supplement local service delivery (Manasan 2004). and World Bank 2009), and health (World Bank 2011). As a result, sectoral national agencies retain signiicant 100 Philippines Urbanization Review d. Inadequate Data and Standards for Local jurisdictional decentralization of local governments. Service Delivery As part of its oversight functions over LGUs, DILG has made strides in recent years to develop performance- Lack of timely and reliable data on local service delivery as monitoring systems (see Box 4.4 below) but progress has well as the absence of uniform service standards further been slow and, as discussed earlier, its expansive mandate weakes incentives for local service delivery. The absence of to oversee all LGUs prevents it from concentrating on an efective performance monitoring system prevents the monitoring urban service delivery. Hence, it has been very assessment of service delivery at the local level (Manasan diicult to empirically assess correlations between local 1998, ADB and AfD 2012). While the Commission on expenditure allocations and socio-economic development Audit (COA) and BLGF regularly prepare annual reports outcomes. These formidable data constraints prevent on LGU iscal performance, there are no comparable the establishment of uniform service standards, which data sources for local service delivery from sectoral and would be a potentially powerful tool for strengthening oversight national agencies at present. Furthermore, socio- local accountability for the quality of urban services and economic statistics in the Philippines are disaggregated designing performance-oriented, conditional transfers to to the regional level, corresponding to the administrative LGUs to complement the IRA. deconcentration of national agencies rather than the Box 5.4 DILG Performance Monitoring of LGUs Since the mid-2000s, DILG has maintained the Local Government Performance Management System (LGPMS), a web-based system comprised of numerous indicators to help LGUs assess their capabilities and performance in the delivery of essential services. However, LGPMS is severely constrained by the fact that it is a self-administered tool, wherein the data entered is generated by the LGU itself, and access to its database is strictly restricted to the LGUs and DILG, which prevents the public from accessing and scrutinizing the data (World Bank 2012). More recently, DILG introduced the Seal of Good Local Governance (SGLG), which recognizes exemplary LGU performance based on an assessment of basic inputs and outputs for six broad areas: inancial management and transparency, disaster preparedness, social protection, peace and order, environmental management, and business friendliness. The SGLG signals an increasing focus on the part of DILG to monitor local service delivery, however the initiative is still in the incipient stage (the irst set of awardees were announced at the end of 2015) and DILG has not made the raw data used in the assessments available to the public. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 101 e. Constraints to Debt Financing for Local the demand for debt. These issues are summarized in a Infrastructure Investment recent study on LGU borrowing. Demand-side and supply-side issues limit cities from On the supply-side, ineiciencies in the implementation of optimizing debt inancing for local infrastructure. Despite procedural controls by national oversight bodies (namely, the legal authority to access credit inancing for capital BLGF and the Monetary Board of the Central Bank) have investment needs, sub-national borrowing levels have raised the bureaucratic hurdles for LGUs to access loans. historically been low, with the stock of outstanding debt These include: 1) the lack of clarity on the income base for hovering at around 0.7 percent of GDP (World Bank 2014) assessing the debt capacities of LGUs; 2) the irrelevance and compared to an average level of 5 percent for developing redundancy of documentary requirements of oversight and transitioning countries (Liu, Llanto and Peterson bodies; and 3) time-consuming review and approval 2013). Unsurprisingly, LGU capital investment levels have procedures (World Bank 2014). Furthermore, statutory consistently been very low, declining to 0.3 percent of GDP restrictions on commercial banks essentially conine in 2012 (World Bank 2014). LGU borrowing to government inancial institutions. This efectively constrains the supply of credit for sub-national Overall, the same weak local political incentives for service borrowing and reduces the competition in the credit delivery and local infrastructure investment also dampen market. Box 5.5 What Explains the Low Level of LGU Indebtedness? Local governments in the Philippines are light borrowers and appear to restrict lending to relatively small projects or to meeting occasional cash low needs. Several factors explain the smaller borrowing appetite of LGUs: • Limited functions assigned to LGUs that require infrastructure spending notwithstanding the local autonomy and devolution introduced by the Local Government Code. • Continuing major role of the central government in the delivery and inance of local services. • Signiicant institutional and managerial barriers to planning and managing major projects. • Reluctance of local governments to borrow due to natural conservatism and also partly to congressional allocations (“pork barrel”) that have historically substituted as source of inancing for small projects. • Poorer LGUs having a low iscal capacity to leverage borrowing. • Impact of various inancial oversight mechanisms that constrain LGU borrowing. • The policy framework for inter-jurisdictional collaboration is inadequate in terms of deining the juridical personality of the inter-LGU grouping in accessing the credit market, which efectively constrains the ability of LGUs to take advantage of economies of scale needed for large infrastructure investments. • Lack of competition in a sub-national debt market dominated by government inancial institutions Source: Liu, Llanto, and Petersen, 2013 102 Philippines Urbanization Review policy reforms initiated to address metropolitan governance in Metro Manila. Further, there have been no national government eforts to establish formal metropolitan arrangements in urban areas outside of Metro Manila (Manasan and Mercado 1998). For these secondary urban areas, the component LGUs have been left to voluntarily pursue coordination arrangements with minimal support and facilitation from the national government. a. Metropolitan Governance Challenges in Metro Manila The experience of the Metropolitan Manila Development Authority shows that a metropolitan authority created 5.2.4 Metropolitan Fragmentation and Weak without the proper resources, both inancial and technical, Mechanisms for Inter-Jurisdictional Coordination has limited potential to fulill a comprehensive role. The MMDA mandate, as written, is very expansive and should, Urban areas in the Philippines face the same broad issues in principle, empower the agency to efectively meet the of metropolitan fragmentation that are confronted by metropolitan-wide demands created by urban growth metropolitan regions across world. As urban expansion in Metro Manila. However, the MMDA does not receive leads to mismatches between socio-economic (functional) suicient funding to fulill its mandate, which includes areas and administrative (spatial) jurisdictions, city and formulating, planning, implementing, and monitoring municipal mayors have to grapple with the demands policies, programs, projects, and standards. It also lacks for inter-jurisdictional coordination to efectively and staf with the technical expertise to manage the mandate. eiciently provide core urban services with metropolitan- Based on a study conducted in 2014 assessing MMDA wide dimensions (i.e., economies of scale and externalities), staing within a certain division, 32 out of 59 allocated such as traic management, solid waste and environmental positions remained vacant while among the 27 illed management, and road infrastructure. positions, only 11 were held by those with the expertise required for the position (World Bank 2014). With the urban transport crisis in Metro Manila and the increasing demand for inter-jurisdictional coordination While the MMDA has a clear mandate for functions in urban areas like Metro Cebu, the issue of institutional concerning metropolitan issues, it does not have the fragmentation within a metropolitan region is well known political authority to lead the agenda. For one, the LGC among policymakers. Yet there have been no substantive provides LGUs with strong local autonomy. Metro Manila Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 103 mayors are members of the Metro Manila Council, the governing board of the MMDA, thus any project or policy can be rejected if individual mayors do not approve it. This has made it highly challenging to undertake metropolitan- wide land use planning or transport development. The fact that the President appoints the MMDA Chairman can cause further politicization of the MMDA’s agenda, pitting the Chairman against certain mayors ailiated with diferent political parties. The MMDA has overlapping mandates with national government agencies causing ineiciencies and delays in fulilling the mandate. One such case is evident with regards to any transportation agenda. The Department of Transportation (DOTr) is tasked with the development authorities and therefore negotiate for metropolitan wide and regulation of transportation systems nationwide while projects usually through memoranda of agreement. Some the MMDA has a similar mandate in Metro Manila speciic areas, such as Metro Cebu and Metro Iloilo, have strong to transport operations and systems. Although national private sector and citizen movements to lobby for and agencies like DOTr do not have mandates to do projects develop metropolitan strategies and plans, including the in highly urbanized or metropolitan regions, they are proposed formation of formal metropolitan authorities. allocated budgets for projects at the metropolitan level, However, other emerging urban areas, such as Metro often for much larger amounts than the allocation of the Cagayan de Oro, are not self-organizing. While no broad- MMDA. It then becomes unclear who is responsible for based analysis across provinces has been undertaken managing and implementing projects at the metropolitan recently, it appears that there are weak underlying level. incentives in the current intergovernmental iscal system to induce provincial governors to take the initiative b. Metropolitan Governance Challenges in of facilitating inter-jurisdictional coordination within Secondary Urban Areas metropolitan areas. Hence, without a national urban policy guiding and supporting metropolitan-wide coordination, Cities outside of Metro Manila undertake inter-jurisdictional cities and municipalities in such urban areas are likely to coordination on a project-by-project basis, resulting in continue coordinating on an ad hoc manner, with varying varied quality of urban service delivery and management. levels of support from the provincial governments. The secondary urban areas do not have legally mandated 104 Philippines Urbanization Review address issues speciic to rapidly expanding urban areas. In Metro Cebu, where a private entity organized stakeholders and leveraged international assistance in developing a strategy and roadmap for metropolitan growth, the RDC was able to adopt the proposed metropolitan agenda to the regional development plan. However, there have not been similar movements in other cities. Governors and RDCs do not appear to be taking the lead to incorporate metropolitan agendas into broader regional development plans. Cities and regions without designated metropolitan authorities rely on funding from speciic national agencies for needs that are urban or metropolitan in nature, yet there is a perceived lack of support and coordination In the absence of a designated authority, inter-jurisdictional at the local level. Informants from city planning oices coordination is often handled at the provincial level and complain of misaligned priorities between national and the attention to issues of this nature depends on the local governments. In some cases, LGUs submit project interest and strategic priorities of the provincial governor. proposals to NGAs but, even with the endorsement of In the case of Metro Cebu, while the governor supported RDCs and the regional oices of the NGAs, a diferent the movement, the provincial government did not act as list of projects is eventually approved at the central level. an instigator. The Regional Development Council (RDC), Without clear planning and institutional arrangements which is convened by NEDA, can assume this role but between LGUs and sectoral agencies regarding urban or the RDCs tend to act as coordinating bodies in creating metropolitan issues, there will continue to be gaps and and overseeing regional development plans. There are no ineiciencies in urban service delivery and infrastructure speciic requirements for urban or metropolitan planning to development. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 105 5.3 Recommendations Addressing the core underlying institutional challenges that greatly inhibit urban development in the Philippines is a top priority for the country. A number of speciic recommendations are outlined below. Strengthen the institutional Framework Supporting Urban Development through the Adoption of a Philippine National Urban Policy and the Establishment of a Lead Agency for Urban Development and Housing a. The development and adoption of a comprehensive national urban policy for the Philippines is the necessary starting point for strengthening institutions and governance for more productive urban • The NUP should clearly deine the respective development and more efective urban management roles of the national and local governments in the and service delivery. Importantly, global experience planning, inancing, and provision of core urban indicates that there is no single model or approach infrastructure and services. guaranteed to produce a desirable outcome that can be replicated in diferent situations. An NUP for the » The NUP should specify the set of core urban Philippines should take into account for the inherent services for which the national government capacity constraints at the national and sub-national will provide support to cities and urban areas, levels, the existing public planning and inancing which may include land use planning, urban systems, and the prevailing institutional and political transport (including roads and bridges), context. Nonetheless, based on the indings from afordable housing, solid waste management, this study, there are fundamental areas that must be drainage and lood control, water supply and covered by such a policy framework: sanitation, and disaster risk management and mitigation. • The NUP should identify the urban development priorities of the country. This includes specifying » The NUP should provide a policy framework how urban development is integrated into for co-inancing of urban infrastructure and broader national development goals and deining services that strengthen incentives for cities to a vision for the sustainable spatial expansion of efectively and eiciently provide local public urban areas across the country. 106 Philippines Urbanization Review • The NUP should provide for a comprehensive urban planning framework that integrates national level development objectives and strategies with metropolitan- and city-level land use and development plans. A thorough review of national, regional, and local planning frameworks should be undertaken to determine how the NUP, under which the NUDHF can be maintained as the medium-term national urban development planning instrument, will be integrated in the context of the broader medium-term national development planning system. • The NUP should specify principles for the national government to support metropolitan governance services. This can build on existing policies and arrangements for major urban areas of the country, programs that have been utilized in the past to including a framework for the deining and channel funding from the national level to local classifying metropolitan areas outside of Metro governments for capital investments (such as Manila requiring special oversight of the national the Performance Challenge Fund, the Bottom- government. The criteria to assess metropolitan Up Budgeting Program, and the National-Local areas should consider various factors including Government Financing Framework). population size and density, land area, and level of metropolitan fragmentation. » The NUP should also deine a policy framework for new and innovative inancing instruments • The NUP should specify a national monitoring that cities and metropolitan areas can leverage framework at the city and metropolitan level for to accelerate the sub-national inance of collecting standardized data to assess the quality municipal public infrastructure investments of service delivery for the identiied core urban (including possible new local tax bases, services. municipal bonds and bond pooling, local infrastructure investment funds, and public- private partnerships). Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 107 Consistent with global experiences, the efective development and implementation requires strong partnerships between national and local governments as well as the private sector and civil society. Given the relative indiference of past administrations to comprehensive urban development issues, it is critical that at the initial stage, strong advocacy and information dissemination activities are undertaken to build the necessary political support for prioritizing and pursuing a comprehensive NUP for the Philippines. Importantly, a push to enact an NUP would be strongly aligned with the new administration’s broader push for deeper devolution (in the context of a shift to a federal system of government) as well as on-going eforts to promote convergence among sectoral agencies for implementing multi-sectoral national agency for urban development. The experiences programs and streamline the bureaucracy. Mobilizing a from the current institutional arrangement where coalition of private sector and civil society stakeholders to there is no clear lead agency accountable for urban create bottom-up demand for urban development reforms issues strongly suggest that the establishment of a is critical to overcome the inherent inertia and resistance to champion within the national government structure change among policymakers. is a prerequisite to the efective development and implementation of a comprehensive national policy, Political commitment at the highest level (Oice of the as is proposed with the NUP. The mandates of the lead President) is needed to push for the development and agency would be consistent with the key elements of adoption of a national urban policy for the Philippines. the proposed NUP. To ensure its prioritization, a national urban policy should be enacted as an Executive Order (EO) of the President. • The lead agency should be responsible and This would specify the policy prescriptions of the NUP accountable for the implementation of the policy while also detailing the required legislative actions goals and priorities identiied in the NUP. The (e.g., the establishment of a lead agency) and follow-up primary role of the lead agency would be focused executive and administrative actions among both national on: i) planning, in terms of developing and government agencies and local governments. updating the long-term NUP and the preparation and implementation of medium-term NUDHFs; ii) b. The implementation of a national urban policy in coordinating, both horizontally among national the Philippines requires the establishment of a lead sector agencies, and vertically between the 108 Philippines Urbanization Review • Consistent with on-going policy discussions to consolidate all the key shelter agencies under one national government agency, the lead agency for urban development should assume full responsibility for the housing sector. Speciically, the lead agency should be responsible for the coordination, supervision, and integration of all public sector policies, plans, and programs in the housing sector, including oversight for the key shelter agencies. • The lead agency should spearhead the development and facilitate the implementation of the NUDHF, which should serve as the term- based, medium-term planning framework that national government and LGUs in major urban articulates NUP’s urban development and housing areas for the delivery of urban services and goals and strategies into priority programs for a infrastructure investments; and iii) monitoring and six-year period. The lead agency must collaborate regulation, in terms on overseeing the eicient with key NGAs and LGUs as well as private sector and efective provision of quality urban services. and civil society stakeholders in the development of the NUDHF given that the implementation of • The lead agency should be empowered to provide the plans and programs will require partnerships capacity building, technical assistance, and between the public, private, and civil society policymaking support to cities and metropolitan actors at the national and local levels. Importantly, areas. The lead agency would help to address the lead agency must work closely with NEDA widespread weaknesses among cities with regard to ensure that the NUDHF is integrated with to technical and administrative capacities for national medium-term development plans (i.e., urban planning (including the timely preparation the Philippine Development Plan and Philippine and implementation of comprehensive land use Investment Plan). plans that integrate climate change and disaster- risk management and mitigation measures), • In terms of implementing the NUDHF, the lead municipal inance, and urban service delivery. agency should lead the horizontal coordination The assumption of these responsibilities by the among national oversight and sectoral agencies lead agency for urban development and housing and vertical coordination between the national will ill up an existing gap in technical support to government and cities and metropolitan urban LGUs that DILG and BLGF have not been areas for integrated planning, inancing, and able to adequately provide. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 109 implementation of national urban and housing and the inter-jurisdictional structures to programs in cities and metropolitan areas. In undertake such investments. efect, the lead agency should address the institutional fragmentation that is prevalent within » The lead agency will be responsible for the national government such that cities and developing inancing instruments for co- metropolitan areas would no longer have to deal inancing of urban infrastructure and services with numerous sector and oversight agencies at that strengthen incentives for both the the national level and can just deal with the lead national and local governments to efectively agency as a single point of contact at the national and eiciently provide quality urban services. level to resolve coordination and policy issues in Such inancing instruments may include relation to urban development and the priority the design of new iscal categorical and/ programs, projects, and investments under the or conditional transfers targeted to cities NUDHF. and metropolitan areas, new local tax bases, and innovative municipal inancing vehicles » The lead agency should serve as the key (including municipal bonds and bond pooling, champion within the national government that local infrastructure investment funds, and will ensure that the implementation of sector- public-private partnerships). Such policy speciic programs in cities and metropolitan reforms would be developed by the lead areas are prioritized by the responsible sector agency in collaboration with the Department agencies (e.g., urban transport investments of Finance, and in particularly, BLGF. under DOT, telecommunications and information technology investments under • The lead agency will develop and implement a DICT, urban poverty programs under DSWD, performing monitoring system at the city and etc.). As needed, the lead agency will be metropolitan levels for collecting standardized responsible for addressing institutional and data on the quality of service delivery for core urban coordination challenges with LGUs to facilitate services, eventually leading to the development of the implementation of priority programs, service standards. In this regard, the lead agency projects, and investments under the NUDHF would assume the responsibility for monitoring the urban service delivery of all cities as well as » The lead agency should lead the those municipalities that are components of implementation of multi-sectoral, inter- formally classiied metropolitan areas, as speciied jurisdictional urban infrastructure projects in in the NUP. Through the collection and analysis of metropolitan areas where no single national data, the lead agency will then be in a position sector agency is positioned to implement such to develop service standards that are appropriate projects and the LGUs lack the iscal capacities to diferent cities and metropolitan governments, 110 Philippines Urbanization Review which will be key to strengthening accountability of urban living… (and) the building or rebuilding of more systems for service delivery. The lead agency will or less permanent structures over land… resulting in the need to coordinate with DILG as well as relevant creation of a built environment.” At present, the new chair sector national agencies in the design and of HUDCC (who is the Vice-President of the Philippines) implementation of a performance monitoring has begun advocating for the creation of a Department system for urban service delivery, which would of Housing that consolidates all the key shelter agencies subsequently allow DILG to concentrate its local under one national government agency. service delivery monitoring on the non-urban LGUs. Given the broader and more inter-connected nature of urban development issues, the passage of a law • The lead agency will support the establishment establishing of a Department of Housing and Urban and operationalization of formal inter- Development should ensure that the new entity has jurisdictional coordination and governance a wider mandate for both urban development and arrangements in metropolitan areas outside of housing. The on-going discussions about consolidating Metro Manila, including the development and the various shelter agencies into a single national agency enforcement of metropolitan-wide spatial and is consistent with the thrust of the new administration to land-use plans. Under this responsibility, the lead streamline the bureaucracy and promote convergence agency will deine and classify inter-jurisdictional within government. At this juncture, it is critical that as metropolitan areas outside of Metro Manila based part of the policy dialogue and advocacy activities on on criteria to be speciied in the NUP. urban development policy, the integrated nature of urban issues, including housing, connectivity, productivity, There are on-going policy discussions to create a spatial expansion, and poverty reduction, are fully taken Department of Housing and Urban Development but, into account in determining the appropriate institutional as proposed, the new entity would maintain a primary reform to be undertaken. While global experiences on the focus on housing issues. The proposed legislation (House adoption of NUPs and the establishment of national urban Bill 6194) seeks to consolidate HUDCC and the HLURB ministries can provide valuable lessons, ultimately the while essentially combining the mandates of the two “appropriate” solution will necessarily need to account for existing entities. Although the new department also the speciic political and institutional context prevailing in includes urban development in its mandate, the scope the Philippines. Nonetheless, a Department of Housing and deined in the proposed legislation relects a very narrow Urban Development with a more comprehensively deined conceptualization of urban development that is limited to mandate will be better placed to manage the diverse and “the process of occupation and use of land or space for such dynamic range of urban development and metropolitan activities as residential, industrial, commercial, and the like governance issues, while assuming the responsibilities or their combinations, necessary to carry out the functions for policymaking, regulation, and development of the housing sector. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 111 Box 5.6 Examples of National Urban Development Agencies Brazil’s Ministry of Cities is responsible for urban development policy and sectoral policies for housing, sanitation and urban transportation. In January 2003, the Brazilian government created the Ministry of Cities with the objective of formulating national housing, environmental sanitation, and urban mobility policies that have a strong impact in urban development. The National Secretary of Transportation and Urban Mobility was created and the Brazilian Urban Train Company, which was part of the Ministry of Transportation, and the National Traic Department, which was part of the Ministry of Justice, were incorporated by the Ministry of Cities to elaborate and implement urban mobility policy. The Ministry of Cities is charged with designing and implementing a national policy to upgrade informal and precarious settlements in conjunction with state and municipal governments, which are responsible for its execution. The Ministry of Cities is also tasked with strengthening municipal capabilities and a National Council of Cities engages diverse stakeholders in discussing national urban policy. In Chile, in the early 1960s, there were at least 28 institutions and eight diferent departments that intervened in matters of housing, urbanization, and equipment. To deal with this situation, the Ministry of Housing and Urban Planning was created in 1965 with the goal of improving and renewing the deteriorated areas of cities through rehabilitation and urban development programs. Among the priorities of the Ministry of Housing and Urban Planning is to address issues of urban equality, combat spatial segregation, and ensure that all residents beneit from the city, especially the most vulnerable. The ministry expanded programs to improve neighborhoods and condominiums, promoted a new program focused on interventions on small towns, and invested in infrastructure – all with a strategic vision and relevance to Chile’s distinct regions. In Colombia, a national Ministry of Housing, City and Territory was formed in 2011 and was tasked with the responsibilities for formulating, implementing, and orienting housing policy, urban planning, and water and sanitation services, particularly in the major cities. Prior to this, urban and housing issues were subsumed under a broader mandate of the Ministry of the Environment, Housing and Territorial Development. With the establishment of a separate Ministry of Housing, City, and Territory, the national government now has a focal agency responsible for housing and urban development issues, including disaster risk management. The Ministry of Urban Development is the apex authority of Government of India at the national level to formulate policies and programs and to coordinate the activities of various central ministries, state governments, and other nodal authorities concerning all the issues of urban development in the country. The Ministry was attached on and of with the Ministry of Housing and Urban Poverty Alleviation on many occasions, before inally becoming independent in 2004. Source: UN Habitat, 2015 Strengthen Metropolitan Governance and Service the challenges of metropolitan fragmentation remain. Delivery through the Reform of Metropolitan Globally, there have been various institutional approaches Coordination Arrangements in Metro Manila and that have emerged in response to the challenges of Secondary Urban Areas metropolitan-wide governance. Given the experience of MMDA, which illustrates the limitations of a comprehensive a. Possible Directions for Metropolitan Governance metropolitan authority with constrained political authority Reforms in Metro Manila and weak inancial and technical resources, the Philippines may draw lessons on metropolitan governance from the experiences of mega-cities around the world. While a formal metropolitan governance structure has long been established in Metro Manila, it is apparent that 112 Philippines Urbanization Review Box 5.7 Global Approaches to Metropolitan Governance A common institutional approach in response to the challenge of metropolitan-wide governance has been simply to maintain jurisdictional fragmentation. In such cases, multiple jurisdictions function within a metropolitan area with some level of autonomy (Bahl 2013). • In a one-tier fragmented government model, a metropolitan area has a number of autonomous local government units responsible for delivering services within their own boundaries, which often leads to poor coordination among the various government units for critical metropolitan-wide issues such as economic development, environmental quality, social and spatial disparities, and the level of service delivery (Slack 2007). Jurisdictional fragmentation is prevalent in the United States, where there is a strong desire for local autonomy, and generally describes the metropolitan governance models of Mumbai and Sao Paulo. • Horizontal cooperation among local governments (which may take the form of case-by-case joint initiatives; contracting among local governments; and ad hoc committees, commissions, working groups, and consultative platforms) is a common approach to mitigate coordination issues within jurisdictionally fragmented metropolitan areas (Andersson 2014). However, voluntary cooperation is contingent on policy-makers of the various local governments having shared policy objectives. In cases where there are diverse objectives and motivations among local governments within a metropolitan area, voluntary cooperation is unlikely to succeed. Furthermore, given the magnitude of the challenges confronted by metropolitan areas (such as traic congestion, pollution, global competition, and iscal disparities) the required solutions are likely to require a more permanent institutional status. (Slack 2007). An alternative metropolitan governance structure is functional fragmentation, wherein the delivery of a single service or cluster of services is assigned to an autonomous agency (Bahl 2013). This approach may result in technical and cost eiciencies in service delivery because the autonomous agency would be able to specialize on a particular service while potentially leveraging economies of scale in providing services across a wider spatial jurisdiction. • The public service enterprise may take the form of a metropolitan-wide/regional authority or a special purpose district and, as is frequently the case in the United States as well as in the cities of Bangkok and Buenos Aires, diferent autonomous agencies may be established to deliver diferent urban services within a metropolitan area. Since it is unlikely that the spillover boundaries are uniform across diferent services (e.g., a regional transit authority may have a diferent spatial coverage than a solid waste management district), the advantage of such autonomous entities is that the externalities for each service can be addressed on an individual basis (Slack 2007). However, while there are economic eiciencies to be gained from pursuing metropolitan- wide authorities, this approach has also been criticized for reducing citizen control and local accountability for service delivery given that these autonomous entities are generally not directly under the control of any single local jurisdiction. Further, when independent special purpose bodies proliferate within a metropolitan area, it may become diicult to coordinate interrelated activities among them and to mitigate tradeofs between competing investments and policies among sectors (e.g., transit infrastructure and water and sewer infrastructure). A more comprehensive governance structure is a metropolitan government where urban services are administered on a metropolitan- wide area (Bahl 2013). • Under a one-tier consolidated model, urban service delivery over an entire urban area is consolidated under a single metropolitan government, which allows it to leverage economies of scale and to internalize externalities to a greater degree compared to fragmented metropolitan governance structures. Such a structure also provides more potential for equalizing disparities in service delivery throughout the metropolitan area. Large single-tier governments have been created through the amalgamation of multiple local governments within an existing region or the annexation of a jurisdiction (or a portion of a jurisdiction) by an adjacent jurisdiction (Slack 2007). A diverse range of metropolitan areas has adopted this model globally, including Toronto, Shanghai, Cape Town, and Abidjan (Andersson 2014). • Another model of metropolitan government is a two-tier model where an upper-tier metropolitan body provides region-wide services while lower-tier jurisdictions are maintained to provide services of a local nature, such as local parks and amenities (Slack 2007). In such a model, the upper tier assumes responsibility for services that beneit from economies of scale, generate externalities, and are redistributive in nature. Examples of metropolitan areas that utilize this approach are Tokyo, Madrid, Istanbul, and Portland (Andersson 2014). Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 113 Given the strong history of and legal protections for the amalgamation of metropolitan functions within the MMDA local autonomy of LGUs, a renewed approach to the or a single-tier, consolidated metropolitan government more efective metropolitan governance of Metro Manila is unlikely to be politically feasible (even in the context requires a balance of maintaining the local autonomy of the of a possible shift to a federal system of government). constituent LGUs while adopting politically and technically Hence, the efort to determine the “appropriate” model feasible compromises for the more efective and eicient for Metro Manila must account for the distinct political delivery of critical urban services. It is unrealistic to expect and institutional context of Metro Manila as well as the that the LGC can be revised to reduce the local autonomy technical and administrative constraints that MMDA has of LGUs. Moreover, there is little evidence to suggest that historically faced, while balancing the desire of political the national government will increase support and devote stakeholders and constituents to preserve local autonomy more resources to the MMDA to realize its comprehensive with the need to strengthen the quality and eiciency of statutory mandate, as written in the current law. Further, the metropolitan-wide urban service delivery. Box 5.8 Key Issues in Metropolitan Governance While there is a wide range of experience globally in attempting to deal with the challenges of metropolitan fragmentation, there is no consensus on a single “best” approach for governing metropolitan areas. As Bahl, Linn, and Wetzel (2013) observe, “the great variation in practice that exists among developing countries suggests that almost any arrangement can work, if ‘work’ means that local services do not collapse.” Indeed, the key lesson from international experience is that the “appropriate” metropolitan governance model depends on national and local context (Slack 2007), including the strength of the desire for local autonomy vs. more eiciency in service delivery. A metropolitan government model where urban services are administered on a metropolitan-wide area would, in principle, be the ideal solution. However, in the context of developing countries, the option to adopt a comprehensive metropolitan-wide governance model is likely to be unrealistic because of rapid population growth, scarce resources, and the reluctance of central government to shift away from iscal centralization (Bahl, Linn and Wetzel 2013). Even in cases of metropolitan consolidation in developed countries, the resulting metropolitan governments typically do not cover the entire metropolitan region (OECD 2006). For developing countries that are rapidly urbanizing, economic boundaries will continue to expand over time making it inevitable that even consolidated cities would still need to coordinate services such as transportation and economic development with neighboring municipalities (Slack 2007). Voluntary cooperation for the provision of some services may be more achievable than a full-scale metropolitan government in circumstances where a metropolitan area is too big to be acceptable as a political or administrative unit or where local autonomy is paramount and prevents a consolidation (Slack 2007). In such cases, politics are more likely to dictate outcomes than eiciency or equity considerations. However, these approaches generally do not work well when objectives difer among local governments nor do they provide the needed regional foundation for metropolitan areas to coordinate service delivery. In many cases, adopting a metropolitan-wide/regional authority or a special purpose district to deliver diferent urban services within a metropolitan area may be a more politically and technically feasible compromise for a metropolitan region. In designing such arrangements, a key consideration is the need to balance between the potentials for economies of scale, externalities, and service coordination eiciency with the impact on residents’ access to their government and its responsiveness and accountability (Andersson 2014). Also, each urban service will likely achieve the lowest per-unit cost at a diferent scale of production, potentially leading to variations in the boundaries of diferent services (Slack 2007). While there is no single solution that is right for all countries, addressing governance issues of metropolitan fragmentation must begin with the central government taking a metropolitan-wide view of reform (Bahl, Linn and Wetzel 2013). Ultimately, central governments raise most of the tax money, spend the largest share of the public budget, and make rules on how sub-national governments operate. Hence, the road to better metropolitan governance and iscal outcomes in metropolitan areas begins with national governments, which must consider that constantly changing conditions (such population growth, economic globalization, and climate change) demand a continuous evolution of metropolitan governance arrangements over time (Slack 2007, Yaro and Ronderos 2011). 114 Philippines Urbanization Review and traic management, and solid waste disposal and management. Such metropolitan authorities would be established as government-owned and controlled corporations (GOCCs) that would not be under the direct control of single jurisdiction; however, the governance structure would include the mayors of the constituent LGUs to ensure that local concerns are adequately addressed. Under metropolitan authorities, territorial fragmentation persists but speciic sector-based integration overcomes it in the performance of speciic sectors, such as transportation and traic management, solid waste disposal and management, and water and sanitation. Services provided by metropolitan authorities are typically inanced by user fees and other charges, as well as intra- local transfers, and these models are usually overseen in regulatory terms by the national government. A key advantage of such autonomous entities is that the externalities for each service can be addressed on an individual basis given the likelihood that the spillover The adoption of metropolitan authorities to deliver boundaries are diferent uniform across diferent services speciic urban services within Metro Manila may be a (for example, the coverage of a solid waste management more politically and technically feasible compromise. This authority may be smaller and contained to the 16 cities option would potentially allow the constituent cities and and one municipality of Metro Manila while the coverage municipalities to largely retain local political autonomy of a transport and traic authority may extend beyond and responsibility for local services while allowing for the Metro Manila to include Greater Metro Manila, which establishment of technically competent and inancially would encompass 84 cities and municipalities). The viable metropolitan-wide authorities to be accountable for Philippines may draw lessons from successful examples the eicient delivery of services in key urban sectors that of metropolitan service authorities should it consider this are inter-jurisdictional in nature, such as urban transport reform path. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 115 Box 5.9 Examples of Metropolitan Service Authorities The institutional arrangement for the Barcelona, Spain, is a result planning. Since 2000, London has again a city-wide government with of the cooperation of the diferent local governments within the elected members of a Greater London Authority (GLA) and since 2002 region on speciic sector based issues, including transportation and also a directly elected mayor. The GLA Act created two new elected the environment. In 1997, following the dissolution of the Barcelona bodies – the 25-member Assembly elected from two diferent electoral Metropolitan Corporation, given local and home rule concerns by the bases (14 on a constituency basis and 11 London-wide) and the Mayor underlying local governments, three sectoral institutions were created (who is not a member of the Assembly). Together, the Mayor and the in the metropolitan sphere, which city councils in the Barcelona area Assembly constitute the GLA. may join on a voluntary basis. Because ailiation was voluntary, the territorial sphere of the three organizations was diferent. GLA is a higher-level strategic authority whose principal purpose is to promote economic development and wealth creation, social • The Mancomunitat de Municipis was tasked to bring a common development, and the environment. GLA and the local governments metropolitan perspective to those jurisdictional areas decided have little iscal autonomy; more than 80 percent of their revenues upon by the municipalities. It acted in the area of planning and come from central government grants. There are four functions that the improvement of metropolitan infrastructures, public space, are separate from the Assembly but accountable to it through the housing and land. GLA: • The metropolitan transport organization, Entitat Metropolitana • Transport for London (TFL) is responsible for roads, buses, trains, del Transport (EMT) was responsible for the organization, subways, traic lights, regulation of taxis (metered) and mini- management and planning of the public transport system; the cabs (unmetred and unmarked). provision of the subway service in seven municipalities; and the organization and control of the taxi system and traic and road- • The London Development Agency (LDA) coordinates economic network programming. development and regeneration. It promotes business and works in partnership with industry, public and voluntary sectors. • The organization for the Environment, Entitat Metropolitana del Medi Ambient was responsible for the construction and • The Metropolitan Police Authority (MPA) has 23 members maintenance of hydraulic infrastructures; water supply; of whom 12 are Assembly members, one is appointed by the drainage and wastewater and the treatment of urban and Home Secretary, four are magistrates, and six are independent industrial waste. Londoners. In 2011 the new Barcelona Metropolitan Area (BMA) organization was • The London Fire and Emergency Planning Authority (LFEPA) is formed and encompasses and absorbs the three existing voluntary responsible for ire and emergency services. transportation, planning, and environmental organizations in a two- tier council structure to better coordinate eforts. The emerging BMA The Metropolitan Area of Buenos Aires (Gran Buenos Aires), deines its competencies as territorial management, such as planning, Argentina, comprises the city of Buenos Aires, consisting of 48 territorial policy, housing, infrastructure and services and political neighborhoods occupying about 200 square kilometers, and 33 coordination among the 35 local governments. It also includes the adjacent municipalities. The population of the City of Buenos Aires is competencies of transport, environmental issues and planning and 2.9 million, plus an estimated 1.6 million commuters, while the rest of absorbs the previously existing metropolitan arrangements. These Gran Buenos Aires has a population of 9.9 million. In 1978, a public have been the purview of the three previous organizations that are company was created, named CEAMSE (Coordinación Ecológica del being merged. Economic Development and strategic planning are Área Metropolitana Sociedad del Estado), by the province of Buenos new competencies being added to the new model. Aires and the city of Buenos Aires with the responsibility for the collection, treatment, and inal disposal of solid waste generated in The BMA is inanced through a diverse set of resources, including Buenos Aires and the 33 municipalities of the greater metropolitan taxes, charges and other fees and transfers from the municipalities to area. the BMA, which assigns these resources to the planning, transport or environmental functions within its jurisdiction. Each local government CEAMSE collects more than 435,000 tons of residues per month, which has a representative, principally the executive, within the Metropolitan is the equivalent of the residues generated by 13.0 million habitants. Council who elects the executive of the BMA organization. CEAMSE has inter-jurisdictional character, since its capital stock is shared in equal parts by the Government of the Province of Buenos London, United Kingdom, was governed by a two-level structure Aires and the Government of the Independent City of Buenos Aires. from 1964 to 1986, the Greater London Council (GLC) and 32 local Buenos Aires’ Solid Waste Management Plan was a winner at the C40 governments (each with its own mayor and council). In 1986, the GLC Cities’ City Climate Leadership Awards 2014, which honour cities for was abolished and governance of London became responsibility of their leadership in tackling climate change. central government ministers, using ad hoc arrangements for regional Source: Andersson, 2014; Slack 2007; Yaro and Ronderos 2011 116 Philippines Urbanization Review A transition to a Metro Manila governance model wherein the metropolitan level and it is one area in which it has metropolitan service authorities are adopted to provide arguably functioned adequately, as evidenced by the strategic urban services (such as transport and traic successful integration of disaster risk management into management, and solid waste disposal and management) the comprehensive land use plans in several cities of Metro across Metro Manila and, as the case may be, Greater Manila. The responsibility for implementation and service Metro Manila will require a shift in the role of MMDA to delivery functions for strategic urban services, which are focus on metropolitan wide development and land use currently statutorily included in MMDA’s mandate, will be planning and coordination. The functions of MMDA relegated to the new metropolitan service authorities and, as an implementing agency with responsibilities for in some cases, sector national agencies. The conversion direct service provision would thus be greatly reduced, of MMDA to a metropolitan planning and coordinating allowing it to focus on its core competencies. MMDA has agency builds on global experiences and good practices. been the only organization mandated for planning at Box 5.10 Examples of Metropolitan-Wide Planning Authorities Separate agency for planning and development has been established for In Chicago, USA, the Chicago Metropolitan Agency for Planning (CMAP) was some cities; some with a mandate focused on land use and master planning created in 2006 to address development and transport challenges in seven (Delhi Development Authority in India, and Dhaka Capital Development counties in north-eastern Illinois. Its aim is to plan for public and private Authority in Bangladesh), others with broader city development mandates investments in the area and integrate plans for land use and transport. such as Lagos Mega-City Development Authority in Nigeria, and London The CMAP merged the operations of the Chicago Area Transportation Development Agency in the UK, recently incorporated into the Greater Study (CATS) and the Northeastern Illinois Planning Commission (NIPC). London Authority to which the Mayor of London reports. CMAP is responsible for developing a comprehensive regional plan at least every ive years that integrates land use and transport. This plan The institutional arrangement for Mexico City, Mexico, provides a bridge presents the goals, policies, guidelines and recommendations to guide between the State and multiple local governments creating a set of sector the physical development of the region. Based on this plan, a listing of based committees that coordinate metropolitan planning. The Statute proposed public investment priorities in transport and other facilities and of the Federal District authorizes that the Metropolitan Coordination utilities is made. In addition, the comprehensive regional plan can contain Executive Committee is responsible for the “planning and execution of proposals for model ordinances and agreements that may be enacted by coordinated actions with the Federation, States and Municipalities in local governments, as well as recommendations for legislation that may the outlying city areas of Mexico City, in the areas of human settlements; be necessary to implement the plan. CMAP’s oicial forecasts and plans environmental protection, preservation and restoration of the ecological are the foundation for all planning in the region, whilst units of local balance; transport; drinking and drainage water; the collection, treatment governments continue to maintain control over land use and zoning and disposal of solid waste and public security”. decisions. In New York City, USA, the Regional Plan Association (RPA) was convened Key lessons from these examples highlight the need to: as an ad hoc group in 1922 to develop the Regional Plan for New York and • Include representation of all local governments of the metropolitan its Environs –the world’s irst comprehensive, long-range metropolitan area in the government organs of the planning authority plan. This First Regional Plan was completed in 1929 and the Association was incorporated as a permanent non-proit organization later that year to • Specify technical proiles for technical and management staf oversee the plan’s implementation. In response to new economic, mobility, • Design management periods with a diferent duration than those of environmental and social challenges, the Second and Third Regional Plans the local or national authorities were completed by RPA in 1968 and 1996 to address these concerns. RPA serves the New York–New Jersey–Connecticut Metropolitan Region, • Provide long-term programs of work which is comprised of 31 Counties. It is an independent metropolitan • Detail clear mechanisms to link technical studies with public works policy, research and advocacy group, which performs most of the regional and private developments planning functions, partly funded by the area Counties. Source: Andersson, 2014; OECD, 2015; Slack 2007; Yaro and Ronderos 2011 Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 117 If MMDA is converted into metropolitan-wide development and land use planning and coordination body, the Metro Manila Council should continue to serve as the governing body but its membership should be expanded to include voting representatives from the national agencies with corresponding responsibilities, as well as private sector and civil society organizations. Currently, the Metro Manila Council places the decisions about metropolitan issues in the hands of elected representatives from individual localities and the MMDA Chairman, who is a Presidential appointee and, historically, has usually been a career politician. The recommendation is to open the voting powers of the council to relect a wider range of other interests and concerns, as well as appoint a Chairperson with a technical and professional background (as opposed regarding: i) the speciic sectors to be delegated to new to a political background). Regional development metropolitan service authorities and, as the case may be, authorities such as the Regional Plan Association, the non- to sector national agencies; ii) the scope of responsibilities proit planning organization responsible for developing to be retained by MMDA; iii) the spatial and jurisdictional metropolitan strategies for the New York, New Jersey, and coverage of the new metropolitan service authorities Connecticut metropolitan region, is managed by a diverse and the reformed MMDA; iv) the governance framework, board and committees that include civic, community and organizational structures, and inancing frameworks business leaders. In Sao Paolo, the Regional Development of the new metropolitan service authorities and the Agency is led with a board of directors comprised of reformed MMDA; v) institutional arrangements among private sector members who control 51 percent of board the new metropolitan service authorities, the reformed and the Inter-municipal Consortium with the remaining 49 MMDA, national sector agencies (including the proposed percent. Department of Housing and Urban Development), LGUs, and the private sector and civil society organizations; and Importantly, steps towards adopting metropolitan vi) the legal requirements and follow-up executive and authority model for Metro Manila, with MMDA serving as administrative actions among both national government a development and land use planning and coordinating agencies and local governments needed to enact the body, will require a thorough technical and institutional coordinated series of reforms. Political commitment at review. Fundamental questions would need to be studied the highest level (Oice of the President) is needed to 118 Philippines Urbanization Review the coordination between the metropolitan area and the national government for service delivery and large-scale public infrastructure investments. Concurrently, metropolitan service authorities may established (as appropriate to the speciic needs of each metropolitan area) to deliver strategic, inter-jurisdictional urban services across each metropolitan area. In each case, a comprehensive technical and institutional review should be undertaken to design the appropriate model, as consistent with the broad goals of the proposed NUP. • For smaller-scale, “spillover” metropolitan areas, push for such a comprehensive reform of Metro Manila’s formally establishing a separate planning and metropolitan governance structure, which would be service delivery authorities may not be necessary fully consistent with the development and adoption of a and cost-eicient in the medium-term. The comprehensive NUP for the Philippines. more practical approach may be to strengthen formal mechanisms and incentives for inter-local coordination for spatial and land-use planning b. Directions for Metropolitan Governance Reforms in and collaboration for service delivery. Such Secondary Urban Areas reforms have already been subject to extensive policy discussions and analysis by DILG in recent For metropolitan areas outside of Metro Manila, which are years (AusAID 2008, European Union 2010). much smaller in scale and are predominantly “spillover” Models and lessons from examples of successful rather than “fragmented” urban areas, a more nuanced inter-jurisdictional coordination within urban approach should be provided for under the proposed NUP areas, such as Metro Iloilo and Metro Naga, should that allows for more lexibility and innovation. be studied and replicated in urban areas with similar characteristics. • In relatively large-scale, “fragmented” metropolitan areas, particularly Metro Cebu or Metro Angeles in The enactment of the NUP and establishment of a new Pampanga, adopting the same approach proposed Department of Housing and Urban Development will create for Metro Manila may be beneicial. In these the appropriate enabling environment for implementing cases, metropolitan-wide planning bodies may inancing and institutional reforms to enable efective inter- be established to coordinate inter-jurisdictional LGU cooperation within metropolitan areas, These would development and land use planning and to lead Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 119 include: i) establishing a legal framework for the creation and operation of inter-local enterprises, ii) developing inancing instruments to inance inter-local enterprises, and ii) providing capacity and institutional development and inancial incentives to support to operationalize inter- local enterprises. For metropolitan areas outside of Metro Manila, the NUP should provide policy guidelines for the national government to foster the appropriate governance structures necessary to evolve from urban clusters to formal metropolitan status and function. The proposed Department of Housing and Urban Development should be tasked with the responsibility for supporting the establishment and operationalization of formal inter- stakeholders. Therefore, the NUP should specify guiding jurisdictional coordination and governance arrangements principles for establishing and supporting formal inter- in metropolitan areas outside of Metro Manila. Within the jurisdictional coordination and governance arrangements context of metropolitan areas, the NUP should specify based on the classiication of metropolitan areas that the speciic roles of the national government (including achieve a minimum scale. the proposed Department of Urban Development as well as relevant sectoral agencies), metropolitan body Strengthen Accountability Systems for Local Service (in whatever form it is established), and the component Delivery through Fiscal Decentralization Reforms LGUs for metropolitan-wide planning, service delivery, and infrastructure development. Structural reforms to the intergovernmental iscal system of the Philippines requires legislative actions and must The NUP should clearly deine and classify metropolitan hence be considered as part of a long-term agenda given areas outside of Metro Manila, that is, urban areas that the lack of substantive revisions to the LGC since it was attain a certain scale requiring special oversight by the enacted 25 years ago. In recent years, DILG has undertaken national government. The criteria to assess metropolitan a comprehensive review of the iscal decentralization areas should include population size and density, land system233 leading to the submission in 2015 of a proposed area, and level of metropolitan fragmentation. As seen a package of legislative revisions to the LGC: with the cases of Metro Cebu and Metro CDO, voluntary coordination through project-by-project agreement only • In terms of improving revenue assignments: a) works in a limited manner for pro-active, self-organizing transfer the authority to approve the schedule of 233 With technical support from the Asian Development Bank and Agence Française de Développement. 120 Philippines Urbanization Review However, as has been the case in past attempts to revise the LGC, the proposed legislative reforms from DILG were not classiied as a priority bill in the last Congressional session and were subsequently not seriously debated. With the current political discussions regarding the possible shift from a unitary system of government to a federal system, it is possible that structural reforms to the LGC will be given serious consideration. However, such reforms must navigate very expansive and diverse sets of interest among local and national government stakeholders and will likely remain highly challenging to enact. Nonetheless, executive actions that accompany the proposed enactment of a national urbanization policy market values of real properties from the LGUs to and establishment of a Department of a lead agency for the Department of Finance while retaining the urban development and housing will help to address weak autonomy of LGUs to set tax rates and assessment systems of accountability that stem from structural issues levels; and b) simplify the diferentiated and in the decentralization system. graduated local business tax structure. • The establishment of a Department of Housing • In terms of improving expenditure assignments: and Urban Development will serve to clarify the clarify functional assignments by diferentiating respective responsibilities of NGAs and LGUs between fully devolved functions, for which for the provision of core urban services and LGUs will assume exclusive responsibility for investments within cities and metropolitan areas. service provision, and delegated functions, for which the national government retains primary • Designating the Department of Housing and responsibility but which are to implemented by Urban Development with the responsibility to LGUs. develop and implement a monitoring system at the city and metropolitan level for collecting • In terms of improving the progressivity of the standardized data on core urban services will IRA: revise the IRA formula to take into account address the issue of the lack of service delivery disparities in the revenue raising capacity of LGUs data at the local level. in line with their expenditure needs. Chapter 5: Strengthening Institutions for Urban and Metropolitan Management and Service Delivery 121 • The collection of critical data on urban service Near-term reforms should be pursued to support the delivery outputs and outcomes will allow the capacity building of cities for local revenue administration Department of Housing and Urban Development and to improve the institutional environment for debt to develop service standards for core urban inancing. The comprehensive package of institutional services over the medium-term. This would reforms for urban development and metropolitan represent a major step towards strengthening governance are intended to strengthen the institutional incentives for better service delivery and providing environment for urban service delivery. In theory, this local chief executives with management tools to would increase the incentives for cities to optimize local improve service delivery. tax bases and to utilize debt inancing to accelerate local infrastructure development. However, capacity building • The availability of urban service data will and policy reforms can further address weaknesses in local also serve as a platform for designing more iscal autonomy of cities. efective LGU inancing instruments based on the prescribed roles of the national and local • Capacity building support and advocacy activities governments in the planning, inancing, and targeted to cities can help to facilitate the regular provision of core urban infrastructure and updating of schedules of market values and services as speciied in the NUP. For example, local revenue codes, the adoption of modern tax performance-based and/or conditional transfers mapping and GIS tools, and the streamlining of to LGUs in metropolitan regions could be business permits and licensing systems. designed to inance investments in strategic core urban infrastructure and services. Such transfers • Supply-side interventions requiring executive would serve as important tools for addressing the actions are needed to facilitate LGU borrowing. inancing gap in key sectors (e.g., major road and Speciically, BLGF and the Monetary Board must bridge construction, drainage and lood control coordinate to lower the bureaucratic hurdles and facilities, housing, and solid waste management shorten the processing time for LGUs to access facilities) while concurrently strengthening loans. Furthermore, the Department of Finance accountability systems. Furthermore, innovative should eliminate unnecessary restrictions on municipal inancing instruments that are absent commercial bank lending to LGUs. The continued from the current intergovernmental iscal system restriction of commercial banks reduces (including municipal bonds and bond pooling, competition in the LGU credit market and may local infrastructure investment funds, and public- prevent cities from accessing more afordable private partnerships) may be developed to credit. strengthen the iscal autonomy of cities to inance local infrastructure priorities. 122 Philippines Urbanization Review Chapter 6 Improving Land Administration and Management for Sustainable Urban Development 6.1 Introduction of transactions and investments in well-functioning land markets, as these reduce conlicts, decrease transaction costs, and provide incentives for the private sector to invest. Property valuation facilitates eicient disposal and proper compensation of land, equitable land and property taxation, and proper valuation of land as collateral assets. LAM systems are also essential in land use planning that shapes urban growth, improves eiciencies in use and allocation of limited space, and in turn, enhances the performance of land markets. In metropolitan areas, coordinated land use planning is essential to achieve eiciency in service provision, enable connectivity and maximize the potential of agglomeration for city Land administration and management (LAM) systems competitiveness. Efective land use planning enables are a fundamental infrastructure for proper functioning timely provision of investments to inluence the shape of land markets. Land markets enable land to low and pattern of land development.234 The application to those who are willing and able to use land well, of relevant regulations and development controls are thereby, facilitate investments and growth, improve crucial to manage urbanization patterns and achieve the land allocation, and develop inancial markets. For land desired urban form. Eiciency in land use allocation in markets to work eiciently, they must be underpinned by urban areas is also instigated by a functioning land market, land administration systems that deine property rights; secure property rights, and transparent and market based guarantee security of tenure; establish a mechanism for valuation process. A good benchmark for eicient land use registering these rights within reasonable time and costs, planning process entails land use plans and regulations and generate information to support property valuation that are justiied, efectively implemented, do not drive and taxation. Well-deined property rights underpin security large parts of the population into informality, and are able to cope with population growth.235 234 World Bank. 2011. Land Governance Assessment Framework Implementation Manual. (September 16, 2011). Washington DC: World Bank. 235 Ibid. Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 123 Box 6.1 Deinitions Land administration is the processes of determining, recording and disseminating information about the tenure, value and use of land when implementing land management policies. These involve regulating land and property development and the use and conservation of land, the gathering of revenues from the land through sales, leasing and taxation, and the resolving of conlicts concerning the ownership and use of land (Dale and McLaughlin, 1999; UN ECE, 1996). Land management is the process by which the resources of land are put to good efect. It covers all activities concerned with the management of land as a resource both from an environmental and from an economic perspective. It can include farming, mineral extraction, property and estate management, and the physical planning of towns and the countryside (UN-ECE, 1996). Well-functioning land market and eicient land use are revenues for local government units (LGUs). They are ixed, important in creating sustainable and competitive cities. easy to detect, and their values increase with economic Rural to urban migration – one of the signiicant drivers development. Revenues derived from real property taxes of urbanization - is propelled partly by an eicient LAM are fully devolved, which should encourage LGUs to make system that provides secure property rights and well- good in the performance of this vital function. Experience functioning land markets in the rural areas. These enable in several secondary cities in the Philippines prove that the free movement of surplus and highly skilled labor from LGUs are better able to provide for serviced land and the rural areas – a phenomenon that triggers economic meet the investment demands of urbanization if they are transformation from agricultural to manufacturing, and able to harness the revenue potential from appropriate in the case of the Philippines, to a service dominated administration of property taxes. The eiciency by which industry236. Unrestricted access to land in the urban fringes local authorities are able to dispense with this function likewise facilitates a well-managed urban sprawl, to meet rest in a major way on the completeness and reliability of the growing demands for land. Finally, a well-functioning land inventory, good land data sets, and the application land market is supported by a good land administration of market based valuation for property assessments. In and management system that improves ability to plan, the case of the Philippines, the resolution of LGU political attract investment, and capitalize on increasing land values boundaries is a pre-requisite to the certainty of internal to beneit the public and provide services.237 revenue allotments, or national government transfers to support local development. Updated and more equitable Good practices in property taxation and valuation enhances property valuation likewise contributes to greater equity iscal independence and capacity of local governments to in the tax burden, thereby contributing to more inclusive inance urban development investments. Taxes on land and urban economic growth. real property constitute one of the most stable sources of 236 Deininger, Klaus, Harris Selod and Anthony Burns. 2012. The Land Governance Assessment Framework: Identifying and Monitoring Good Practice in the Land Sector. Washington DC: World Bank. See also Hilhorst, Thea and Frederic Meunier, eds. 2015. How Innovations in Land Administration Reform Improve on Doing Business: cases from Lithuania, the Republic of Korea, Rwanda and the United Kingdom. Washington DC: World Bank. 237 UN HABITAT and Urban Landmark. 2010. Urban Land Markets: Economic Concepts and Tools for Engaging in Africa. Nairobi, Kenya. See also Hilhorst, Thea and Frederic Meunier, eds. 2015. How Innovations in Land Administration Reform Improve on Doing Business: cases from Lithuania, the Republic of Korea, Rwanda and the United Kingdom. Washington DC: World Bank. 124 Philippines Urbanization Review In the context of cities, well-functioning land markets, This chapter assesses the performance of existing LAM proper land use planning, and eicient and equitable system in the Philippines in creating an environment for property valuation and taxation, are interdependent. Secure competitive cities. It looks at the inluence of LAM (including property rights, supported by a good land information property rights) in the proper functioning of land markets and registration system and suicient conditions for in urban areas; the efectiveness of land use planning and development improves eiciency in land market activity, regulations in shaping urban growth, reducing informality, encourages investments in property development, and and improving eiciency in use of space; and the impacts increases property values. With the use of proper valuation of property valuation and taxation practices in generating methods and practices, these values are captured in the revenues to inance local development plans. city assessment roll to make the tax burden more equitable and relective of prevailing market rates. With properly Figure 6.1 Harnessing Economic Growth Through recorded property rights, and guided by participatory land Local Investment: The Role of LAM238 use and comprehensive development planning, cities are able to harness the best use of land, allocate land to various uses, and plan investments in advance, in order to ensure Tax Collection that spatial development follows the desired pattern and direction of urban growth which is inclusive of all sectors. Base On the other hand, well prepared comprehensive land n, Tax Investm Wise t use plans (CLUPs), serving as the basis for investments by by City io Valuat cities, increase property values. Ultimately, such increases en in values should be captured in the city’s valuation and Wealth, Jobs, Quality of Life, Good Governance taxation, which could be used to increase revenues to spur socio economic development of cities (Figure 1). Pro p ert When the cycle is sustained, the overall outcomes yV rty ion alu Propeormat ts are increased investments, more jobs, and improved es ure in enf Inc rea Sec , Land nvestm hts , I overall quality of life. These are at the core of good local se Rig system governance. 238 Adapted from Ian Lloyd, Land Equity International. Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 125 6.2 Key Challenges There are a number of complex challenges afecting land 6.2.1 Weak LAM System use in urban areas, which are binding constraints to the overall competitiveness of Philippine cities and undermine Overall, the Philippines rates poorly compared to other eicient and sustainable urbanization in the Philippines. middle-income countries in Asia in terms of quality These include weak LAM system, outdated and inefective of land administration, as measured by the Quality of land use planning and regulations, increasing informality Land Administration Index (QLAI).239 Among countries in major urban centers, and weak and highly politicized in East Asia and the Paciic, the country performs better property taxation and valuation practices which negatively only compared to Indonesia and Cambodia. Next to impact the inancing for urban development. Indonesia, the Philippines has the poorest rating in terms of reliability, while it is only better than Cambodia in terms of transparency (Table 5.1). Table 6.1 Quality of Land Administration Index by Region for Selected Asian Countries REGION/COUNTRIES RELIABILITY TRANSPARENCY COVERAGE DISPUTES TOTAL Maximum Score 8 6 8 8 8 East Asia and Paciic 2.9 2.2 3.2 4.6 2.9 Philippines 1.0 3.0 4.0 4.5 1.0 Republic of Korea 8 4.5 8 7 8 Singapore 7 4.5 8 7 7 Vietnam 5 3 0 5 5 Indonesia 0 3.5 0 5 0 Cambodia 2 0.5 0 5 2 Europe and Central Asia 5.9 3.6 3.8 6.2 5.9 Latin America and Caribbean 3.2 2.5 1.1 4.6 3.2 Middle East and North Africa 3.7 1.9 2.6 4.4 3.7 High Income: OECD 6.8 3.6 6.3 6.0 6.8 South Asia 1.3 1.5 1.5 3.4 1.3 Sub-Saharan Africa 1.6 1.8 0.7 4.3 1.6 239 Hilhorst, Thea and Frederic Meunier, eds. 2015. How Innovations in Land Administration Reform Improve on Doing Business: 126 Philippines Urbanization Review Table 6.2 Roles of Agencies and LGUs in Land Administration and Management AGENCIES/LGUS ROLES Department of Environment and Natural Resources (DENR) Undertakes cadastral surveys, reviews and approves subdivision plans, issues irst time titles through administrative process, manages public domain, and processes proclamations on government lands Land Registration Authority (LRA)/ Registry of Deeds (RoD) Registers titled properties and transactions on these, reviews and approves subdivision plans, issues judicial titles; reconstitutes lost titles National Commission on Indigenous Peoples (NCIP) Issues Certiicate of Ancestral Domain Titles (CADTs) and undertakes survey and delineation of ancestral domains Department of Agrarian Reform (DAR) Issues Certiicate of Land Ownership Awards (CLOAs), undertakes survey; reviews and approves applications for land conversion (agricultural to urban use) National Housing Authority (NHA) Issues Special Patents on areas proclaimed for socialized housing Department of Finance/Bureau of Local Government Finance Issues valuation standards, monitors LGU tax collections, supervises (DoF/BLGF) Treasurers LGUs Conducts property valuation and tax mapping, collects real property taxes, prepared comprehensive land use plans, undertakes investments in land management and development, land parcel inventory, mobilization of land for informal settler families (ISF) A number of interrelated issues afect LAM in the Philippines. Second, incomplete cadastral surveys have resulted in First, there are multiple agencies involved in land many unresolved conlicts and boundary disputes among administration with considerable overlapping of mandates LGUs. Examples include between barangays and cities in and fragmentation of institutional responsibilities. There is Metro Manila as well as in other cities across the country. also lack of coordination and information sharing among This has resulted in governance issues in afected areas these agencies, which result in gaps or overlaps in land – such as inconsistent taxation, conlicting land uses, records, existence of multiple titles on the same land, unclear responsibilities in service provision, and erroneous and fake and spurious titles. These, in turn, increase the computation of national government transfers. transaction costs in securing, registering and transferring property rights and undermine investor conidence in the Third, the huge backlogs in titling in the face of rising titling system. land values pose challenges for cities in proper land management and have constrained investments in Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 127 property development. Based on a 2004 study, there is thereby resulting in lost capture by property owners of an estimated 11 million untitled parcels in the country, market values, and by the government of the appropriate representing some 46 percent of the total. This situation levels of taxes and fees. Estimates of titled and untitled has also contributed to incomplete tax base for real parcels in the National Capital Region, Cebu and Misamis property tax collection eforts; underdevelopment of high Oriental provinces are as follows: growth areas; encouraged informal transactions on land, Table 6.3 Estimates of Titled and Untitled Parcels240 PROVINCE/DISTRICT TOTAL PARCELS TITLED PARCELS UNTITLED PARCELS % UNTITLED Metro Manila/National Capital Region 1,549,636 1,389,904 159,734 11.33 District 1 233,627 210,264 23,363 10.00 District 2 569,981 536,514 33,467 5.87 District 3 306,948 245,559 61,390 20.00 District 4 439,080 397,567 41,514 9.45 Cebu province, including Cebu City 1,281,533 476,912 804,622 62.79 Misamis Oriental, including Cagayan de Oro city 288,115 131,062 157,053 54.51 including Cagayan de Oro city Source: AusAID and World Bank. Land Tenure Study Fourth, slow registration of titles and processing times of disputes, imperfect rights, unclear ownership and overly in completion of transfers, mortgages, and securing bureaucratic processes have prevented the development of clearance from the Bureau of Internal Revenue (BIR) has available lands including patches of prime lands in the city afected city performance in the cost of doing business. centers, encouraged illegal settlements and contributed These processes are lodged with national government to growing informality. Investors in search of land have agencies, and have afected city competitiveness as to spend additional time and cost to validate ownership investment hubs. In the cities studied, these steps take up of properties and/or conirm titles through expensive between 66 to 90 percent (24 out of 36 days and 74 out of judicial processes. There is no systematic accounting of 81 days) of the time required to complete these processes. the system failures though the economic impact is likely to be huge. Box 5.2 illustrates a few examples of how these The issues discussed above have undermined the issues afect the functioning of land markets and eicient robustness of the land market in major cities. The presence allocation of land in urban areas. 240 PA-LAMP. September 2004. Land Tenure Status Report. Book 1-Results. Prepared by Land Equity International, with assistance from AusAID. 128 Philippines Urbanization Review Box 6.2 Examples of Land Administration and Management Deiciencies on urbanization In a high proile case involving several upscale subdivisions in Quezon City, investigations are ongoing regarding a dispute with the landowners claiming to have the mother title to these properties.241 Similarly, there have been cases of duplicate and fake reconstituted titles issued after a ire at the Register of Deeds. At the National Government Center in Quezon City and nearby barangays occupied by informal settler families (ISFs), land syndicates exist, making misrepresentations about the property owner and exacting payments from poor communities for the right to stay. In Mandaue City, the ire that gutted the Registry of Deeds has resulted in thousands of lost title records, and owners are now only relying on tax declarations as proof of ownership. The cost of reconstitution is high ranging from Php 50,000 to Php 100,000 per parcel depending on the value, which is way beyond the afordability levels of most landowners. As a rapidly developing city, land transactions are based on tax declarations, with the new owners shouldering the cost of reconstitution, which could take months or years to complete. This deprives the original owners the beneit of exacting current market values for their properties, and also result in delays and additional costs in property development. In Cagayan de Oro city, a national developer is facing legal challenges after a claimant of Spanish title surfaced after the company started land development for a middle class subdivision. There are areas which are the subject of two surveys approved separately by LRA and DENR. There are also reported cases of multiple titles (certiicate of land ownership awards, Free Patent, and transfer certiicate of title ) issued on the same parcel. Based on estimates of the City Assessor, about 3-5% of prime lands are problematic (interviews with City Oicials). Issues like these delay development, and could cause costly legal battles, if not resolved. Based on interviews with Brokers and Property Appraisers, large developers would go to great lengths at validating the reliability of records, by tracing back the origin of titles and ownership to three past previous owners, as well as the origin of the title from the approved subdivision plans. In Cebu City, the city government has put on hold its plans to develop part of the reclaimed property called the Campana Maritima because of the objection iled by the Cebu Ports Authority (CPA) claiming that they should have the right to the property. The property is located right at the back of the City Hall oices, near the 300-hectare South Road Properties (SRP). Its commercial value has increased following recent developments in the SRP, where mixed-use developments are ongoing. While both the CPA and City Government are interested in the development of the property as a maritime heritage museum, developments cannot proceed due to the ongoing dispute. A good portion of the property is now being used as a parking space – which is not an eicient use of this highly valuable land in the City center.242 At some point, the Philippine Exporters Confederation, Inc. of Cebu has suggested the temporary use of a portion of Campana Maritima to ease the port congestion in Cebu International Port (CIP). The situation has delayed shipments, with an estimated loss of USD 15,000 per shipment.243 241 “Senators on land titling mess: Garbage in, garbage out”. Ayee Macaraig, Rappler. Published 8:00 AM, November 01, 2011; Updated 1:29 PM, November 02, 2011. 242 Michelle Joy L. Padayhag. CPA: No war with Cebu City. Cebu Daily News. July 12, 2015. (http://cebudailynews.inquirer.net/63202/cpa-no-war-with-cebu-city#ixzz489HQ8nWr). 243 Michelle Padayhag. Traders Losing Business Due to Port Congestion. Cebu Daily News. February 5, 2014. (http://cebudailynews.inquirer.net/16862/exporters-cry- over-abandoned-containers#ixzz489KvvUUC ) Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 129 6.2.2 Outdated and Inefective Land Use Planning and Regulations and Weak Implementation Land use plans provide a set of rules concerning land use and directly afect land value, which is related to its development potential. Land use is intertwined with land property rights as the latter relect the right to extract the value of the land based on how land can be used in economically productive and socially acceptable manner244. Efective land use plans support eicient urban activities, facilitate livability of the urban environment, and direct overall city development. In the Philippines, LGUs are mandated by the Local Government Code to prepare a projects and private sector investments are providing CLUP enacted through a zoning ordinance, and to develop the default lead in driving land use changes and spatial a comprehensive development plan. The capacity to carry development. Thus, instead of guiding spatial development out this mandate and level of compliance vary across LGUs in cities, CLUPs are “updated” to accommodate changing in the country. patterns and demographics rather than the other way around. This set up makes the city residents vulnerable to Many LGUs have not been able to update their CLUPs. private interests at the expense of general public welfare. For example, in Metro Manila, only ive out of 17 LGUs In addition, integration of land use planning among have updated CLUPs with varying timeframes for LGUs in metropolitan areas has been lacking and this has implementation. In the case of Cebu City, the CLUP has not compromised eiciencies in infrastructure and service been updated since 1980. Many CLUPs also relect outdated provision across cities including transport and traic and inappropriate planning principles, approaches and management, and lood management, among others. In parameters. Metro Manila, the sprawl has expanded the development towards nearby provinces, thereby compromising eiciencies and optimization of beneits of agglomeration. Implementation of CLUPs is likewise weak. Urban growth In 2010, the built up area in Metro Manila already covered and spatial development are happening in an ad hoc 85 municipalities and cities in seven provinces. manner and with limited regard to the CLUPs. The reality on the ground is that national government infrastructure 244 Corpuz, Arturo. Land Use Policy Impacts on Human Development in the Philippines. HDN Discussion Paper Series 2012/2013, No. 1. 130 Philippines Urbanization Review Figure 6.2 Urban Expansion in Manila In the absence of updated CLUPs as the basis for zoning, Despite the above, there has been a rapid densiication applications for land development have been entertained process in Metro Manila, mainly as a result of policies on a piece meal basis, resulting in the so called “spot zoning”. on location of industries (such as business process Review and approval of development permits have been outsourcing (BPOs) into high rise buildings) as well as the discretionary. This has created opportunities for improper growth of mixed use residential and commercial enclaves practices, as the review process has become discretionary. that replaced lands vacated by these industries. This In some cases, the private sector has beneited from this happened, however, at the time when the sprawl had law at the expense of general public interest. Needless to reached an extent that it has become too ineicient for say, this has also resulted in haphazard development of the the commuting public to reach their work places. Coupled citywithout reference to any planned urban form. with increasing demand for high-end dwellings that are near the city centers, the city has seen prohibitive land prices, set against an artiicial scarcity of land. Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 131 Rationalizing urban development in Metro Manila would require the combined eforts of both city and national governments to maximize the beneits of agglomeration, and catch up with service provision. 6.2.3 Increasing Informality in Major Urban Centers The growth of ISFs in Metro Manila and major urban centers has partly been the consequence of inadequate LAM system, weak planning and ad hoc spatial development. For the period 2007-2011, the growth rate of ISFs reached 7.3 percent, consisting of more than half a million households, representing a quarter of the Metro Manila population. In addition to governance issues in the housing sector, afordability and disconnect of ISF formalization programs option, due in part to absence of laws and good practice with urban development, constraints in land mobilization examples of alternatives. has been identiied as a major obstacle. Absence/weak implementation of planning guidelines There is limited access to reliable land information and no and standards for social housing. The current guidelines, up-to-date inventory of ISFs. More reliable data on ISF, their embodied in Batas Pambansa 220 (BP 220) apply to characterization, typology of land they occupy, the status economic housing with the intent of encouraging private of their quest for land and housing and degree of service sector participation in housing provision. In the absence provision hinder the development of an efective program of more speciic policies, this law has been employed for to serve their needs. In the same way, the absence of social housing as well, making it highly unafordable. More publicly accessible information on land that is reliable and speciically, the current framework is limited mainly to up-to-date has been a main constraint to the identiication development of new sites (of-site) and regulatory process of land for possible resettlement sites, mobilization of designed for private sector developers and government. private and government lands currently occupied by ISFs, Other emergent housing solutions and approaches do and resolution of issues afecting already proclaimed lands. not it within this framework. Its implementing rules do not encompass planning guidelines to encourage Limited land availability, tenure options and housing development of lexible and afordable solutions for and rights. Rapid property development has jacked up land by the ISFs. Finally, the guidelines of BP 220 are not very prices which has limited the afordability of low income ISF. appropriate for community-initiated/self-help housing There is over reliance on freehold as the only land tenure projects, which is the usual mode of site improvement 132 Philippines Urbanization Review The above issues were exhaustively reviewed in the course of preparations for the Housing and Urban Development Summit in April 2016, involving many stakeholders, and where solutions have been agreed to address the issues and are incorporated in recommendations (Section 5.4). 6.2.4 Inefective Property Taxation and Valuation Practices Revenues from real property constitute the most secure source of income for local governments since these are stable and immovable, and increases in value over time, as assessments are kept up-to-date with increases in land values. Such incomes are important sources of revenues by ISFs due to afordability issues. These factors have to improve service delivery, inance vital infrastructure made it increasingly unafordable for ISFs to comply with projects, among others. formalization requirements. The average Real Property Tax (RPT) collection by all LGUs Diiculty in mobilizing government lands for ISFs. There in the Philippines stood at only 31 percent of total local are a number of associated issues here. First, the current revenue collections in 2014. This is lower than the average procedures for issuance of Special Patent on government RPT collection for middle income and high income lands is very cumbersome, involving about 16 steps in countries, which stood at 35.5 percent and 37.7 percent, many agencies and taking as long as 20 years to complete. respectively. In terms of share in GDP, RPT collection only Second, there have been many instances of Proclamations represents 0.35 percent in 2013. This has declined from issued on government lands that cannot proceed because 0.45 percent in 2000. RPT collection of LGUs as proportion of issues with overlaps and inappropriate lands designated of GDP is lower than those in European Union countries, for use, among others. Many of these issues have persisted which averages at 0.8 percent, but is around the average for a long time with no clear resolution in sight, afecting for low and middle income countries of 0.4 percent. LGU thousands of families. Third, the absence of clear guidelines performance in this area is far below what is achieved by on administration and disposition of proclaimed lands has the United Kingdom (3.4 percent), France (2.4 percent) prevented many ISFs from beneitting. and Denmark (2.1 percent). This suggests the considerable potential that LGUs have in increasing revenues from property taxation, which could inance investments in local infrastructure and service delivery. Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 133 The factors behind the low RPT collection include the following: Box 6.3 Impacts of Outdated SMVs Cities miss up to Php 20.3 Billion in RPT when they use LGU assessment rolls are not complete, undermining their outdated SMVs and are not aggressive in tax collection. ability to collect proper taxes from real property. This is Of these, about Php 15.9 Billion are foregone in 51 due to assessors’ over dependence on property owners metropolitan areas and highly urbanized cities. reporting details of properties; the practice of under- The Php 20.3 Billion can fund: reporting the value of sales transactions by the owners; • 298 sanitary landills • 451 transport terminals weak capacities in RPT system maintenance, and lack of • 1,015 satellite health centers; and diligence in tax map maintenance. A related issue here • 2,929 low cost resettlement projects is the lack of sharing the land related information among Source: BLGF. Undated. LGU Taxation and Revenue Practices. (blgf.gov.ph) agencies and LGUs.. In many cities in Metro Manila, Metro Cebu and Cagayan On the whole, the lack of sanctions for not following Local de Oro, property assessment for tax purposes are not Government Code provisions on SMV updating does not based on market prices and schedule of market values compel local governments to perform this mandated are not updated regularly. The wide gap between the task. The Department of Finance has found a way to ill recorded values and the market prices is due to the use this gap by publishing a LGU Scorecard called “Iskor ng of and reliance on the understated values submitted by Bayan” (Country Scorecard) which rates local governments property owners as the basis of valuation, the LGUs’ use of according to their performance of inancial management outdated methodology for determining the schedule of and revenue raising responsibilities. This has somehow market values (SMVs), and LGUs’ poor record in regularly encouraged some Local Executives to take action, as the revising their SMVs thus rendering the recorded values campaign touches on the LGU competitiveness spirit. It has outdated and obsolete. also been undertaking capacity development programs which has allowed a limited number of LGUs to update On the other hand, regular updating of SMVs in accordance their values using international standards for valuation. with the law is constrained by lack of LGUs’ political will, fearing political backlash that may perversely impact on its Despite these eforts, the task remains daunting as the tax collection. There are, however, good practices on how number of cities and provinces have to have innate such impacts can be cushioned by adjusting the tax rates, capacities and suicient motivations for regular updates particularly in ensuring more equitable tax burden among every three years. Clearly, the impact has been reduced property owners.245 opportunities for local governments, particularly rapidly growing cities, to translate increasing property values into local revenues for improved service delivery. 245 For example, among REGALA LGUs, a Tax Impact Study was conducted to determine the potential efects of updated values on RPT payments to property owners of diferent property classes. The results were used to develop various options for assessment so that owners of low-end properties do not necessarily share the bulk of the tax burden. In the end, the choice is left to the cities and stakeholders to determine the best combination of assessment levels that will help achieve the budgetary goals of the city, and yet is more equitable. Public support is also important, and this was sought by identifying the major programs where the proceeds of increased tax collections will be used. See Box on Tayabas City in the technical paper on Land Administration Management. 134 Philippines Urbanization Review 6.3 Recommendations Strengthen the LAM System • Integrate LAM functions of LRA and DENR-LMB to reduce horizontal overlaps in the delivery of LAM services. Improving institutional clarity of functions and duties would improve eiciency in service delivery, enhance access to complete, reliable and up-to-date land records, develop conidence in land registry, and reduce opportunities for improper practices. • Establish a uniied land information system within cities. This will enable a full inventory of all interests on a given parcel and “cleanse” all claims that are not properly authenticated. This system could be based The weak LAM infrastructure including the land information on data from RoD, LMB, DAR, LGUs, and serve as the system has created substantial ineiciencies in the land backbone of a land tenure improvement program markets and has contributed to ineicient property and up to date property tax and information system, valuation and taxation. These in turn limit the capacities of which should be pursued by LGUs to provide a source LGUs to inance local infrastructure investments and leads of reliable property with secure rights and data on to poor land use planning that yields sub-optimal urban prevailing market values of land. growth and spatial development. But the most glaring manifestation of these issues perhaps in the proliferation of • Further to recommendations 1 and 2, develop a informality in cities across the country. The current state of national spatial data infrastructure (NSDI) or data land policies, systems and processes suggests the need for interoperability system that will facilitate exchange fundamental reforms if the Philippines aims to optimize the and sharing of land records among agencies and beneits of urbanization for economic growth and poverty make these more accessible to the public. This would reduction. Suggested reforms include the following: require digitization and automation of land records, and integration of iscal, legal, and geographic records Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 135 Box 6.4 Improving Land Administration Quality in Republic of Korea In the Republic of Korea, lack of accurate spatial information on land undermined the ability to implement urban plans and to capture for public beneit some of the gains from enormous land value increases associated with rapid urbanization and industrialization. This led to formulation of a national master plan for GIS development, followed by open and interoperable standards to govern production and sharing of information, simpliication of land use regulations that were too complex to be implemented transparently, and institutional change to eliminate duplication and include other players such as the Ministry of Justice. In view of high costs (about USD 415 million), implementation was sequenced to start in large and medium cities where demand was strong and the potential beneits highest. While meticulous checking of all the country’s 37 million land plots required a huge commitment of human capital, the resulting system now provides the basis for all urban planning, land administration, public land management, valuation and taxation, and zoning in development planning. It substantially reduced corruption and increased transparency of processes. For the 2007–11 period alone, an annual cost savings of about US$200 million was realized. The Republic of Korea is now expanding service delivery, while adapting to the growing use of mobile devices by clients, and integrating land administration in the overall e-governance program to better serve the business community and promote economic development. on land rights with joint or linked information systems. Update and Improve Land Use Planning and Interoperable information infrastructure has been Regulations widely applied in OECD countries and in Eastern Europe and Central Asia region. Capacity-building and • Develop a metropolitan wide land use physical training in legal and technical procedures, information planning framework that takes into account future technology, business planning, and customer service, requirements for space, economic activities and among others would be necessary to sustain the function. This should be accompanied by area master system. plans that provide more detailed analysis and guide for development of identiied enclaves in the metropolis. » Considering advances in digital technologies, It should also provide for complementation of roles future land administration and management of diferent cities and coherence of the overall urban systems may likely be built on 3D city form. The Manila Green Plan 2030 can be used as the models and incrementally progress towards starting point. The private sector should be part of this the adoption of 3D registration, valuation, process of developing the long-term vision, as they planning, and permitting, among others. have important roles to play in its realization. Based on Some countries such as China and Australia the framework plan, there should be incentives for the are now developing prototype systems and updating of citywide CLUPs and Zoning Ordinances. undertaking pilot trials This may be worthwhile In case a metropolitan governance framework is set to explore in the future. up; land use monitoring and compliance to zoning ordinance should be part of its tasks. This work should 136 Philippines Urbanization Review should have a private sector component, to maximize their participation in urban development, in a way that is fully aligned with the collective vision for the metropolitan. Address Increasing Informality in Major Urban Centers • Establish a program on integrated land and ISF information system for NCR (for ISF- and other related programs) and subsequently for the rest of the country. The intent is to establish an oice with dedicated funding, resources and timetable to undertake inventory of existing tenure status of be independent of city LGUs, and the best institution ISFs and prepare citywide land tenure improvement to handle this should be a strengthened oversight plans. The oice shall also be in charge of identifying metropolitan authority. available land for ISFs for in-city resettlement and on-site development, establish infosystem link • Prepare a metropolitan- wide plan to support between government agencies and LGUs, make implementation of projects aimed at maximizing the land information more accessible to all users, and beneits of agglomeration, in the areas of transport, take measures to institutionalize land data-sharing environmental management, sewage, and other between and among LGUs and NGAs including IRR urban infrastructure. Such a plan could be led by the of Sec. 209 of the Local Government Code. Such an National Economic Development Authority (NEDA), oice can be established under the new Department through its Regional Development Council (RDC) of Housing and Urban Development (DHUD) or in for the National Capital Region (NCR), working with relevant agencies such as DENR or HUDCC but with the metropolitan authority. These programs should strong collaboration with other stakeholders involved be in support of the physical framework plan for the in social housing. metropolitan areas, clearly distinguishing the projects to be implemented by the LGUs, and those to be carried • Undertake a systematic or city-wide approach to out by national agencies. A review of comprehensive tenure improvement of ISFs, following the inventory development plans of city LGUs should be made in of ISFs, the type of land they occupy, and their speciic order to maximize complementation between these circumstance with respect to the property. On the two investment programs. The investment program policy side, other tenure options and forms of land Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 137 mobilization should also be pilot tested – usufruct, long term leases, land sharing – based on international best practices, and corresponding policies developed for wider application. See Box 6.5. • Formulate new planning and building guidelines and standards that will strengthen a more holistic approach to planning and implementation of shelter and settlements development for ISF communities. It should also encourage involvement of broader range of stakeholders, especially including ISF communities, in settlements and shelter planning and implementation. The guidelines and standards should be more lexible and appropriate, in order to encourage generation of afordable housing solutions • Implement a shelter program to systematically help and technologies adaptive to current housing ISFs secure property rights and provide serviced land situation and existing programs. The new guidelines with core houses – through a systematic “citywide should also be able to : (a) guide the planning and community upgrading strategy” rather than ad hoc implementation of on-site development projects; project-based approach that fails to reach scale. ISFs (b) allow for incremental development of sites and have also expressed the need for capacity-building housing construction; (c) promote and encourage / community development similar to the succsesful alternative technologies; (d) allow for conditional non- Community Organization Development Institue spatial compensatory measures in site/subdivision (CODI)’s Baan Mankong social housing program in planning especially for on-site development; (e) Thailand, as well techchincal support for land use consider disaster resilience and adaptation in planning and shelter planning and inancing for infrastructure and design; and (f ) provide parameters that would aid development. The latter is seen as incentive for LGUs ISFs and other implementers in selecting appropriate to take on the responsibility for shelter provision as and afordable housing solutions. In parallel with provided by law. the above, it is important to establish coverage and timeframe of the guidelines, especially for onsite development, so as not to encourage further illegal occupancy; hence, the need for a database and mapping of all existing ISF occupied areas. 138 Philippines Urbanization Review Improve Property Taxation and Valuation Practices payments. Administrative measures include: (i) computerization of tax records to update and cleanse The problems with the property taxation and valuation the system (ii) conducting regular ield inspections practices are severely limiting revenues for inancing local on properties; (iii) re adjustments on assessments investments in urban development. Addressing these resulting from ield inspections; (iv) monitoring of would require a combination of short and long –term delinquencies; and (v) applying the administrative interventions: and judicial recourse in the collection of delinquent payments. • Strengthen LGU capacity on property valuation and taxation. The BLGF has issued the national valuation • Review options obliging LGUs to update their SMVs standards and the Manual for Real Property Appraisal, based on market values. These include: provision of Assessment and Operations. Cost efective forms incentives to those who will abide by the mandatory of delivery of capacity building include: (i) learning general revision; and the establishment of a National by doing through coaching and mentoring; (ii) Valuation Authority which will be responsible for accreditation of service providers to ensure greater approving the values. In the long term, work towards coverage. Likewise, strengthen BLGF oversight the establishment of central mass valuation system and monitoring of LGU Treasurers to ensure the that provides fair and timely estimates of property and administrative and judicial remedies are utilized, taxation values to improve tax collection and collect delinquent Box 6.5 Assessment of International Experience in the Use of Alternative Tenure Options for Mobilizing Land for ISFs Category 1 - Incremental Servicing as a Key Strategy Similar to Cordoba and Brasilia, the Philippines can adopt the incremental servicing scheme as a holistic strategy for slum upgrading within the context of urban development. Applied in the Philippine context, these could be used in idle lands, forfeited properties resulting from auction of delinquent properties, or in government owned lands that are occupied by ISF. Tenure security in this sense is undertaken as part of the package of urban development, similar to the Sites and Services Improvement program, and the Zonal Improvement Program. These are also consistent with the UDHA and the Urban Land Reform Law. This would require strong partnerships between the LGUs, NHA and the HOAs, in order to deliver services in an incremental manner, and to allow also the incremental housing development. Flexibility in the implementation of BP 220 is therefore key, as well as the combined efort of LGUs in service provision, and the SHFC, LGUs and other sectors in inancing. Chapter 6: Improving Land Administration and Management for Sustainable Urban Development 139 Box 6.5 Assessment of International Experience in the Use of Alternative Tenure Options for Mobilizing Land for ISFs (cont.) Category 2 - Instruments which can contribute to improvement of existing tenure arrangements. These represent those where similar features exist in the Philippines, but which can be improved based on good practices ofered by the experiences of other countries: Communal Tenancy (Colombia) and Setting up of Community Land Trust (Kenya) The existing CMP can be improved by having an intermediary, such as an NGO or a HOA federation to set up a CLT to buy and develop properties into socialized housing units for low income dwellers. This is currently practiced by such NGOs as Gawad Kalinga and HABITAT for Humanity. This would spare the HOA or community organization from the diiculties associated with going through the complexities of acquisition, subdivision planning and other bureaucratic procedures to avail of funds and individualize the parcel. This process however, could be long and would therefore require commitment to see through its completion. Right now, the CAs/HOAs are left to themselves to understand the intricacies of land research, negotiations, and putting together all the requirements for loan approval and eventual subdivision. In the absence of an NGO, this role can be done by the SHFC, provided it considers broadening its mandate as facilitator for development of ISF communities. Private land rental schemes (Anticreto of Bolivia and Private Land Market of Thailand) Although temporary, securing formal lease agreements with owners of privately held properties could provide relief from the constant danger of eviction. These leases however, should be registered with the LGU in order to protect both parties, and ensure compliance with conditions. The lease agreements can serve as interim instrument in the meantime that negotiations with the owner and processing of loan applications are being worked out. Fixed Period State Grant (Botswana) This is similar to usufruct, except that unlike the certiicates of ownership (COR) that is associated with FPSG, usufructs cannot be mortgaged or used to apply for loans. Moreover, the COR is just a temporary tenure instrument that can mature into FPSG. The FPSG is then registered with the local registry, which provides an added form of security to the holders. This scheme remains an option open to LGUs and NHA provided these are applied on government owned lands, and/or the government does not want to give up the ownership of property. Urban Housing Permit (Burkina Faso) This is similar to the Certiicate of Land Allocation (CELA), which was issued as a form of interim tenure to occupants of publicly owned A and D lands provided they meet the minimum conditions. This form of instrument or CELA, can provide security of tenure in the meantime that the occupant has not yet fully satisied the conditions required for the title to be issued – such as the 10 year possession. To be a stronger instrument however, this needs to be recorded and registered at the DENR, LGU and RoD. 140 Philippines Urbanization Review Box 6.5 Assessment of International Experience in the Use of Alternative Tenure Options for Mobilizing Land for ISFs (cont.) Category 3 - Instruments that are worth testing given existing policies This set of instruments pertain to those that have potential to improve schemes where there are existing policies, but implementing procedures are largely undeveloped. These would require pilot testing and then preparation of detailed guidelines based on experience. Zona Especial de Interesse Social (ZEIS) and Concession of the Real Right to Use (CRRU) in in Brazil) Special land development and regulations can be applied by LGUs in areas identiied in APDs. Since there are no available tenure instruments that can be given to occupants of APDs similar to the CRRU of Brazil, the LGU can provide temporary administrative recognition thru certiicates of occupancy, in the meantime that acquisition of privately owned portions of APDs are being worked out. In case the APD falls on government lands, the NHA can apply for Proclamation or the LGU may apply for Special Patent, and then the properties can be disposed to occupants either through usufructs or individual titles. Housing cooperatives in South Africa The strength of the cooperative law can be tested to develop housing cooperatives to secure titles and mobilize land. Existing HOAs can be transformed into coops provided there is joint interest to set up the entity. For the members, this could mean having their own investments in property development, which they can recover once they have the means to move out of the coop once their socio economic conditions improve. The combined support of CDA, NGOs, HOAs, LGUs and shelter agencies would be essential to pilot such a scheme. Land Readjustment in Benin This is similar to the reblocking scheme applied in on site development, except that under reblocking, there is minimal dislocation; and that under land readjustment, the resulting lay out and plan is more structured and conforms better to standards and provision for service areas. This would require however, high level of commitment of the individual households and trust in the resulting land readjustment scheme. Furthermore, support from the government (LGU or NHA) should be forthcoming to facilitate surveys and development of facilities and service areas for the communities. The advantage is that the resulting lay out blends better with the urban fabric, reducing the extent of blight. In the same vein, the operative law would be PD 1517, except that there have been no example to speak of, nor implementing rules developed for this purpose. Source: Eleazar, et. al. June 2016. Understanding Land and Related Constraints in the Provision of Housing for ISF in Metro Manila. Final Report submitted to World Bank. (Undertaken through Land Governance, LGI, Inc.) Annexes 141 Annexes Annex 1: Methodical Details and Full Results of the Econometric Analysis Table A1: Analytical Framework and Metrics LANDSCAPE GEOSPATIAL SPATIAL STATISTICS ECONOMIC Density Night light counts Population density Local Morans test Night light intensity Household density Income levels Division Number of neighboring Port connections variable Contiguity-based Regional economic (contiguous) neighbors spatial weights characteristics Volume of roads in boundary Distance Smoothing using area size Weighed avergae proximities Distance-based (to neighbors, ports, major spatial weights - Urban land expansion cities, highways, etc.) Source: Author’s elaboration; metric categories from (Reis et al., 2015) Map A1: Metropolitan Manila Agglomeration Source: Author’s elaboration; data from Philippines Statistics Authority (2015) and World Bank (2015b; 2015c) 142 Philippines Urbanization Review Map A2: Spatial Distribution of Economic Production Centers and Connectivity Infrastructure Near Cebu Source: Author’s elaboration; data from World Bank’s “Spatial Patterns of Development in SAR” project (P153150); mapping using QGIS and ArcMap. Map A3: Spatial Distribution of Economic Production Centers and Connectivity Infrastructure Near Davao Source: Author’s elaboration; data from World Bank’s “Spatial Patterns of Development in SAR” project (P153150); mapping using QGIS and ArcMap. Annexes 143 Annex Box 1 The City Wedge Framework “City wedge” analysis helps identify the capacity of the city to design and implement Figure 1 The City Wedge Framework competitiveness policies. The extent to which cities can efect private sector development conditions varies a lot from city to city. At the highest level this can be illustrated through diferences in resources available to cities in diferent countries: for instance in China cities account for 50% on public sector expenditure, while in Mexico they only account for 7%. However the availability of inancial resources is not the only factor that deine the leverage that cities have over the conditions that drive competitiveness “City Wedge” helps identify the advantage a speciic city has over its development fundamentals. It help understand how city can grow it’s leverage and identify the policies that are realistic for cities within its current mandate and capacity. “City Wedge” encompasses three elements: public-private growth coalitions, city government mandate and capacity, and inter-governmental networks. Grouping various initiatives, this way enables city leaders to understand the levers for economic development at their disposal. How a city uses these levers can vary depending on circumstances. The key is to utilize all three points of leverage to, open opportunities and Source: Gashi D. Atkins J. (2015) A user’s guide to Implementing City avenues to strengthen cooperation in achieving common goals and tackling common Competitivenss interventions problems: • Public-private growth coalitions refers to collaboration between public sector agencies and diverse external stakeholders, including civil society, in planning and implementing interventions to foster improvements to the business climate and the strategic visioning of economic development. Public private dialogue (PPD) is one approach to structuring such public-private interactions (Sivaev and others 2015, 4, 6). • City government refers to a city government’s ability to impact economic development, which depends on its legal mandate as well as inancial autonomy, and capacity in terms of human resources and internal management processes. (Figure 1) • Inter-governmental networks refer to the interdependent relationship cities have with national and regional governments in pursuing economic development. A city’s public and private sector leaders often need to leverage the support of higher-tiers of government or neighboring jurisdictions to approve or inance major infrastructure projects. Cities can beneit from nationally sponsored initiatives. Moreover, cities collaborate with diferent regions to strengthen economic linkages and collaborate in complementary industrial sectors. Source: based on World Bank (2015). “City competitiveness”. 144 Philippines Urbanization Review Annex 2: National vs Regional Mandate in Regulating the Business Environment In the Philippines, subject to certain limitations National agencies retain responsibility over prescribed under the 1991 Local Government their local branches’ procedures whereas local Code and other national laws, local governments agencies maintain their own procedures. have the remit to regulate commercial activities, Thus, coordination between national and local provide investment support and industrial governments is crucial to the process of reducing research and development services. According the burden on local entrepreneurs. For example, to the Constitution, the national government steps in registering a business involve obtaining can only supervise local governments to ensure clearance and certiicates from local branches that they do not exceed their powers. As a result, of national agencies as well as certiicated and national government initiatives to institute permits issued by the local government itself. uniform standards and best practices in cities cannot be imposed top-down. National initiatives Source: The World Bank should be implemented with buy-in from the local governments, which requires considerable time and efort. Figure 2 Local Planning Process in the Philippines Source: Bureau of Local Government Development (2008) Rationalizing the Local Planning Process Annexes 145 Annex 3: Bayawan and Legazpi Cities: Good Practice Examples of LGU Initiated LAM Reforms in the Philippines246 Bayawan City the BLGF Executive Director to explain to the City Council the diference between the technical process of valuation This LGU is considered as the “poster boy” of LAMP2 ISF and and the political process of taxation. REGALA. Under the second phase, its work focused on: (i) approval of SMV and preparations for general revision; (ii) At the time of evaluation, the City is set to publish the preparation of area master plan based on approved CLUP; revised SMV. The general revision, through updating of (iii) expansion of titling activities; and (iv) operationalization assessment levels and taxes due are also ongoing through of its One Stop Shop (OSS). the updated version of the eTRACS. Given the mandatory periods of generation and distribution of notices, it is In the process of doing the above, the City continued to expected that the notices will be sent out in 2016, and strengthen its LAM interagency coordination mechanism full implementation can be realized in January 2017. The through the Steering Committee. Its continued access to LGU is also updating is GIS based tax map, to capture the records of RoD and DENR, which was established during adjusted values and assessment levels for the parcels. the irst phase of REGALA, enabled it to continue its routine database build up and updating, and preparation It is estimated that implementation of the revised SMV will of additional map overlays. It also shifted to Version 2.5 of bring in an additional RPT income of Php 21.02 Million. eTRACS, to enable the LGU to avail of added features and Assuming however, that collection eiciency will not functionality. These are all consistent with the LAM Medium improve from the current rate at 40%, the incremental Term Development Plan (MTDP) which was prepared and revenue gain is estimated at Php 8.41 Million. approved by the Council during ISF LAMP2. The SMV was informed by a Tax Impact Study, which looked The PMU was inally able to secure City Council approval at various options to cushion the impact of updated values of its revised SMV through Resolution No. 489 No. 24 on net payments for RPTs. These options include: series of 2015 only on June 8, 2015. This took longer than • Policy Option 1 – Reduction in the Assessment Levels expected, as there has been a turnover of leadership (Residential: from 20% to 8%, Commercial & Industrial: due to the untimely death of the sitting Mayor, and his from 50% to 32%; Agricultural: from 40% to 24%) replacement by the Vice Mayor. It did not help that the • Policy Option 2 – Reduction of 10% in all Assessment elections are forthcoming, and there were apprehensions Levels (Residential 10%, Commercial & Industrial 40%, that there could be a backlash if RPT is increased at this Agricultural 30%) and Reduction in Basic Tax rate from time. It took several meetings and the intervention of no 1.5% to 1% less than the Project Director, Grant Manager and inally 246 Taken from sections of the Monitoring and Evaluation Report: ADB/JFPR REGALA Phase 2, by F.C. Eleazar. (prepared for Land Equity International, in association with Land and Governance Innovations, Inc.) December 2015. 146 Philippines Urbanization Review • Policy Option 3 – Option 1 and Reduction in Basic tax The application of assessment level was across the board rate from 1.5% to 1% (same assessment level from R1-R5). The percentage • Policy Option 4 – Reduction in the Assessment increase/tax impact is higher in R1-R3 (same with C1- Levels (Residential 10%, Commercial & Industrial 45%, C3) because higher valued properties register the most Agricultural 20%) and Reduction in Basic tax rate from increase in values based on market evidence. 1.5% to 1% Figure 2 illustrates the tax impact of the revised SMV on The adopted option (Option 3) involved: residential and commercial properties in Bayawan City. • Biggest reduction (60%) in assessment level was given Note that the higher valued properties (R1-3, and C1-3), are to residential properties. expected to shoulder a great proportion of the tax burden • Assessment level for agricultural properties was compared to properties that have lower values (R4-R6, C4- reduced by 40%; C6). The impact therefore is greater equity in sharing of tax • For commercial & industrial properties assessment liabilities. levels were reduced by 36%; • Lesser reduction was given to income generating properties. Table 2 Impact of the Proposed SMV on Residential and Commercial Properties’ Taxes, Bayawan City Source: Bayawan City Powerpoint Presentation to the TA Completion Report Workshop, September 28-29, 2015. Hotel Jen, Manila. Annexes 147 On DRRM and CCA, the workshop series have been On Land Tenure Improvement and OSS, the city continued completed, and thematic maps and overlay analyses its earlier SATM work, this time expanding to two teams. undertaken. These paved the way for the identiication By the end of September, Bayawan has covered six more of hazard risks and assessment of vulnerabilities, which barangays, bringing to 16, the total number of barangays revealed that looding pose the highest risk. With a one covered through titling. A total of 2,816 public land meter sea level rise scenario, it is expected that a large applications have been generated as a result, with 2,170 portion of the city’s existing built up area will be inundated. patents issued to date. The registration of patents has Thus, its updated CLUP called for the development of a new slowed down due to the computerization efort of the government center following the core plus ring spatial Registry of Deeds (RoD), which required the mandatory development strategy. Other elements of the CLUP consist projection of deeds at the Central Oice before these are of coastal development to also serve as seawall, expansion released. This process took an average of two months, of commercial area away from the lood prone zone, and compared to only a few days before the computerization the creation of new residential areas in upper barangays set in. In addition, landowners had to pay additional to minimize the impacts of looding. The strategy also Php 1,200 – 2,000 for computerization fee, which considered minimizing the conversion of existing counterbalanced the hard eforts made by the LGU and agricultural areas into residential and commercial zones, DENR to bring down the titling cost to minimum of Php so as not to compromise agricultural development and 150 and to simply annotate the survey cost on the title. livelihood of small farmers, who are mainly beneiciaries of agrarian reform. Copies of the plans produced by Bayawan City through the REGALA are shown in Figure 3. Figure 3 Plans Produced by Bayawan City Through REGALA247 247 Source: Bayawan City Powerpoint Presentation to the TA Completion Report Workshop, September 28-29, 2015. Hotel Jen, Manila. 148 Philippines Urbanization Review The City’s efort to operationalize the OSS encountered • Increase in RPT collection eiciency by 25% (from 43% further challenges, as it was realized that more funds in 2010 to 68% in 2014) due to improved detection would be needed to establish connectivity not only to of delinquencies, sending of notices/ tax campaign, the newly constructed building but to the entire New LGU-led land tenure improvement initiatives; Government Complex. To address this, the City plans to realign ts budget and re work the estimates given by the Engineering Oice to ensure the commissioning of OSS in • Increased budget allocation for socio economic 2016. The building was designed to house the Assessors development programs and services in 2011-2014 Oice, the DENR Community Environment and Natural (average of PhP 287 M or 48% of total budget); and Resources Oice (CENRO), and representatives from the Dumaguete RoD. • Sustained partnerships with NGAs particularly DENR on LTI – SATM work. The combined results and impacts of the above LAM interventions are as follows: In addition to the above, Bayawan City has been a frequent destination of other LGUs willing to learn more about their • Increased RPT collections by 38% (from Php 13.8 M in model of LAM governance. In Negros Oriental province, 2011 to Php 19 M in 2014) due to increased valuation the DENR has started to roll out the DENR-LGU LAM (2007 GR implemented), improved assessment and partnership using Bayawan City as the example. tax collection campaign; Figure 4 Revenue Impacts of LGU led LAM Reforms Bayawan City, 2010-2014248 248 Source: Bayawan City Powerpoint Presentation to the TA Completion Report Workshop, September 28-29, 2015. Hotel Jen, Manila. Annexes 149 Legazpi City The approved SMV ordinance also provided for the gradual application of the assessed values. About 50% shall be This LGU is also a recipient of LAMP2 ISF and REGALA implemented for the irst three years (2017-2019), and the support. Under the second phase, it expanded its LAM remaining 50% for the next three years (2020-2022). Steering Committee to include the regional oices of BLGF, BIR, DILG, NEDA and HLURB. In addition, it created an IT The city’s area master planning was designed to Division under the City Management Oice to handle the delect development concentration from locating in growing information systems need of the LGU. environmentally critical areas, in order to achieve the vision speciied in the CLUP – “a new city center with richness of It continued the operations and maintenance of its LAM open public spaces and parks”. Legazpi is exposed to many system through the enhanced eTRACS, as well as the build forms of hazards and risks – volcanic eruption, looding, up of digital cadastral database at DENR for the Legazpi erosion, and earthquake. Two areas were subjected to cadastre. It should be noted that the DENR records for the master planning: (i) greenield development which involves city is not complete due to misplaced records, as well as eight barangays covering an area of 5,145 hectares; with a missing cadastral and subdivision plans. These information total population of 9,500 households; and (ii) brownield are being used to develop more attribute layers for risk redevelopment in 45 urban barangays covering an area mapping, tax mapping and land use planning. of approximately 2,000 hectares. These areas are subject to geological hazards (liquefaction, ground subsidence), and impacts of climate change (storm surges, looding Legazpi city’s revised schedule of market values was and tsunami). The Terms of Reference (TOR) for area master approved by the Council through City Ordinance No. planning was presented to the Mayor and the Legazpi 0021-2014 dated 28 November 2014. Currently, there are City Planning and Development Council (LCPDC) in July ongoing general revision activities at the City Assessor’s 2015 and subsequently endorsed for inclusion in the City Oice, with efectiveness targeted in 2016. (Tax efectivity Medium Term Public Investment Plan (MTPIP) and Annual of new values in Jan. 2017) Investment Plan (AIP). From the 2008 Revenue Code of Legazpi, they further Legazpi city’s land tenure improvement planning produced reduced the assessment levels of residential lands from land tenure and titling status in two pilot barangays with 15% to 8%, commercial lands from 40% to 15% and information on delinquencies, gender, land use, land values, agricultural lands from 30% to 5%; while maintaining the tenure and titling status and transactions. A Technical 1.5% basic real property tax for residential and agricultural Working Group (TWG) on Land Tenure Improvement, lands, buildings and other structures, and 2% basic RPT created through an Executive Order serves as the main unit for industrial and commercial lands, buildings and other responsible for this activity. structures as well as on mineral lands, timberlands, special classes of real properties and machineries. 150 Philippines Urbanization Review The following results and impacts were seen from the work increase, while business taxes and fees increased by of Legazpi over years of interventions from LAMP2 ISF to an annual average of 10% (Figure 5). As a result, the REGALA 2: IRA dependency of Legazpi city declined from 65:35 in 2011 to 60:40 in 2014 (Figure 6). • Continued increases in city revenues from land tax and LAM agency service provision as a result of utilizing • Reduction in time and cost to deliver LAM services, LAM technology to automate tax assessment and most notably in the issuance of new tax declaration collection (ETRACS) & to support risk assessment, land from average of two days to two hours. This was use planning, & socio-economic development (GIS) brought about by utilization of LAM technology to and LAM inter-agency coordination and collaboration. automate tax assessment and collection (ETRACS) From 2011-2014, there was a 4% average annual Figure 5 Local Revenue Collection Trends in Legazpi City, 2011-2014249 249 Source: Legazpi City powerpoint presentation to the TA Completion Report. Sept 28-29, 2015. Hotel Jen, Manila. Annexes 151 Figure 6 Share of Local Revenues to Total Revenues, Legazpi City, 2011-2014 A notable achievement of Legazpi is its contribution in of the recipient. The City of Legazpi on the other hand, the replication of LAM technologies to other LGUs in the provide training and subsequent visits to provide coaching region. The success of Legazpi has motivated the provinces to provincial staf on installation and operation of basic e of Masbate and Catanduanes to seek their technical TRACS. The requesting province shoulder transportation, assistance in installing similar systems in their LGUs. It acommodation and honoraria to Legazpi staf during may be recalled that towards the end of ISF, Ligao city was such visits, following the Budget Circular issued by the also a recipient of technical assistance from Legazpi in Department of Budget and Management (DBM). Coaching training and installation of the basic version of eTRACS. The sessions are scheduled based on availability of Resource modality is to forge a MOA between the province and the Persons from Legazpi City. city of Legazpi, which speciies the tasks and obligations worldbank.org/philippines/urbanization