cdpr

Policy Brief PB1502 Cities March 2015

Addressing Urbanization
admin@cdpr.org.pk

Challenges
+924235778180

About the project This policy brief has been written by Shehryar Nabi, that is
www.cdpr.org.pk.

based on research by Umair Javed (LUMS, CDPR), Dr.

Funded by: DFID Husnain Fateh (LUMS) and Sohaib Athar (IGC). Overall
guidance was provided by Dr. Ijaz Nabi (CDPR).
Key Counterpart: DFID

Impact: Provided a Political

Economy Analysis (PEA) on
urban development with a list
of opening interventions for
urban development (with
private sector development).
In brief
Ÿ The cost-reducing mechanism that makes cities
attractive centers of industry and commerce is known as
the “agglomeration effect”.
Ÿ Pakistan has South Asia's highest proportion of urban
residents.
Ÿ Challenges to successful urbanization include
suboptimal opportunities for employment and housing
and inadequate transportation facilities.
Urbanization and Economic Growth in Pakistan country’s GDP. While, in Indonesia, 44 percent of
the population lives in cities and contributes
The trajectories of rapidly developing countries more than 60 percent of GDP.
suggest that urbanization and economic growth
come in a package. Brazil, with an urban Figure 1: Manufacturing Employment in Pakistan
population of 84 percent in 2010, has
experienced many episodes of rapid economic
growth. In the same year, almost half of fast
growing China’s population lived in cities, an
increase of more than 20 percent since 1991.

The cost-reducing mechanism that makes cities

attractive centers of industry and commerce is
known as the “agglomeration effect”. Firms,
workers and financiers living in close proximity in
cities help lower the cost of production.
Agglomeration is important for economic
growth because it facilitates the growth of new
firms thus encouraging entrepreneurship and
new ideas.

Pakistan has South Asia’s highest proportion of

urban residents. By 2030, an expected 50
percent of Pakistanis will live in cities, up from the
current 40 percent. Pakistani cities contribute 55
percent of the country’s total GDP spanning
manufacturing, retail, wholesale trade,
construction and transport. Pakistani cities are expanding without sufficient
planning, leading to poor infrastructure,
Urbanization in Pakistan occurs largely through inefficient public services and unaffordable
migration from low-income rural areas. Most of housing. This has prevented the realization of
the migration occurs within provinces. In 2011, agglomeration benefits in terms of lower
movement inside provinces accounted for 80 production costs, growth of entrepreneurship
percent of urban migration in Punjab, 58 and creation of much needed jobs. Without a
percent in Baluchistan and 56 percent in both sound policy for urban development, Pakistan is
Sindh and Khyber Pakhtunkhwa (KPK). Inter-city being denied the full economic and social
migration is a rising trend in Baluchistan and advantages cities offer.
Sindh, while rural to urban migration continues to
be the pre-eminent method of urbanization in Challenges to Successful Urbanization
Punjab and KPK.
Urban Employment
Migration to cities from politically unstable
regions has contributed significantly to Only 40 percent of urban residents participate in
Pakistan’s urban population over the last 30 the labor force, and women are
years. Almost 5 million people moved to cities to disproportionately underrepresented at 10
escape multiple conflicts in Afghanistan and percent. The overall unemployment rate is
Pakistan’s military campaign in KPK and the almost 9 percent. With 65 percent of citizens
Federally Administered Tribal Areas (FATA). under the age of thirty, Pakistan has a large
“youth bulge” This requires nearly one million
Agglomeration in Punjab particularly has additional jobs every year for fresh entrants into
unfolded along the lines predicted by theory. It is the labor market. Cities are currently not
more evident in the form of localization positioned to meet this challenge. If cities
economies, in which benefits are received due continue to operate with low levels of
to interactions within industries and the sharing employment and poor service delivery, a class
of inputs. Hubs of economic activity have of disaffected youth could emerge as a
proliferated around cities within the Lahore- precursor to political and social strife.
Faisalabad-Sialkot-Gujranwala corridor, and
urban areas in Punjab contribute 25 to 33 Transportation
percent of Pakistan’s total GDP (Figure 1).
Low use of public transport and increasing
Given Pakistan’s level of urbanization, the private vehicle ownership has worsened traffic in
economy could be performing much better. Pakistani cities, increased congestion and raised
India has 30 percent of the total population production costs. The volume of traffic is
living in cities, which provides 58 percent of the increasing nationally by 8 percent every year.
Even in the most developed cities such as inadequate sanitation costs Pakistan nearly 4
Karachi and Lahore, only 23 percentand 16 percent of its GDP.
percent of trips respectively are made on public
transport. Without sufficient investment in public Manufacturing activity
Transport to accommodate urban expansion,
the stress on existing transport infrastructure will Urban job creation requires rapid growth in
intensify. manufacturing activity that creates sustained
demand for workers across a range of skills. It is
Inadequate public transport also adds to the not encouraging that the share of
existing problem of unemployment in Pakistani manufacturing in GDP has stagnated as have
cities, because it makes centers of employment manufactured exports. Poor urban services are
harder to access for labor. partly to blame for this. The disincentives to
investment in long gestation manufacturing
Housing projects also stem from exchange rate, trade,
fiscal and energy pricing policies that would
Demand for urban housing is exceeding what need to be revisited.
both the private and public sectors have been
able to provide. In 2014, there was a shortage of Recent Developments
10 million homes, mostly reflecting the low-
income market. An estimated 47 percent of the Urban policy is becoming increasingly visible in
country’s urban population lives in squatter the national development agenda. The role of
settlements, where low-income residents pay cities as drivers of high growth was central to the
high premiums to live in what are often squalid Planning Commission of Pakistan’s New
conditions. This is illustrated by the fact that in Framework for Economic Growth, formulated in
Karachi, rent prices in relation to median income 2011. The current government has continued to
are high by international standards (see Table 1). emphasize the importance of urbanization. Its
The problem is even bigger in the five largest Vision 2025 strategy cites legal reform for zoning,
cities in Pakistan, which are predicted to commercialization, taxation and improved
account for 78 percent of the total housing urban infrastructure as the foundation for high-
shortage by 2035, if current trends continue. growth urbanization. The Punjab Growth
Strategy 2018 also supports dense urban centers
Table 1: Comparison of Home Ownership and to attract investment and boost productivity.
Rental Cost
An early sign of policy put into action in Punjab
was the government’s establishment of the Bus
Rapid Transit (BRT) Line in Lahore. An average of
150,000 passengers ride the transit line every
day. Another BRT line has been established in
Islamabad and Rawalpindi, and more are being
planned for Faisalabad, Multan and Lahore. The
BRT has made job centers more accessible to
labour, and in turn has increased the pool of
labour available to employers.

Lahore in particular has seen efforts to improve

municipal delivery of services through the
establishment of the Lahore Waste
Management Company, the Lahore Transport
Company and the Lahore Parking Company.
Establishment of similar companies is also
planned in other large cities in Punjab.

To enhance revenue generation, the Punjab

government is digitally mapping cities for a more
precise tax assessment. It is also working with
Water and Sanitation economists from Harvard University, the
Massachusetts Institute of Technology and the
Water is supplied for only 4 to 16 hours a day in International Growth Centre to incentivize
most cities. Untreated wastewater deposits property tax inspectors. The establishment of the
chemicals into natural bodies of water. Poor Punjab Revenue Authority has increased
municipal service delivery has undermined the collection of sales tax on services.
quality of sanitation in urban areas. Solid waste is
often placed in low-quality dumps and Recent events have also demonstrated the
waterways. The World Bank estimates that increasing political importance of cities.
The emergence of the Pakistan Tehreek-e-Insaaf ownership rights of multiple residents. Officially
(PTI), as the second largest political party in recognize and provide secure tenure to informal
Punjab, sprung from the province’s urban urban settlements and improve the services; this
centers. This has promoted political competition will increase collateral value of houses for
between PML (N) and PTI, and increased financial transactions.
urgency to respond to the demand for better
public services and job creation. Improve management of state land. Release
unproductive state land for better uses, such as
Proposed Interventions low-income housing, commercial
development, office buildings, recreational
Governance reform spaces and community centers.

Strengthen local government: Low-tiered Industrial Development

government bodies can deliver local services
more effectively than centralized Adopt a comprehensive strategy for sustained
administrations. Transfer authority of specialized industrialization and productive urban jobs.
agencies in areas such as waste management, Allocate land to promote industry. Rezone
sanitation and transport from provincial industrial areas so that industrial expansion can
governments to local governments. occur without procedural impediments.
Additionally, establish industrial estates with fully
Facilitate provision of services within and across equipped facilities (water, sanitation, waste
jurisdictions. Update city boundaries to water treatment, power and security).
accurately define jurisdictions. Set up central
coordinating committees of service delivery Adopt regional planning. Organizing at the
agencies to respond to the newly defined regional level will integrate housing, education
jurisdictions. and commercial development with transport
networks and will promote broad-based,
Introduce staff trainings, better performance balanced growth.
incentives and modern technologies. Together,
these actions will improve the functioning of Transportation
smaller cities and towns.
Bolster public transport by bus. Invest in Rapid
Commercialization, Private Sector Investment, Bus Transit routes with both public and private
and Affordable Housing funding in all major cities and incentivize the
private sector to increase the number of
Promote vibrant land markets. Modernize land available buses in Pakistani cities.
recording systems to reduce the costs of
property registration and reduce processing Revenue reform
times and fees to convert residential areas into
commercial areas. Improve property tax collection. Update
valuation tables regularly, lower high tax
Increase access to housing through better Land differentials between owner-occupied and
management. Promote a Mixed Land Use rental property.
classification in zoning and highly dense
transportation nodes to increase the access of Dynamic tax policy. While designing tax on
rental housing for lower income residents. services, strike the right balance between the
Promote the principles of multiple ownership objectives of increased tax collection and
and condominium development to secure the incentivizing firm growth.