Notes

players not only in developed countries but in many developing ones. The pandemic crisis has underscored the need to develop services where the private sector can contribute.

Woetzel and Bouton (2020) discuss the main impediments and corrective measures needed to activate private capital: cities need a robust and transparent pipeline of well-prepared, bankable projects—even many national governments lack such pipelines (see IMF 2020); there is a need for stable and predictable policy and regulatory frameworks; cities need to adopt sustainable tariff policies and systems; cities need to apply market-conforming subsidization (for example, using vouchers instead of subsidized tariffs); and finally, smart city solutions can be profitable ventures for private companies. “Cities need to identify those areas where city agencies can step back and make room for other players to provide both capital and expertise” (Woetzel and Bouton 2020, 4).

Cities sometimes fail to understand and manage funding and financial structuring options, as explained in a C40 brief (Lindfield and Teipelke 2019).5 Misconceptions blind many mayors when positioning pipeline projects; some say that if a project is good enough for the market, then the city should develop and profit from it, so they like to propose nonprofitable or problem projects to private investors. Furthermore, local governments in developing countries often lack the capacity to assess the relative benefits of financing and funding options and to select appropriate ways of funding the development and/or operation of infrastructure. Many rely on unsolicited offers of private agents who may aim only to sell technology rather than partnering with the city. Such risk could have substantial downsides as the postpandemic restructuring scales up.

Advanced financing and risk-mitigating instruments are quite complicated, and for this reason city leaders may not consider them among options. Local governments need to clearly understand the differences among financing instruments and funding options, that is, the sources of money required to pay back private financing and cover costs of operation. An IFC study (Kochanov, Hong, and Mutambatsere 2020) found that in emerging markets fewer than 100 of the largest 500 cities have local borrowing capacity. The other 400 have low ability to access debt through capital markets without credit enhancements. Furthermore, private financing requires a good reputation for transparency, that is, disclosing budget plans and financial statements in a market-conforming format and making these accessible online. Makueni County, Kenya, offers a great example that transparency is possible in developing countries (figure 11.2 and figure 11.3 in part II). Donors need to help local governments understand and operationalize advanced funding options—beyond user fees—including landbased financing such as land pooling, air rights, development charges, or value-capture tools (Lindfield and Teipelke 2019; Kaganova 2020).

NOTES

1. Infrastructure deficit due to the pandemic is defined as the volume of development project expenses that were planned and realistically expected to be completed but were delayed, postponed, or cancelled because of funding shortages or other restrictions in the pandemic. 2. This is a tiny fraction of the over 40,000 articles published on COVID-19 in eight months of the pandemic. One can say that cities have not yet attracted significant attention to related financial issues (Sharifi and Khavarian-Garmsir 2020). 3. Less than half of the 63 countries that have completed the Public Investment Management

Assessment were found to have adopted investment project pipelines (IMF 2020).