Deputy Minister of International Development Mr. Olav Kjørven

The fight against urban poverty - Norwegian policies and strategies

The Challenges of Urban Poverty and Slum Eradication, A National Conference, Oslo, 11 February 2004

Friends and colleagues,

The Greek philosopher Plato once warned that the income of the rich should not exceed the income of the poor by more than five times. Any more than that would lead to inefficiency and instability, and ultimately to "the greatest social evil": civil war.

If his advice had been heeded, we would have had no need for our conference here today. We would not have had huge cities made up of shacks and open sewers, no "favelas" or "focos insalubres" or slums, no destitute people forced to get by on a daily diet of poverty and humiliation in urban areas all over the world.

But we do.

Up to one-third of the world's urban population live in slums. In 2001 more than 70 per cent of the population in the least developed countries, and of the sub-Saharan urban population, lived in slums. Nairobi is a case in point. Sixty per cent of the population live in slum areas - without adequate sanitation, without convenient water sources, without health facilities. Hundreds of millions live like that - in Manila, in Rio de Janeiro, in New Delhi, in large cities all over the developing world.

No wonder, then, that, world-wide, 6 000 people die every day - every day! - from water-borne diseases.

In spite of all this, people are moving to the cities in droves. In 1950, two-thirds of the world’s population lived in the countryside. By 2030, 26 years from now, we can expect two-thirds to live in urban areas.

Over the next decade, 100 million people will move to the cities of Africa, and 340 million to the cities of Asia. (The Economist, 9.5.02)

Nearly all of these new city dwellers will be poor. We have seen it already, but we will see even more in the years to come: "the urbanisation of poverty", a new geography, on the margins of the map of globalisation.

Globalisation has created a hierarchy of cities in the developing world, where some manufacturing hubs and port cities that used to be important are now in decline, while other cities are thriving. The cities in decline are outside the major processes taking place in the new global economy, unable to generate the economic growth they so sorely need.

And within cities, trends are no less worrying: metropolitan downtown areas thrive on massive investments in telecommunications and real estate, while the suburbs are starved of resources. This leads to more inequality, more poverty - and those who already had little get even less.

Research shows that decreasing inequality can have as much impact on reducing poverty as increasing economic growth. In order to fight poverty, in order to reach the ambitious Millennium Development Goals that we have set through the UN, we must focus on equity as well as economic growth. This requires attention and action from all of us. And it is about more than just improving distribution of income and availability of services. It is also about empowerment in a more political sense, and about "expanding people’s freedoms".

Norway does not have a separate strategy for urban development, but we included urban development perspectives in the action plan for combating poverty presented by the government in 2002. The white paper on development scheduled for release this spring will have more to say on urban development issues. Let me highlight some of these:

Poverty must be addressed on a broad basis

Poverty is a problem that needs to be tackled on all levels - from the household to the global level. Thus, when developing strategies to improve access to city services by the urban poor, we must look beyond the dichotomy of " rural" and " urban". Such strategies must be cross-sectoral; they must be set within the broader frameworks of national poverty reduction strategies. And in their turn, these poverty reduction strategies must be closely linked to strategies for improving international terms of trade, increasing private capital investment, and facilitating transfers of technology.

Good governance matters

Slums and squatter settlements are there for a reason - they are the products of failed policies, bad governance, corruption, inappropriate regulation, dysfunctional land markets and unresponsive financial systems. When democracy and civil society are weak, the urban poor are particularly vulnerable.

We know that governance strategies relying on market mechanisms alone ultimately fail to help the poor. Urban quality of life depends on the capacity of states and municipalities to perform as public institutions. The state, in partnership with local government, must create an enabling legal and regulatory environment, capable of ensuring that collective goods and services are provided broadly. The national government bears the main responsibility - but it needs assistance from the international community.

The role of civil society

In its efforts to deliver the goods and services the population needs, in its quest for good governance, the state must recognise the importance of civil society. Good governance depends on communities and civil society groups – citizens, really – working together with governments to promote a common agenda. The challenge is to involve the people for whom the slum eradication policies are made in the policy process. Young and old, men and women, poor and poorer - their voices must be heard. They are the ones who experience the problems - and who will experience the solutions. We need broad-based, long-term partnerships where the poor are included as equal players, and where the decisive role of women is recognised.

Civil society plays an important role in Norwegian development co-operation. It will become even more important in the years to come.

The Cities Alliance is only one example of a partnership that has received substantial Norwegian funding since its inception. The alliance, created in 1999, promotes good governance, city development and slum upgrading programmes, and provides a forum of cooperation for big cities in the developing world and their bilateral and multilateral development partners. Norway sees the Cities Alliance as an important future partner.

The might of microcredit

Next year, 2005, has been designated as "the International Year of Microcredit" by the United Nations.

Microcredit has proved to be a powerful instrument for lifting people out of poverty both in urban and in rural areas. Research indicates that micro-finance can be a significant factor in female empowerment and that it has significantly strengthened the resilience of the poor when faced with a calamity – be it economic crisis or natural disaster.

One of the premises that rural and urban microfinance is based on is that equality is good for the poor, and that policies should be explicitly aimed at raising the income of the poor at a faster rate than the income of the rich. The problem is that the poor become locked into "poor markets", essentially trading with each other at low levels of income and expenditure. The challenge is to link the poor to richer markets where they can retain a larger share of the profit.

Microcredit was first developed in Bangladesh by Grameen Bank, founded and led by professor Yunus since the early 1980s. Both Norway and Sweden supported Grameen from the early days.

In a recent evaluation report it was termed "... the most successful aid intervention of the entire 50 year old development era" ( Econ, 1998). It is a model that has been transferred, transformed and applied in every country of the world - rich or poor. Norway will continue to give support in this key area.

We are currently looking at some very promising new options. In Uganda, for example, the Confederation of Norwegian Business and Industry is examining the possibility of combining microfinance with the provision of affordable housing, including adequate water and sanitation facilities. The partners might include Norwegian and local financial institutions, Norwegian housing technology firms and Ugandan production facilities.

This could be an excellent opportunity to promote Norwegian and Ugandan industrial co-operation – co-operation that goes beyond aid, to joint ventures and trade.

The importance of property rights

In most developing countries the poor lack formalized, secure ownership of economic assets. This is a main obstacle for poverty reduction and development, particularly in urban areas. Property rights are key here, with regards to housing, land and economic activity. Let me give you an example.

Imagine that you own and run a small, one-person garment factory in the slums of Lima, Sao Paulo or Karachi. The business is yours, you inherited it from your father, you have run it with some success for a number of years, working long hours every day.

Yet, at any given time, the local police may descend on you and threaten to close your shop. You have no title to the building, no papers showing that you own the business - you are outside the rule of law, you have no protection. Your choices are few: bribe the police so they will leave you in peace for a while, or give up your only means of income.

About 80 per cent of the population in developing and post-communist countries make their living in the "shadow economy". Their assets are not recognised, their businesses are not registered. Since they cannot prove that they own buildings, land or businesses, they cannot borrow money or take part in the regular, open economy. They have insecure rights, and few alternatives.

I visited Egypt last month, and learned that 64 per cent of all real estate is "extralegally held" - part of the "shadow economy". One hundred and thirty-two laws and regulations govern real estate ownership, and they are enforced by 44 different public entities. It takes up to 198 days to register transactions at the Real Estate Public Registry.

And Egypt is not alone in this. In Brazil it takes 152 days to register a business, in Indonesia 168, and in Haiti 203. And the fees are more often than not exorbitant, out of reach for all but the most successful businesses.

Small wonder, then, that many opt for staying where they are - in the informal sector.

What can be done?

The Peruvian economist Dr Hernando de Soto has studied the problem and suggested remedies. When he started his research in Lima in 1983, he found that if he wanted to register a one-man business through official channels, it would take 289 days and cost 1200 dollars - the equivalent of three years’ income from the business. Obviously, this was not an option for the average slum dweller.

Peru has made considerable progress since then. The government has made great strides in formalising property and user rights, for individuals and for groups. A 20 million dollar project has granted formal ownership to 6.3 million Peruvians, and increased their income by 3.2 million dollars. 380 000 small businesses, now with all their papers in order, have been able to generate 560 000 new jobs and 300 million dollars in new revenue. And an added bonus: this process has cut back child labour by 28 per cent.

De Soto and his research have forced the question of property rights onto the international development agenda. His view is that formalisation of rights to property and business is a key to economic development and a precondition for participation in a globalised world. The reason is simple: capital is only worth something when it can be traded on the open market - when it is part of an open, official and recognised system.

If the slum business owner has official papers for his house and his shop, new options will open up. He or she can go to the local bank and secure a loan for expanding or improving his business, or sell the whole thing for a decent price. Blackmail and corruption become less of an option for local officials. A door is opened to a world where life can be improved - perhaps for the current generation, and certainly for the next.

The Norwegian government is promoting and supporting such a comprehensive approach to formalisation, which are often referred to as the "de Soto agenda".

The purpose of this agenda is to make the rule of law accessible for the poor; to assist governments to analyse existing formal and informal legal codes, see how these affect the poor, and on this basis promote legal structural reforms and participation of the poor. This is a key to empowerment and economic growth.

The "de Soto agenda" is now being endorsed and promoted by a number of leading politicians in developing countries, ranging from Mexico to Egypt, from Sri Lanka to Nigeria and South Africa. In Tanzania, the government has initiated a process where Norwegian institutions have been invited to participate. Norwegian support for processes like these will increase in the years to come, provided the commitment and interest from our partner countries is sustained.

End

The UN Commission on Sustainable Development’s focus on human settlements, water and sanitation issues is an important way of improving the lives of millions of slum dwellers. The Millennium Development Goals have given us a road map for poverty eradication, and are proof that there is a will in the international community to do something about the poverty problem.

We have found the will, but we are still struggling to find the way.

We - governments, the private sector, NGOs and the public alike - need to recognise that there are certain things we cannot do without in the fight against poverty: more resources, better governance, a partnership with civil society and the private sector, arenas for the voice of the poor.

In my view, formalization of secure rights to economic assets is an essential part of the "winning formula".

The "shadow economy" must be brought into the light of day. It is hard to see how we can reach our ambitious goals on poverty without tackling this issue. Stability and predictability are key conditions for economic growth and progress.

Take the area of water and sanitation, where enormous investments will be needed, both from public and private sources. Is it likely that this can happen, at the level we are talking about, without tackling informality at the same time? Would you invest scarce resources in services to people that do not have an address?

And taking it from the perspective of the intended beneficiaries of these and other services: Through the recognition of property rights, their incentives to take action at the community level, in order to get the services they want and need, would greatly increase, as would their incentives, and even capacity, to generate their own resources for the same purposes.

This is not just wishful thinking. This is precisely what has taken place in country after country where these problems have been solved successfully - including this one, something we tend to forget. I think we need to focus much more sharply on formalization and rule of law, as part and parcel of the Millennium Agenda, as part of the strategy for reaching the Millennium Development Goals. This is not a substitute for focusing on resources. It is a key addition.

Norway intends to be a vocal advocate in this area. And we consider the CSD to be an excellent opportunity for bringing this perspective up on the international agenda.

Thank you.