Report No. 87180-TR Rise of the An toli n Ti ers Turke Urb ni tion Review Soci l, Urb n, Rur l, Resilience Glob l Pr ctice Group The World B nk April 2015 tepav türkiye ekonomi politikaları araştırma vakfı Report No. 87180-TR Rise of the An toli n Ti ers Turke Urb ni tion Review Soci l, Urb n, Rur l, Resilience Glob l Pr ctice Group The World B nk April 2015 I Rise of the Anatolian Tigers - Turkey Urbanization Review © 2015 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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II TABLE of CONTENTS ACKNOWLEDGEMENTS X FOREWORD XI Executive Summary 1 Chapter 1: Enabling a System of Cities for National Growth 9 The Magnitude and Pace of Turkey’s Urbanization 9 Placing Turkey in the Context of Global Urbanization Trends 12 The Economic Vocation of Cities 13 Lessons from Turkey’s System of Cities 16 Developing a System of Cities: The Metropolitan Municipality Law 17 Connecting the Hinterland: Early Infrastructure and Settlement Planning 19 Addressing Regional Inequities: Targeted Provision of Municipal Services in Small Rural Towns & Engaging with the Private Sector in Advanced Cities 20 Managing Rural-Urban Migration: A Permissive Policy Stance on Informal Settlements 21 Meeting Housing Needs: Social Housing and Evolution of the TOKI Model 23 Chapter 2: City Competitiveness 25 Urban Density as Contributor to Agglomeration Economies 32 The Importance of Human Capital to City Competitiveness 36 The Importance of Connectivity to City Competitiveness 39 Key Findings and Policy Recommendations 40 Chapter 3: Improving Access to Affordable Housing in Turkish Cities 41 Identifying the Vulnerabilities of the Housing Sector in Turkey 44 Vulnerability 1: Affordability 46 Vulnerability 2: Legal Rights 52 Vulnerability 3: Access to Housing Finance 52 Vulnerability 4: Supporting Infrastructure 54 Vulnerability 5: Opportunities for Income 58 Priorities for Policy 58 Coordinating Land Use Planning with Infrastructure Provision and Risk Mitigation 61 Creating Institutions for Valuation 62 Continuing Efforts in Opening Financial Markets and Increasing Credit Availability 66 Chapter 4: Why Urban Transport Matters in Turkish Cities? 67 Trends in Urban Transport in Turkey 67 Cost of Doing Nothing 69 Priority 1 – Rethinking Urban Transport Planning 72 Narrowing Gaps between Laws and Practice 72 Building an Institutional Basis for Successful Planning 73 Integrating Land-Use and Transport Planning 76 III Rise of the Anatolian Tigers - Turkey Urbanization Review Priority 2 – Make Best Use of Limited Financial Resources 77 Maximizing Value-for-Money of Capital Investments 77 Mass Transit Systems 77 Urban Road Networks 79 Improving Operating Efficiency of Public Transport Services 80 Maintaining Transport Infrastructure Assets 81 Priority 3 – Provide Mobility for People, not Automobiles 82 Traffic Management as a Centerpiece of Transport Policy 82 Parking as a Demand Management Tool 83 Transport for Livable Cities 84 Priority 4 – Create a National Framework for Sustainable Urban Mobility Systems 87 Developing a National Policy for Urban Transport 87 Providing Incentives for Reforms and Investments 88 Chapter 5: Financing Cities in Turkey 91 Municipal Responsibilities and Expenditures 95 Municipal Revenues - Scope and Composition 96 Municipal Revenues 96 Own-source Revenues 98 Taxes, Fees and Charges 100 Capital Revenues and Land-based Financing 101 Potential for Boosting Own-Source Revenues 103 Intergovermental Fiscal Transfer 105 Infrastructure Finance Framework 107 Main Financing Sources and Entities 108 The Public Investment Program 109 The Role of Iller Bank in Development Finance 111 Central Government Oversight 113 Municipal Borrowing and Indebtedness 113 The Framework for Borrowing 114 The Debt Stock and Composition 114 Policy Priorities 116 Chapter 6: Inter-agency Coordination to Support Turkish Cities 121 Coordination Mechanisms 126 National Policy Focus on Cities 127 Coordinating across Administrative Tiers 129 Coordinating across Sectors 130 Streamlining and Coordinating Data Collection and Monitoring 132 Conclusions and Policy Recommendations 133 References 138 IV LIST of FIGURES Figure 1: Average Urban Area Population Size Comparison for Turkey and 26 EU Countries 9 Figure 2: Growth in Share of Urban Population in Turkey and Comparator Countries (1950-2015) 10 Figure 3: Zipf’s City Rank-Size Power Law 11 Figure 4: Global Mapping of Country Performance in Urbanization Rate and GDP per capita Change 14 Figure 5: Share of Total Population for Selected Cities in 2000 and 2012 15 Figure 6: Gross Value Added by Nuts 2 Region, 2004-11 16 Figure 7: Water Supply and Sanitation Service Pricing and Domestic Consumption per Capita in Turkey and Comparator Countries 17 Figure 8: Development of Railways and Population Concentrations in Turkey in 2000 19 Figure 9: Turkey Substantially Expanded Public Expenditures on Water, Wastewater and Solid Waste Infrastructure between 2003 and 2008 20 Figure 10: Turkey’s Water and Sanitation Service Coverage (1991-2011) 22 Figure 11. Average Number of Firms per Inhabitant 26 Figure 12: Spatial Distribution of Firms Established through 2006 28 Figure 13: Spatial Distribution of Firms Established between 2007 and 2012 28 Figure 14: Distribution of Firms Across City Sizes – by Sector 30 Figure 15: Average Employment per Inhabitant in and around Izmir 31 Figure 16: Population and Density in Turkish Cities 32 Figure 17: Inefficient urban expansion when land prices are distorted 33 Figure 18: Spatial Distribution of Firms – by Sectors 34 Figure 19: Average Growth Rate of Population in Metropolitan Municipalities by Geographical Area (2000-11) 35 Figure 20: Average Size of Firms (Old and New) 35 Figure 21: Simulated Number of Firms per District and Distance to City Center, for an average city and an average large city 35 Figure 22: Diversity and Average Ubiquity in Turkey’s Cities 36 Figure 23: Human Capital in Turkey 37 Figure 24. Human Capital across Turkey’s Cities 37 Figure 25: Human Capital and Distance to City Center 38 Figure 26: Spatial Distribution of National Expenditures on Education in 2001 and 2011 38 Figure 27: Transport as an Obstacle to Doing Business 39 Figure 28: Trends in urban population and housing needs for Turkey and its major urban agglomerations 42 Figure 29: Trend in housing starts to need ratio in Turkey 43 Figure 30. Trends in share of gross domestic savings and value addition in dwellings to GDP 44 V Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 31. The share of housing rent on total expenditure increased more for the poorest households between 2005 and 2009 46 Figure 32. Growth in rent, utilities and consumption between 2005 and 2009 47 Figure 33. The house price index and house rent index across Turkish cities 48 Figure 34: Trends in House Price and Cost Indices 48 Figure 35: Distribution of housing construction and occupancy licenses across producing sectors 51 Figure 36: Trend in Financial Sectors’ Performance in Turkey 53 Figure 37: Weekly trend in real interest rate and housing loan financing in Turkey 54 Figure 38. Hanoi presents an example of uncoordinated plans for housing and mas transport 55 Figure 39. Poorest households live in more vulnerable structures 58 Figure 40: Vehicle ownership growth much faster than GDP growth between $4,000-8,000 per capita 67 Figure 41: Annual growth rate of private car ownership compared to GDP per capita growth (2001-2010) 67 Figure 42: Relationship between GDP per capita and motorization rate, trends during 2003-2009 70 Figure 43: Relationship between motorization rate and road sector energy consumption, trends in selected countries during 2003-2009 70 Figure 44: Organizational Structure of Transportation-Related Functions of the Gaziantep Metropolitan Municipality 75 Figure 45: Organizational Structure of Transportation-Related Functions of the Eskisehir Metropolitan Municipality 75 Figure 46: International comparison of public transport mode: Capacity vs. Capital Costs 77 Figure 47: Sub-national expenditures in percent of GDP, 2010 91 Figure 48: Local Administration Sector Revenues and Expenditures 2007-2013 (TRL bn.) 92 Figure 49: Local Administration Sector Current Budget 2007-2013 93 Figure 50: Current Balance in percent of Budget Revenues 2006-2013 93 Figure 51:Sector Main Revenues 2006-2013 93 Figure 52: Share of NUTS-1 regions in percent of total municipal revenues 94 Figure 53: Per Capita Municipal Expenditures by Provinces in 2013 (TL) 94 Figure 54: Municipality Expenditures Breakdown 2013 96 Figure 55: LG Sector Revenues 2009, 2011, 2013 (TRL bn. and in percent) 96 Figure 56: Subnational Revenue Breakdown by Institution in 2006-2013 (TRL bn.) 97 Figure 57: Current Balance in percent of Budget Revenues 2006-2013 97 Figure 58: Local Administration Sector Own-source Revenues 2013 98 Figure 59: OSR in Percent of Budget Revenues Total 2006- 2013 99 Figure 60: Taxes and Fees in percent of OSR 2006-2013 99 Figure 61: Property Tax in percent of OSR 2006-2013 99 VI Figure 62: Taxes on property in percent of GDP, 2012 100 Figure 63: Municipality Fee Revenues 2013 100 Figure 64: Revenues, Balances, Expenditures 2006-2013 (TRL bn.) 106 Figure 65: Allocation of Transfers in 2013 (TRL bn. and %) 106 Figure 66: Share of local administrations in transfers, grants, and donations combined in 2013 (TRL bn.) 107 Figure 67: Stock of Infrastructure Debt TRL bn. and percent 2013 108 Figure 68: Local Administration PIP Program 2006-2011 110 Figure 69: Sub-National Public Investment Programs 2006-11 110 Figure 70: Iller Bank PIP Program 2006-2011 (TRL million) 111 Figure 71: Maturity Structure of Iller Bank Loans to Municipalities 2013 112 Figure 72: Subnational government debt, 2010 113 Figure 73: Subnational Debt Stock 2006-2013 115 Figure 74: Stock of Long Term Bank Credits 2006-13 (TRL bn.) 116 Figure 75: Stock of Short Term Bank Credits 2006-13 (TRL bn.) 116 Figure 76: Stock of Short Term Overdue or Postponed Taxes and Liabilities 2006-2013 TRL bn. 116 Figure 77:Range of Agencies Influencing Urban Development in Turkey 122 Figure 78: Population Trends in Selected UK and US Cities, 2000-2005 128 LIST of TABLES Table 1: Trend in Size Class of Urban Agglomerations in Turkey 11 Table 2: New firms in construction 30 Table 3: Provincial Export Performance and Access to Border Gates 39 Table 4: Granger causality Wald tests 43 Table 5. International evidence suggest that simplification of rules and regulations is possible 60 Table 6: Summary of Urban Transport Characteristics of Selected Turkish Cities 68 Table 7: Comparison of Selected Typical Rapid Transit Systems 78 Table 8: Criteria for Mass Transit Technology Selection used in China 79 Table 9: Assignment of Functions in Two-Tiered Governments 124 Table 10: Planning Tiers in Turkey 130 VII Rise of the Anatolian Tigers - Turkey Urbanization Review LIST of BOXES Box 1: Advancing from Turkey’s first generation to second generation urban development agenda 4 Box 2: A Historical Perspective on Urbanization 13 Box 3: A parametric analysis of the “metropolitan effect” 27 Box 4: Data and Level of Analysis 29 Box 5: Herfindahl-Hirschman Index - Measuring concentration of construction firms in Turkey 49 Box 6: Highlights of the new Law on the Transformation of Areas at Risk of Natural Hazards 57 Box 7: The value of safer structures 59 Box 8. Other countries are thinking about urban transformation and risk prevention 63 Box 9. Updating the Cadaster in Bogotá, Colombia 64 Box 10. Finland - clear and transparent institutions for land valuation 65 Box 11. Evaluating health costs of air pollution and road accidents 72 Box 12. Federal Urban Transport Agency in Brazil 89 Box 13: Leveraging Private Sector Participation for Municipal Solid Waste Services 125 VIII LIST of ABBREVIATIONS ABPRS Address-based Population Registration System LOWESS Locally Weighted Scatterplot Smoothing BEEPS Business Environment and Enterprise Performance Survey LPI Logistics Performance Index BELDES Project to Support the Infrastructure of Municipalities LRT Light Rail Transit BRICS Brazil, Russia, India, China and South Africa LUZ Large Urban Zone BRT Bus Rapid Transit MENA Middle East and North Africa CAPRA Probabilistic Risk Assessment Initiative MOD Ministry of Development CIT Corporate Income Tax MOEU Ministry of Environment and Urbanization CVM Contingent Valuation Method MOF Ministry of Finance DG IPOL Directorate General for Internal Policies MOFAL Ministry of Food, Agriculture and Livestock DRM Disaster Risk Management MTMC Ministry of Transport, Maritime and Communications EAAB Publicly-owned water company for Bogota NLS National Land Survey of Finland EBRD European Bank for Reconstruction and Development NMT Non-motorized traffic Empresa Brasileira de Transportes Urbanos (The Federal EBTU NUTS Nomenclature of Territorial Units for Statistics Government Agency for Urban Transport) EDI Electronic Data Interchange OECD The Organisation for Economic Co-operation and Development EGO Directorate General of Electricity, Gas and Bus OLS Ordinary Least Square EKB Government Owned Real Estate Bank OSR Own-source Revenues ESTRAM Eskisehir Light Rail Transit Company PER Public Expenditure Review EU European Union PIP Public Investment Program FAR Floor Area Ratio PIT Personal Income Tax FSI Floor Space Index PPP Purchasing Power Parity GAP Southeast Anatolia Project PT Public Transport GDP Gross Domestic Product RDP Reconstruction Development Program GFDRR Global Facility for Disaster Reduction and Recovery RICS Royal Institute of Chartered Surveyors GIS Geographic Information System ROA Return on Assets GLA Greater London Authority ROE Return on Equity GWI Global Water Intelligence SPA Special Purpose Administrations HBS Household Budget Survey SUKAP Water and Wastewater Project HHI Herfindahl-Hirschman Index TAKBIS Turkey’s Land Registry and Cadaster Information System IB İller Bank TBMM Grand National Assembly of Turkey ICLEI Local Administrations for Sustainability TEDAS Turkish Electricity Distribution Corporation ICT Information and Communication Technologies TKGM General Directorate of Land Registry and Cadastre IFI International Financial Institution TOBB The Union of Chambers and Commodity Exchanges of Turkey IPCU Istanbul Project Coordination Unit TOKI Housing Development Administration of Turkey ISKI Istanbul Water and Sewerage Administration TL Turkish Lira ITS Intelligent Transportation Systems TurkStat Turkish Statistical Institute KENTGES Integrated Urban Development Strategy and Action Plan UKOME Transport Coordination Center KOSTAT Korean Statistics UMTA Urban Mass Transportation Act KOYDES Small Villages Water and Sanitation Project UN United Nations KOTI Korea Transport Institute USDOT United States Department of Transport LFEPA London Fire and Emergency Planning Authority VAT Value Added Tax LA Local Administration VSL Value of a Statistical Life LN Natural Log WB The World Bank Loi d’Oreintation des Transports Interieurs (French Law for LOTI WDI World Development Indicators Orientation of National Transport) IX Rise of the Anatolian Tigers - Turkey Urbanization Review ACKNOWLEDGEMENTS Preparation of the Turkey Urbanization Review was led by Stephen Karam (TTL and Sustainable Development Program Leader) and benefitted from the written contributions and inputs from a team comprised of Somik Lall, Lead Urban Economist, GSURR; Nancy Lozano Gracia, Sr. Urban Economist, GSURR; Jung Eun Oh, Sr. Urban Transport Economist, GTIDR; Mihaly Kopanyi, Consultant, GSURR; and Marcel Ionescu-Heroiu, Sr. Social Development Specialist, GSURR. Other World Bank staff and consultants who made important contributions were Basab Dasgupta, Henry Jewell, Elif Ayhan, Ken Gwilliam, William Wiseman, Esra Arıkan and Ayberk Yilmaz. The team is grateful to Bilgen Kahraman for formatting the report and to Ulker Karamullaoglu and Elif Yukseker for technical support and for arranging the Discussion Note workshops and team missions. TEPAV, the Turkish Economic Policy Research Foundation, provided substantial data collection and analysis as inputs to the report. In particular, the following individuals are acknowledged for their valuable contributions: Emin Dedeoğlu, Emre Koyuncu, Tunga Köroğlu, Selçuk Sertesen, Esen Çağlar, Ozan Acar, Ülker Şener, and Aslı Çakın. The report was prepared under the overall guidance of Sumila Gulyani (Practice Manager, GSURR) and benefitted greatly from the guidance and advice of Martin Raiser, Country Director for Turkey and Indermit Gill, ECA Chief Economist. The Turkey Urbanization Review also benefitted from the guidance received from and discussions at several levels with key stakeholders in Turkey, including a series of Discussion Note Workshops hosted by TEPAV in which preliminary findings were presented and discussed, and valuable insights that enabled the team to focus the findings and correct misunderstandings. The workshops and meetings of key stakeholders included governmental agencies that contributed substantially to the analysis and findings: Ministry of Development (Spatial and Urban Development Department and Environment and Sustainable Development Departments in particular) initiated the request for the focus on the five major thematic areas that comprise this report, namely city competitiveness, housing markets, urban transport, municipal finance, and inter-agency coordination; Ministry of Environment and Urbanization’s Spatial Planning General Directorate and Infrastructure and Urban Transformation Services General Directorate provided substantial feedback on interim reports, participated in field visits together with the World Bank team, conducted discussions sessions, particularly on planning issues and land development legislation and practices. The team also benefitted from inputs and commentary from Non- Governmental Organizations and Think Tanks. In that regard, the team would especially like to express appreciation to Mr. Yusuf Işık, who provided detailed written comments on early drafts of the report. The World Bank would like to thank the many contributors to these discussions and wishes to acknowledge their benefit. The report also benefitted from peer review comments at various stages of preparation from Sameh Wahba (Practice Manager, GSURR), Dean Cira (Lead Urban Specialist, GSURR), Carlos Pineura (Program Leader, EASFP), Angelica Nunez (Sr. Urban Specialist, GSURR), and Mediha Agar (Senior Economist, ECSP4) who provided valuable guidance to the team at the concept note and decision meeting stages. Funding support was generously provided by the Private-Public Infrastructure Advisory Facility (PPIAF) and the Multidonor Trust Fund for Sustainable Urban Development without which this report could not have been produced. X FOREWORD 2008 marked the advent of what some term “the urban century”, the historically significant moment in which more than half of the world’s population resided in urban areas for the first time. This milestone was perhaps even more significant for cities in developing countries, which are expected to double in population from 2 to 4 billion people during the period 2000 to 2030. Indeed, in the coming decades many countries will transform into predominantly urban economies as the process of urbanization takes hold around the globe. Cities are often engines of growth and social progress, but rapid urbanization has not led to improved living standards everywhere. Managing well the process of rapid urban growth for many developing countries could mean the difference between improved livelihoods and development outcomes and declining living conditions and human welfare. For these late urbanizing countries, Turkey offers valuable lessons. Rather than resisting urbanization, Turkey embraced it. Indeed, Turkey has been able to harness the potential of urbanization by putting in place the public policies and regulatory elements to allow markets to work, yielding measurable economic and social gains, increasing per capita incomes, reducing poverty, scaling up the provision of housing, and achieving dramatic improvements in municipal service coverage. This book chronicles Turkey’s process of urbanization. It highlights critical policy measures and interventions taken in response to a doubling of Turkey’s urban population in the last 30 years. Prominent among these policy choices were the adoption of a metropolitan municipality regime that enabled more efficient management of growing cities; scaling up housing supply through state-brokered partnerships with the private sector; and the planning of human settlements and connective infrastructure that facilitated trade and commercial exchange across Turkey’s large land mass and with the rest of the world. Looking ahead, as Turkey aspires to reach high income status in the coming years its cities will undoubtedly need to play an important role. To do so, the report highlights critical challenges and policy measures necessary to promote sustainable cities, including greater national-local urban policy coordination, strengthened urban planning, investment in urban transport and mobility, and the promotion of social cohesion. And to ensure that Turkey’s cities become magnets for global talent and cauldrons of innovation, city planners and politicians will need to adjust to the increasing complexity of the modern urban economy. Here, Turkey would do well to learn from the experience of cities in the most advanced economies. As Jane Jacobs states in her book The Death and Life of Great American Cities, “cities have the capability of providing something for everybody, only because, and only when, they are created by everybody”. Martin Raiser Ede Jorge Ijjasz-Vasquez World Bank Country Director World Bank Senior Director for Turkey Social, Urban, Rural, Resilience Global Practice XI Rise of the Anatolian Tigers - Turkey Urbanization Review XII Executive Summary EXECUTIVE SUMMARY Introduction For developing countries in incipient and in- termediate stages of urbanization, Turkey of- Over the course of the last 70 years, Turkey fers important lessons. This report chronicles has experienced one of the most dramatic salient features of Turkey’s dramatic demo- and transformative urbanization experiences graphic and economic transformation over the of any country in the world. In the 1950s, de- second half of the last century up to the pres- spite concerted efforts by the relatively new ent day. Advancing from an incipient stage of Republic to promote industrialization and the urbanization in the 1950s to its current status concentration of population in urban areas in an advanced stage of urbanization, Turkey necessary to support it, Turkey still featured a provides a glimpse for many developing coun- largely agrarian economy with no more than tries of how this process took place, how it 25 percent of its population residing in urban managed to harness agglomeration econo- areas. Today, cities accommodate over 75 per- mies, how pressing housing needs were met cent of the country’s population and contrib- and infrastructure services delivered, includ- ute substantially to its industrially-competitive ing the policy and institutional adjustments economy. What distinguishes Turkey from that were needed to more effectively manage many other developing countries is the pace, urbanization. scale and geographical diversity of its spatial and economic transformation, and, perhaps Several factors contributed to Turkey’s more importantly, its ability to harness the growth-oriented and inclusive urbanization benefits of agglomeration economies that ac- process. First, Turkey allowed its markets to companied rural-urban migration. work: policies in the 1980s promoting eco- nomic liberalization attracted the flow of new Economic growth and urbanization are pre- domestic and foreign private investment that dicted to move in tandem, and Turkey’s ur- created a critical pull factor for rural migrants, banization experience clearly illustrates this enabling the convergence of production and principle in practice. As noted in the World consumption markets that promoted agglom- Development Report 2009 – Reshaping Eco- eration economies in Turkey’s cities. Second, nomic Geography -- no country has grown to a metropolitan municipality regime adopted in middle income status without urbanization, 1984 provided the administrative framework and none has grown to high income status necessary to effectively manage fast growing without vibrant cities. Turkey’s urbanization cities across their economic footprint. Third, a experience confirms this observation. With permissive tenure regime granted squatters on rapid urbanization came the concentration urban public land legal status that prompted of production and consumption markets that both households and host municipalities to contributed to Turkey’s productivity-enhanc- invest in their dwellings and neighborhood in- ing agglomeration economies. This is reflect- frastructure, avoiding the squalid conditions of ed in the structural shifts in Turkey’s economy slums prevalent in many other rapidly urban- during the peak period of urbanization (1960- izing developing countries. Fourth, efforts to 2013), in which the industrial share contri- scale up housing supply through state broker- bution to GDP rose from 17.6 percent to 27 ing services triggered a private sector response percent, while the service sector contribution that helped accelerate the expansion of hous- rose even more dramatically from just over 26 ing stock, while, on the demand side, mort- percent to nearly 64 percent. These structural gage-based finance was expanded, particularly shifts and productivity gains paid dividends for over the last decade, with extended maturities Turkish citizens over the last three decades, that allowed the housing sector to go down as per capita GDP more than doubled from market. Fifth, interventions through national $5,986 (1980) to $13,737 (2013). programs to support the expansion of access 1 Rise of the Anatolian Tigers - Turkey Urbanization Review to water, sanitation and other basic municipal the country’s second generation urban devel- services helped fiscally-constrained localities opment agenda. A salient feature of Turkey’s (particularly small municipalities, towns and urbanization experience to date has been its villages) meet national service coverage tar- inclusiveness and geographical reach over gets through the use of matching grant sub- time. The opportunity for rural migrants to sidies. Sixth, policies that promoted market- seek and find manufacturing and service sec- based pricing of municipal services helped tor jobs in Turkish cities not only fueled migra- attract private investment and partnerships to tion but helped the country record remarkable share the financial burden, while private sec- poverty reduction gains, most notably over the tor management know-how enabled innova- last decade. Much of the burden for creating tion and efficiency gains in service delivery. these new jobs and absorbing rural migrants has been borne by Turkey’s three primary cit- Despite Turkey’s impressive achievements in ies of Istanbul, Izmir, and the nation’s capital of harnessing urbanization as a driver of eco- Ankara. However, the last decade (2000-2010) nomic and social progress, Turkey’s challeng- has witnessed a rising share of urban growth in es in building livable and sustainable cities for the country’s secondary cities. Indeed, while a high income future are equally important. the share of Turkey’s urban population in Is- These challenges include improving coordina- tanbul, Izmir and Ankara has actually declined tion and urban planning to avoid inefficient during this period, cities like Bursa, Mersin, sprawl, developing urban renewal policies that Kocaeli, Kayseri, and Gaziantep, among oth- leverage commercial interest for wider social ers stretching across the Anatolian peninsula, gains, ensuring the environmental footprint of have captured a larger share of new urban mi- growing cities is contained, and creating an ur- grants and the firms that employ them. Pat- ban culture that facilitates social inclusion and terns of firm location over the past decade also citizen participation. Beyond reviewing Tur- confirm an emerging trend of establishment in key’s accomplishments in managing urbaniza- secondary cities. This report analyzes these tion to date, this report seeks to frame a “sec- trends and explores the factors that contribut- ond generation” urban development agenda ed to this rise of Turkey’s secondary cities that that will be critical to the country’s transition are referred to as the “Anatolian Tigers.” from a high-middle income to high income While Turkey’s secondary cities have been economy going forward. growing fast, this has brought new challeng- Rise of the Anatolian Tigers: The es, which together define Turkey’s second generation urbanization agenda. Fourteen Emergence of a Second Generation municipalities, many of the Anatolian Tigers Urban Development Agenda and other cities within the interior of the coun- Only thirteen countries globally have ad- try, were elevated to metropolitan status with vanced from middle to high-income status an amendment to the Metropolitan Munici- pality Law in December 2012 (which came into since the 1960s, nearly half of which were the effect in March 2014), bringing the total in the “Asian Tigers.” For all of those countries, as country to 30. Each now faces the challenge with Turkey, effectively managing urbanization of managing a city with a larger footprint, has and will continue to play a critical role. In- with expanded planning responsibilities, with deed, as the hubs of innovation, productivity greater delegated functions, and with new cor- gains, enhanced inclusiveness, and improved poratized water utilities and urban transport livelihoods, cities that are effectively managed systems to plan, upgrade and expand across can reap positive economic spillovers and their economic footprint. These developments avoid or at least mitigate the negative exter- make the Urbanization Review Framework -- nalities that constrain growth, contribute to which emphasizes a focus on planning, con- congestion costs, and undermine city livability. necting, and financing – an important set of Turkey’s secondary cities, many known today policy principles for Turkey’s second genera- as “Anatolian Tigers,” are at the epicenter of tion urban development agenda. 2 Executive Summary Planning for new Metropolitan Municipalities Although private taxis and buses are operated will be an essential priority. Planning refers in most of Turkey’s cities today and represent to the enhanced efforts that will be needed to an important market response to growing de- routinely collect, analyze and monitor urban mand, there are now an additional 14 met- data to inform policy making at the national ropolitan municipalities that need systematic and local level. It suggests the need to apply public transit routing systems and more ef- longer-term planning horizons that anticipate fective traffic management systems to accom- future urban growth -- both population and modate growing city populations and mitigate corresponding land consumption -- in environ- the impact of increased congestion. Effective mentally, economically and socially sustain- urban transport systems also need to factor in able ways. It will further involve the need for how low-income communities in remote parts more advanced policy and institutional col- of the city will access jobs, and how women, laboration across and within different tiers of for example, who are more reliant on public government, with civil society and the private transit, are able to access safe, clean and af- sector. It will also require more advanced and fordable transit options. sophisticated institutional and planning tools In order to implement plans and improve con- that equip Turkish cities to effectively value nectivity, Financing of cities is a third prior- and manage urban land, deliver larger-scale ity policy area for Turkish cities. While cen- and more complex infrastructure systems, and tral government transfers have been robust coordinate land use planning with infrastruc- in view of existing local administration ex- ture delivery across an entire metropolitan penditure assignments, particularly in recent footprint. years, Turkey’s second generation urban de- Connecting housing markets with job mar- velopment agenda will require the financing of kets and promoting overall improvements in larger-scale investments in growing Turkish cit- the mobility of urban residents represents a ies. Improved capital investment planning and second overarching priority for policy mak- preparing bankable, larger-scale infrastructure ers. While most cities in Turkey’s system of finance projects that are needed by metropoli- cities benefit from connective infrastructure tan municipalities, including mass transit sys- between them by air, road, and rail networks, tems, wastewater treatment facilities and san- the increasing challenge is to manage connec- itary landfills meeting higher environmental tions within cities. As expected in any country standards – will make the financing of cities a experiencing economic growth, motorization third key overarching policy area for Turkey go- rates are dramatically increasing in Turkey. ing forward. These three apex-level policy pri- Connecting people to jobs, as well as public ar- orities are further explored, along with specific eas, institutions, and facilities, cannot be left policy measures recommended in the chapters to private vehicles or private-providers alone. of the report, as highlighted below. 3 Rise of the Anatolian Tigers - Turkey Urbanization Review Box 1. Advancing from Turkey’s first generation to second generation urban development agenda In early or incipient stages of urbanization, usually before a country’s urban population crosses the 50 percent threshold, the focus of Government urban policy should be on ensuring basic municipal infra- structure service coverage and access levels are adequate (internal roads, water and sanitation network access, solid waste collection), in addition to sufficient access to basic housing for incoming migrants. This is generally what may be referred to as the first generation urban development agenda. Having passed through this phase and now in an advanced stage of urbanization, Turkey now needs to embrace the second generation urban development agenda. Turkey today has 30 Metropolitan Munici- palities, all with populations of 1 million or more, 14 of which are newly established with significant additional responsibilities. The size and scale of these cities will require new, more sophisticated urban planning and management systems to deal with increasing traffic congestion, a larger environmental footprint, increasing infrastructure needs, as well as institutional capacities to prepare and implement statutory provincial territorial plans and sub-plans, establish new metropolitan water utilities, and fulfill other mandated responsibilities. In light of these emerging challenges, Turkey’s second generation urban development agenda should focus on the following core policy issues: • Targeting newly-established metropolitan municipalities with technical assistance, capacity building support, and financing to support their transition • Supporting metropolitan cities in preparing provincial level and sub-plan level territorial plans in accordance with international good practice • Investing in public transport systems promoting urban mobility and shifting more commute trips from personal vehicles and taxis to public transit options • Linking Metropolitan Municipality own-source revenue sources to their growing expenditure responsibilities • Enhancing Metropolitan Municipality credit-worthiness in order to increase access to market- based finance and PPP opportunities over time • Developing national and city-level information and data systems to support evidence-based policy making, coupled with inter-agency mechanisms to coordinate policy formulation and implementation, e.g. Urban Commission Cities as Contributors to National key has performed above the mean and joined an elite group of countries, e.g. China, Malay- Competitiveness sia, South Korea, and several European coun- Turkey’s first sixteen metropolitan munici- tries, in achieving combined high economic palities host nearly 60 percent of the coun- growth rates and high urbanization rates dur- try’s registered firms on just 8 percent of the ing this period. This pattern illustrates Turkey’s area of the country. Such economic density ability to leverage the benefits of agglomera- has helped improve the country’s productiv- tion economies, consistent with the pattern ity gains by promoting the convergence of of other advanced urbanized countries, e.g. production and consumption markets that Australia, Austria, Chile, and Germany, and in fuel innovative industries. Not surprisingly, 83 contrast with the performance of several in- percent of the ICT industry is hosted in these cipient and intermediate urbanizing countries metropolitan municipalities and constitute a that have been less successful in managing ur- critical element of Turkey’s aim to promote in- banization to date, e.g. Bangladesh, Gambia, novation and advance to high income status. Jordan, Gambia, Morocco and Saudi Arabia. Over the past three decades, Turkey’s eco- Turkey’s experience underscores the observa- nomic development and urbanization pro- tion that urbanization is a necessary but not cesses have been mutually reinforcing. Tur- sufficient condition in promoting economic 4 Executive Summary growth. Urbanization has led to mixed results considerations. However, this trend confirms in different countries. Some countries have a visual transformation of the morphological tried to resist it. Others face difficulties in structure and character of many Turkish cities, managing it, including severe housing shortag- with many now experiencing large, dense de- es and expansive slums, oppressive traffic con- velopments on the periphery. This is already gestion, rising crime and inequalities among creating problems in the absence of well-pre- urban residents. For these countries, Turkey pared and implemented comprehensive, inte- provides a glimpse of a way forward. Indeed, grated city urban plans, with critical challenges many of these same challenges have mani- of “connecting” these new office parks, shop- fested themselves in Turkey as well for which ping malls, and residential developments with some solutions have been found, while others the city’s current land use and transport plan- remain persistent and nagging challenges. ning schemes, creating substantial congestion costs. This trend can become even worse with- Promoting City Competitiveness out effective land use and transport master This chapter highlights Turkey’s impressive plans in place. Land pricing is also largely dis- performance to date in harnessing agglomer- torted and doesn’t necessarily send the right ation economies, demonstrating a clear “met- signals to developers or serve as a consistent ropolitan effect” of Turkey’s metropolitan and reliable basis for land use planning. In that municipality regime. Using firm data analysis, regard, the report makes a strong recommen- it reviews the patterns of firm location, noting dation for scaling up planning efforts in Turk- the sorting of firms with increasing concentra- ish cities to better anticipate growth and an tion of the ICT sector in city centers of met- evolving city economy and firm location across ropolitan municipalities, as expected. A sub- the city’s entire footprint. The current practice stantial “metropolitan effect” is documented of preparing “area development plans” in iso- in Turkey’s metropolitan municipalities, which lated areas in the periphery of cities is wholly are across the board attracting more firms per inadequate to ensure sustainable develop- capita than non-metropolitan municipalities, ment. There is a parallel concern that the new even in non-metropolitan municipality districts Metropolitan Municipality Law, which extends that are equidistant from the central business the boundaries of all such municipalities to district, ruling out the factor of distance from the provincial limit, will contribute to sprawl the city center as an explanatory variable. and less efficient land use than prevails today Settlement patterns are also more densely de- in Turkey’s relatively dense and otherwise ef- veloped in metropolitan municipalities than in ficient urban form. To address this emerging other Turkish cities and in comparison to aver- risk of sprawl, especially in the new metropoli- ages of 1,500 cities worldwide. Human capi- tan municipalities, this report recommends a tal has also played a key role in promoting the concerted effort at promoting integrated met- competitiveness of Turkey’s metropolitan mu- ropolitan municipality planning and to ensure nicipalities, enabling the production of more appropriate linkages to national and regional innovative and unique goods and services, par- strategic, economic and spatial development ticularly in its leading three cities. plans. But the patterns of city economic develop- There are also considerable horizontal imbal- ment are uneven across regions and there ances in performance across cities in the west are increasing trends of firm movements out- and the east of the country. Human capital is side the core metropolitan municipality to a major deficiency in cities of the east, drag- the periphery. With the exception of the ICT ging down their competitiveness and ability to sector, there is a clear trend of manufacturing, produce goods and services that can keep pace construction and service industries migrating with market pressures. And while Turkey over- outward within the metropolitan municipal- all performs reasonably well on logistics index ity footprint, as expected given the trade-offs indicators, cities in the east face substantially between proximity gains and labor/land cost higher cost barriers to firms, which is also con- 5 Rise of the Anatolian Tigers - Turkey Urbanization Review firmed by business surveys. These key chal- abilities are squarely focused on low income lenges need to be addressed through efforts households, including affordability, legal rights, to target specific imbalances, including stra- housing finance, supportive infrastructure, and tegic planning for eastern cities, aimed in part access to income opportunities. Housing costs to attract and retain higher-end human capi- are rising in both absolute terms and relative tal, while also strengthening linkages among to the share of household income within the those cities with connective infrastructure that low income segment of the population. The can reduce costs. Effective planning will need costs, steps and time to obtain a construction to take place at different scales and be harmo- permit in Turkey are also a major constraint nized with planning at different tiers and by to housing supply and an area where Turkey different agencies at the national, regional and performs well below its peers. TOKI’s housing provincial/municipal level. This policy priority supply model, using a “revenue sharing” ap- is outlined in the tenth National Development proach with private developers, has prevented Plan and will be essential for promoting sus- deeper reach into the lower segment of the tainable city development. housing market, with low income households benefitting from not more than 22 percent of Improving Access to Affordable TOKI housing today. Housing in Turkish Cities Recommendations to address Turkey’s af- In this chapter, urbanization pressures are fordable housing agenda include: (i) Relaxing shown to have caused vulnerabilities in the formal rules and regulations for construction housing market in Turkey as in any rapidly permits, which is harmful to city competitive- urbanizing country. Specific measures taken ness and to the costs of housing; (ii) promot- by Turkish policy makers starting in the 1980s ing competition among providers of housing; have helped to address this by promoting (iii) enhancing property valuation systems; housing supply in scale and commercial op- (iv) deepening and extending the terms of eration structure, where TOKI has acted as a mortgage finance, as a medium to long-term broker to facilitate private sector engagement measure and taking into account banking pru- under Government coordination and supervi- dential regulations; (v) using transport plan- sion. On the demand side, housing mortgage ning and investments to connect low income finance has been further developed and ex- housing to job markets; and (vi) reviewing the panded into longer term maturities to enable TOKI model for the provision of mass housing banks to go down market to middle income to consider options for increasing transpar- households. Amnesties were issued by the ency of operations and, specifically, ensuring Government to grant secure land tenure to that benefits of the public land subsidy accrue residents in informal settlements and this has in sufficient measure to low income groups. A prompted regularization of informal areas, in- further recommendation is to devote greater cluding the delivery of essential infrastructure attention to collecting and monitoring hous- services, and household-specific investments ing market data to monitor trends and iden- that have improved the overall quality of hous- tify where critical shortages and affordability ing for the urban poor, particularly in compari- problems are concentrated. This latter action son to other developing countries where infor- would need to be coordinated with municipali- mality and slums is a persistent problem. ties and relevant data can be captured in sur- veys carried out as part of the comprehensive While Turkey’s overall response to housing integrated urban planning work that has been pressures has been positive and timed appro- recommended. priately to correspond with periods of rapid urbanization, the housing agenda remains a Why Urban Transport Matters in critical policy focus for Government decision- makers. Analysis in this report suggests that Turkish Cities there is a nine year gap between housing This chapter documents Turkey’s growing demand and starts and the principal vulner- motorization rates and under-planned and fi- 6 Executive Summary nanced urban transport systems. It highlights needed within a national framework promot- the substantial cost of doing nothing, noting ing sustainable urban mobility. Many cities that Turkey features motorization rates (num- have opted for higher cost “showcase” trans- ber of cars owned by 1,000 persons) that are port systems that do not in all cases have the growing on average at a pace that is twice as ridership to justify such an outlay in financial fast as economic growth. While this growth resources. General guidelines are provided in is in line with international trends, without the report for selecting appropriately scaled concerted policy efforts it is likely to exacer- and cost effective urban transport systems bate already existing congestion costs in city that should serve as a basis for capital invest- transport systems, generating traffic accident ment planning. A shift in focus to providing costs estimated at well over 3 percent of GDP mobility for people rather than automobiles today. Personal vehicle transportation is also would help Turkish cities to keep pace with lat- the least energy efficient mode of transport est urban transport policy trends, emphasizing and generates substantial demand for energy options that promote pedestrianization, ex- (projected to reach 2.5 to 5 times the current pansion of bike-paths, and other public transit level by 2022), which has serious implications options over attempts to accommodate more for Turkey as an energy import-dependent personal vehicles. Finally, there is a critical yet country. unfulfilled role that national policy institutions need to play in creating a national framework Four broad policy priority areas are defined for sustainable urban mobility systems. Insuf- as the way forward. Overhauling the urban ficient linkages between national policies and transport planning system is desperately need- local practices underscore a critical challenge ed, which requires new standards, tools and in the planning, financing and sustainable pro- indicators for monitoring performance. Cur- vision of urban transport services. rently, many Turkish cities operate without a functional transport masterplan. Where plan- Financing Cities in Turkey ning is being done it often does not extend to Overall, Turkey’s intergovernmental finance and attempt to integrate land use planning, system is viewed as robust and local adminis- with the key aim of connecting housing and job trations are seen as benefitting from substan- markets and allowing a city’s transport system tial resource transfers, which account for over to serve as the backbone for land use planning. half of local administration revenues. Local A major reason for this deficiency is the gen- own-source revenue is not necessarily weak erally inadequate institutional set-up in most but is heavily reliant on enterprise and prop- Turkish cities, as the existing UKOME (Trans- erty revenues, rather than direct taxes cor- port Coordination Center) enjoys no executive responding to service provision needs. Prop- functions, financial management controls, or erty tax collection is singled out as particularly mechanisms and tools to effectively plan, de- weak, representing about 1.2 percent of GDP, liver and operate effective urban transport sys- as against the OECD average of nearly double tems. Consequently, unlike in the water sector that at 1.9 percent. A significant factor contrib- where water utilities were spun-off from mu- uting to this is the very low property tax rate of nicipalities and corporatized some thirty years two-tenths of one percent of the property val- ago, being held accountable for cost recovery ue compared to one percent in most OECD and in their operations, city transport systems ap- EU countries. Furthermore, there is a delinking pear to be highly subsidized and without ap- of expenditure assignment responsibilities (for propriate measures for accountability in op- instance at the Metropolitan Municipality lev- erations or cost recovery. el where such responsibilities are significant) Beyond the need for improved urban trans- from revenue raising authorities (Metropolitan port planning and institutional setup, stan- Municipalities have limited or no own source dards and cost effectiveness principles are revenues, including such functions as property 7 Rise of the Anatolian Tigers - Turkey Urbanization Review tax collection), which suggests weak incentives metropolitan areas. This has helped to more to fully exploit the existing tax base. And there effectively manage larger-scale infrastructure is reason to be concerned about the horizontal and city systems across a metropolitan foot- imbalances in local revenue base, particularly print. However, beyond the metropolitan mu- between the western and eastern parts of the nicipality level, the framework for policy coor- country and very meager “equalization effect” dination is much less established and will be a of fiscal transfers to offset the generally lower needed step to support Turkey in addressing economic base in eastern cities. its second generation urban agenda. Policy recommendations for improving city fi- Vertical, horizontal and diagonal interagency nances include: (i) reducing municipal depen- coordination mechanisms are reviewed as a dence on fiscal transfers by providing incen- framework to consider all policy and institu- tives for property tax collection, new methods tional options, including the private sector for property valuation and allowing local ad- and civil society organizations. Good practice ministrations some latitude in setting the base examples are shared to illustrate how other and rate for property taxes; (ii) reviewing the countries have attempted to overcome such equalization transfer mechanism, which cur- coordination problems, such as the EU’s UR- rently has a negligible effect, and consider in- BAN and URBACT programs and the UK’s poli- troducing a Block Grant or Performance Grant cies in promoting revival of former manufac- system to benefit localities with a low econom- turing cities into new centers for attraction of ic base; (iii) further analyzing the nature and investment and human capital. causes of apparent financial distress among Specific policy recommendations include: (i) some local administrations to resolve mount- consideration of institutional mechanisms to ing arrears and enhance financial perfor- promote coordination and implementation of mance, particularly at smaller municipalities; urban policy, given its cross-cutting nature, in (iv) providing support to Iller Bank and Trea- which a temporary commission, committee, sury in updating their municipal credit analysis or working groups could be formed or, alter- and risk models and second-tier metropolitan natively, setting up long-standing formal struc- municipalities in improving financial manage- tures, possibly modeled after Turkey’s recent ment performance so that more can “gradu- establishment of a Higher Committee for Re- ate” to access market-based financing; and gional Development; and (ii) establishment of (v) promoting harmonization of subnational an urban data platform to collect and analyze capital investment planning and programming data and formulate standardized indicators across multiple tiers of administration. necessary to make informed policy decisions. Inter-Agency Coordination to Support Turkish Cities In this chapter, conventional challenges of managing complex inter-governmental agen- cy relationships are encountered in Turkey, such as managing multi-tiered responsibilities in planning processes and achieving coordina- tion of functions with respect to socio-econom- ic and spatial planning in particular. Turkey has passed through the early stages of decentral- ization somewhat successfully, due in no small part to the metropolitan municipality regime, first initiated in 1984 when it was adopted in Istanbul, and now extended to a total of 30 8 Chapter 1: Enabling a System of Cities for National Growth Chapter 1: Enabling a System of Cities for National Growth The level of a civilization can be estimated by large, urbanized Western European countries, the size and growth of its cities, an inevitable like the UK or Germany. consequence of the development of human Turkey has embraced urbanization. Among society. comparator countries, only the Republic of Ibn Khaldun, Al-Muqaddimah, 1377 Korea managed a faster rate of urban growth over the period from 1950-2013, while India still lags far behind, and China, with a major The Magnitude and Pace of push by its policy makers in the 1990s, is now Turkey’s Urbanization dramatically surging forward (See Figure 2). In 2012, Turkish cities hosted more than 57 mil- Over six hundred years ago, the eminent Is- lion people, representing nearly 75 percent of lamic scholar and founder of the modern-day the national population. In 2000, this rate was social science of sociology, Ibn Khaldun, ex- only 64 percent (well below the rate of devel- tolled upon the transformational nature of cit- oped countries). Turkey’s urban population has ies, and their contribution to the progress of civilization. By that measure, Turkey has per- in a decade grown three times faster than its formed well. Today, Turkey is among the most overall population. The average compounded urbanized countries in Europe. In comparison rate of urbanization over three decades start- to European countries (Figure 1 below), the av- ing in the 1980s was well over 4 percent. City erage size of a Large Urban Zone (LUZ) is over growth has been dominated by Turkey’s first 16 1.1 million inhabitants, nearly twice as large metropolitan municipalities, which account for as the EU average and greater than any other about 60 percent of urban dwellers and have country in Europe. Within the Turkish LUZs, growth three times as fast as other municipali- urban centers dominate, where the core cities ties. In fact, with 48 percent growth over the host 34 percent of the country’s population. past 11 years, these metropolises are expected This share is higher than shares in some of the to double in size over the next 15 years. Figure 1: Average Urban Area Population Size Comparison for Turkey and 26 EU Countries Source: Peteri and Sevinç (2011) 9 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 2: Growth in Share of Urban Population in Turkey and Comparator Countries (1950 - 2015) 85% 75% 65% Share of Urban Population 55% 45% 35% 25% 15% 5% 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Brazil Republic of Korea Turkey South Africa China India Source: World Development Indicators Turkey’s System of Cities illustrates a stable relationship follows the power rank principle and logical ordering of different sized cities. commonly known as Zipf’s Law and has been Home to eleven million people, Istanbul domi- used to understand and predict rankings in city nates the urban landscape, accounting for 21 size as well. In the case of cities, the natural percent of Turkey’s urban population. Table logarithm of a city’s rank in population size and 1 below provides a profile of Turkey’s system city population generates a log-linear graph of of cities, featuring six other agglomerations a country’s city rank size. When applied to between 1 and 5 million people that host an- Turkey’s cities, Zipf’s power law is strikingly ac- other 24 percent.1 The skewed distribution of curate. Turkey’s Zipf coefficient for 2000 was city sizes is of considerable concern to policy- -1.01, very close to the -1 predicted by the law. makers who would like to stimulate growth in For 2011 the coefficient becomes -0.93. In small and medium sized cities. However, this other words, a nearly perfect linear relation- pattern of city sizes is not an outlier, but an ship exists among Turkey’s cities when com- empirical regularity across countries and over paring their rank and size accordingly to Zipf’s time. Nearly a century ago, a linguist named Law. Figure 3 shows how Turkey compares fa- George Kingsley Zipf discovered a striking pat- vorably with South Korea, whose top 9 cities tern in word usage where he observed that record a Zipf Rank- Size Distribution of -1.04 in the frequency of a word’s use is inversely pro- 2010. portional to its rank in a frequency table. This 1 Until 1955, 82 percent of urban population lived in urban agglomerations with less than 500,000 people; only one urban agglomeration had more than 1 million. Between 1965 and 1980, the number of urban agglomerations with 1 to 5 million people grew to 3. At that time, these large cities were home to about 39 percent of the country’s population (Table 1). In the next twenty years, between 1980 and 2000, two more urban agglomera- tions reached one million, and Istanbul expanded beyond five million people (UN, 2012). 10 Chapter 1: Enabling a System of Cities for National Growth Table 1: Trend in Size Class of Urban Agglomerations in Turkey Size class of urban agglomerations -1950 1950-60 1960-70 1970-80 1980-90 1990-2000 2000-10 10 million or more Number of agglomerations 1 Population 10953 Percentage of urban population             21 5 to 10 million Number of agglomerations 1 1 Population 6552 8744 Percentage of urban population         20 21   1 to 5 million Number of agglomerations 1 2 3 2 4 6 Population 1453 4113 7504 4302 7699 12181 Percentage of urban population   16 30 39 13 19 24 500 000 to 1 million Number of agglomerations 1 1 1 1 4 6 8 Population 967 635 876 568 2829 3781 5109 Percentage of urban population 18 7 6 3 9 9 10 Fewer than 500 000 Population 4294 6786 8570 11237 18363 20969 23038 Percentage of urban population 82 76 63 58 57 51 45 Figure 3: Zipf’s City Rank-Size Power Law (a) Turkey Rank-Size Distribution (2000 & 2011) 4.5 4.0 3.5 3.0 Log of City Rank 2.5 2.0 1.5 y = -0.9341x + 15.766 1.0 R² = 0.9237 0.5 y = -1.0125x + 16.799 0.0 R² = 0.9091 11 12 13 14 15 16 17 Log of City Size 2012 2000 Linear (2012) Linear (2000) (b) South Korea Rank-Size Distribution (2000) 2.5 2.0 1.5 Log of City Rank 2010 1.0 y = -1.0365x + 16.568 R² = 0.9455 0.5 0.0 13.5 14.0 14.5 15.0 15.5 16.0 16.5 -0.5 Log of City Size 2010 Source: KOSTAT, Statistics Korea 2013 Data, WB staff calculations 11 Rise of the Anatolian Tigers - Turkey Urbanization Review Placing Turkey in the But many countries resist urbanization. They view it as unmanageable, creating congestion Context of Global costs, social dislocation, and rising crime and Urbanization Trends violence. What insights can Turkey’s urbaniza- Rapid urbanization is one of the most striking tion experience offer other developing coun- features of recent trends across the develop- tries, particularly latent urbanizers? To answer ing world. Developing countries are urbanizing this question, let us consider the experience of at rates today similar to what developed coun- some of the BRICs2. tries experienced about a century ago. On av- Different policy responses to urbanization erage, today’s developed countries increased generate different outcomes: The case of their urban share of population by 7.7 percent China. In China, the prevailing Hokou system, between 1880 and 1900; today’s developing a household registration system that tied countries have seen urban share increases of 8 people to places is claimed to have its roots percent between 1985 and 2005. (World Bank in the family registration system of the Xia Dy- 2008). But policy makers in developing coun- nasty dating as far back as 2100 BCE. By the tries today have different views on the relative late 1950s, it was used by the Communist re- merits and demerits of urbanization. gime as a means of regulating labor markets to The Backdrop: Urbanization and its Discon- support stated-owned enterprises. People liv- tents. Urbanization is one of the most vexing ing outside of their Hokou area of registration development challenges of the 21st century. were not entitled to grain rations, education Some would argue it is the most important and health benefits, and employer-provided policy arena for government decision-makers housing, which certainly would have an influ- in developing countries today. Demographic ence on people staying in place. In short, ac- projections underscore this claim by suggest- cess to state-delivered or sponsored benefits ing that 90 percent of all population growth in was restricted to a person’s place of registra- the next 20 years will take place in developing tion. Through a series of reforms and legal countries. Given the challenges countries such acts coinciding with economic liberalization in as Britain and France faced with urbanization the 1990s and in recognition of villager move- (Box 2) is its accelerated pace in developing ments to Chinese cities even with these re- countries a positive signal for developing coun- strictions, China began to relax, though never tries or yet another obstacle to development? fully abandoned, its Hokou system prescrip- tions, unleashing an unprecedented surge in Urbanization poses a conundrum for policy urbanization beginning in the 1990s, fueling makers. Economics tell us that urbanization China’s rise in productivity and competitive- will bring needed agglomeration economies ness witnessed over the last twenty-five years. -- the stuff that makes industrialization pos- sible -- through the convergence of production Urbanization in Russia was promoted, but and consumption markets, the concentration around state-owned enterprises that ulti- of human capital that can fuel interactions, mately failed. During the period of the com- the exchange of know-how and innovations munist regime in Russia, urbanization was that matter most to development and growth. recognized as an essential ingredient for in- Indeed, as stated in the World Development dustrialization and, much like in China, labor Report 2009 - Reshaping Economic Geogra- markets were strongly shaped by the state phy, “no country has advanced to middle in- to support state-owned enterprises. How- come status without urbanizing, and none has ever, in Russia’s case, urban settlements and grown to high income without vibrant cities.” urbanization were viewed as essential to the 2 BRICS is a commonly used acronym referring to Brazil, Russia, India, China, and South Africa, a group of fast-growing developing countries or emerg- ing national economies, all of whom are members of the G20 and have a significant impact on regional or international affairs. They represent an important comparator group for Turkey. 12 Chapter 1: Enabling a System of Cities for National Growth Box 2: An Historical Perspective on Urbanization4 To appreciate the merits of Turkey’s urbanization experience, consider its precursors in the cities of Brit- ain and France. Not unlike Turkey, both Britain and France experienced an upsurge in urban population growth that coincided with their respective industrial revolutions in the early 19th century. Neither coun- try was prepared for the wave of new migrants to their cities. Britain’s experience was particularly brutal: cholera outbreaks in British cities were widespread. By 1841, the crude death rate in British cities was 5.6 per thousand higher than in rural areas and infant mortality rates were 25-50 percent higher than in Brit- ain’s rural hinterland, earning them the unsavory title of “killer cities.” A major factor in Britain’s difficult urban transition was an under investment in infrastructure. According to Williamson (1990), in the midst of industrialization and urban growth, social overhead capital stocks in Britain actually declined over the 70 years leading up to 1830. In France, the experience was no better. The population of Paris doubled over 50 years during the course of the 19th century with inadequate infrastructure and housing to accom- modate the new migrants, causing miserable living conditions for city residents. Three cholera epidemics plagued the city, the worst of which, in 1832, claimed the lives of 20,000 people, or nearly 3 percent of the city population. These two historical perspectives on urbanization underscore the needed emphasis on effective city planning and access to finance to invest in infrastructure necessary for an urban society. state’s policy of promoting industrialization, flat, sprawled out city it is today. FAR was first and were planned across the country around introduced at 4.5 in 1960, but in 1991 Mum- state-initiated industries that once formed the bai lowered its FAR to 1.33 in the central city backbone of its command economy. With the and 1 in the suburban areas. By comparison, liberalization of Russia’s economy in the 1990s, cities such as New York, Tokyo, Hong Kong and state-owned industries were rapidly aban- Shanghai have FAR limits that range between doned and their urban hosts – known by their 10 and 15. This had the effect of distorting sobriquet of “mono-cities” or single industry the city’s land market and driving up housing cities -- have become synonymous with what costs to staggering levels. Real estate prices in today are defined as “shrinking cities,” i.e. cit- Mumbai today rival those of Manhattan, and ies whose economic function has evolved and the city is host to one of the largest slums in contracted to the point that they are shedding the world – Dharavi. Traveling across two areas their population base. of the city can take well over two hours during rush hour, causing by congestion. Urbanization is resisted in some countries as a force that uproots traditional values: The The Economic Vocation of Case of India. Was it that Gandhi had it so Cities wrong or that future generations interpreted his meaning wrongly when he asserted that What policy implications can be drawn from “the future of India lies in its villages?” What- Turkey’s dramatic demographic transforma- ever one’s take on Gandhi’s views, despite sub- tion? What lessons from Turkey’s experience stantial human capital, India remains dramati- can inform other developing countries in in- cally behind other BRICs and emerging market cipient stages of urbanization? The most im- economies in its rate of urbanization (See Box portant lesson is that, by and large, Turkey has 2). Other forces, possibly shaped by this sup- been able to leverage urbanization to promote position, have been at work as well. Mumbai, economic growth. Matching Turkey’s urban- for instance, deliberately lowered its Floor ization experience against other comparator Area Ratio (FAR)3 which resulted in the very countries underscores the importance of poli- 3 FAR or FSI (Floor Space Index), the term used in India, is the ratio of a building’s total floor area to the size of the parcel of land on which it is built. 4 Source: Williamson (1990) as cited in Urbanization and Growth, Commission on Growth and Development, 2009 13 Rise of the Anatolian Tigers - Turkey Urbanization Review cies that promote urbanization, while enabling Turkey presents a classic example of a coun- cities to reap the benefits of agglomeration try benefiting from agglomeration econo- economies. mies. In principle, urbanization and economic growth should move in tandem (Spence 2009) Historically, urbanization is highly correlat- and Turkey’s development experience illus- ed with reductions in poverty and inequal- trates this point with striking precision. Figure ity and improvements in access to services.5 4 demonstrates clearly how Turkey has been Turkey provides a poignant illustration of this able to harness the benefits of agglomeration global phenomenon in practice. Over the past economies, which paid significant dividends six decades, Turkey has been structurally and for its overall growth. In the figure, Turkey’s demographically transformed from a predomi- economic performance (in increasing GDP nantly agrarian economy to the globally com- per capita terms) is measured alongside its petitive industrial economy it is today. During increase in urban share of population during the country’s most rapid period of urbaniza- the period from 1980-2012. When compared tion, from 1960-2013, Turkey’s industrial share to a set of countries globally for which data of the economy increased from 17.6 percent is available, Turkey is positioned among the to 27 percent, and the service sector dramati- high performers. The HH Quadrant (High Ur- cally rose from 26.4 to nearly 64 percent. Per banization and High GDP per Capita Change) capita GDP6 rose from US$5,986 in 1980 to where Turkey is located represents countries US$13,737 in 2012. Some 92 percent of Tur- that performed above the mean on both key’s gross value added is produced in cit- measures, and benefitted from agglomera- ies today, and the last decade has witnessed tion economies, such as China, Malaysia, and dramatic and consistent declines in poverty in South Korea. By contrast, the LH Quadrant parallel with a rise across most human devel- (Low GDP Growth per Capita/High Urbaniza- opment indicators. tion) includes countries that have rapidly ur- Figure 4: Global Mapping of Country Performance in Urbanization Rate and GDP per capita Change (1980 - 2012) 50% Change in share of Urban Population (percent of total) BWA LH HH 40% GAB MYS GMB IDN CHN 30% BTN KOR TUR (in percentage points) JOR PRY ALB NGA PRT NLD 20% SAU MAR BRA CHE JPN TUN BGR FRA CYP FIN BGD 10% PAK HUN CHL NOR ROM GRC ITA AUS ESP USA SWZ DEU 0% BLZ BEL AUT LCA -10% -20% LL HL -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000 Absolute Change in GDP per capita 1980 - 2012, (constant 2005 PPP $) Source: WDI 5 See Ravallion, et al. (2007) and Spence (2009) 6 Per capita GDP refers to PPP based GDP per capita in constant 2005 international dollars as provided by World Development Indicators. Another measure of per capita income is nominal GDP per capita in current U.S. dollars, and it was 10,666 in 2012, up from 1567 in 1980. 14 Chapter 1: Enabling a System of Cities for National Growth banized during the same period as Turkey, but have increased their share of urban popula- which have not been able to leverage the full tion during the same period and continued to benefits of urbanization, including several Af- experience modest population growth to the rican countries. The HL Quadrant (High GDP, present day. Low Urbanization) countries typically present This demographic growth has contributed the “steady-state” model, or advanced urban- to an equally impressive economic expan- izing countries whose urban growth took place sion among the Anatolian Tigers. Not only largely before the 1980s yet continue to ben- are Turkey’s secondary cities growing faster efit from agglomeration economies. Quadrant demographically, but they are also growing LL reflects countries in the incipient stages of faster economically. While Figure 6 shows, as urbanization (or those that are deurbanizing) expected, cities like Istanbul, Ankara, Izmir and that have yet to take full advantage of agglom- Antalya well ahead of other Turkish cities in eration economies as a contributor to national terms of gross value added per capita, many economic growth. of the Anatolian Tigers have been catching up. For much of the last century, it was Turkey’s Led by Mardin, provincial cities like Gaziantep, primary cities that drove the country’s eco- Samsun, Malatya, and Trabzon have recorded nomic growth. But Turkey’s system of cities is some of the highest growth in gross value add- beginning to evolve, particularly over the last ed per capita during the period from 2004-11. decade, giving rise to the “Anatolian Tigers.” This is largely explained by market forces. Tur- As illustrated in Figure 5, the populations of key’s secondary cities are benefiting from eco- Turkey’s largest agglomerations – Istanbul, nomic spillovers. Rising land-rent values and Ankara, and Izmir – have actually declined in labor costs in its primary cities force firms to their share of Turkey’s total urban population find lower cost alternatives. And connections over the last ten years. Cities such as Mersin, to external markets have also helped cities like Gaziantep, Kocaeli, and Kayseri, among oth- Gaziantep in recent years to position them- ers often referred to as the “Anatolian Tigers,” selves as gateways to regional markets. Figure 5: Share of Total Population for Selected Cities in 2000 and 2012 45% 40% Share of Total Metropolitan 35% Municipality Population 30% 25% 20% 15% 10% 5% 0% İzmir Antalya Konya Adana Diyarbakır Sakarya Kayseri Gaziantep Bursa Ankara Kocaeli İstanbul Eskişehir Samsun Mersin Erzurum 2000 2012 Source: TUIK 2000 Census Data and ABPRS (2012). World Bank Team Calculations. Note: The sharp increase in Kocaeli’s population share from 2000 to 2012 is partially explained by the expansion of the Metropolitan Municipality area to the provincial boundaries as per the Metropolitan Municipality Law (#5216) in 2004. 15 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 6: Gross Value Added by Nuts 2 Region, 204-11 9% Growth in Real Per Capita Value Added 2004 -- 2011 MAR 8% ( Annual Average Compound Growth Rate) 7% 6% MAN 5% ERZ BAL AGR MAL KIR TEK SAM VAN HAT TRA 4% GAZ KAYKON KOC SAN TR ADA ANK IZM BUR IST 3% ANT ZON AYD 2% KAS R² = 0.2599 1% 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 Real Gross Value Added Per Capita in 2004 Constant TL Source: TurkStat, WB staff calculations Note: Regions are defined as ADA=Adana, Mersin; AGR=Ağrı, Kars, Iğdır, Ardahan; ANK=Ankara; ANT=Antalya, Isparta, Burdur; AYD=Aydın, Denizli, Muğla; BAL=Balıkesir, Çanakkale; BUR=Bursa, Eskişehir, Bilecik; ERZ=Erzurum, Erzincan, Bayburt; GAZ=Gaziantep, Adıyaman, Kilis; HAT=Hatay, Kahramanmaraş, Osmaniye; IST=İstanbul; IZM=İzmir; KAS=Kastamonu, Çankırı, Sinop; KAY=Kayseri, Sivas, Yozgat; KIR=Kırıkkale, Aksaray, Niğde, Nevşehir, Kırşehir; KOC=Kocaeli, Sakarya, Düzce, Bolu, Yalova; KON=Konya, Karaman; MAL=Malatya, Elazığ, Bingöl, Tunceli; MAN=Manisa, Afyon, Kütahya, Uşak; MAR=Mardin, Batman, Şırnak, Siirt; SAM=Samsun, Tokat, Çorum, Amasya; SAN=Şanlıurfa, Diyarbakır; TEK=Tekirdağ, Edirne, Kırklareli; TRA=Trabzon, Ordu, Giresun, Rize, Artvin, Gümüşhane; VAN=Van, Muş, Bitlis, Hakkari; ZON=Zonguldak, Karabük, Bartın. Lessons from Turkey’s System of Cities would be expected for a country that went through such a rapid demographic transforma- Turkey’s urbanization experience offers im- tion. portant lessons for policy makers across the developing world. As far back as the early Several factors contributed to Turkey’s days of the Republic, Turkish policy makers growth-oriented and inclusive urbanization recognized the importance of urbanization to process. First, Turkey allowed its markets to the country’s ambitions of becoming a mod- work: policies in the 1980s promoting eco- nomic liberalization attracted the flow of new ern, industrialized economy, and encouraged domestic and foreign private investment that rural-to-urban migration flows that fueled ag- created a critical pull factor for rural migrants, glomeration economies. Early and substantial enabling the convergence of production and investments in transport infrastructure helped consumption markets that promoted agglom- connect Turkey’s large land-mass country, en- eration economies in Turkey’s cities. Second, a abling its system of cities to take root over the metropolitan municipality regime adopted in course of the second half of the last century. 1984 provided the administrative framework Today, new firms are increasingly moving to- necessary to effectively manage fast growing ward dynamic secondary cities, capturing eco- cities across their economic footprint. Third, a nomic spillovers from Turkey’s large primary permissive tenure regime granted squatters on cities, while taking advantage of lower land- urban public land legal status that prompted rent values and labor costs. Turkey’s leading both households and host municipalities to in- cities, meanwhile, are diversifying and innovat- vest in their dwellings and neighborhood infra- ing to remain competitive. Indeed, as further structure. Fourth, efforts to scale up housing detailed in this report, Turkey features a sys- supply through state brokering services trig- tem of cities today that by and large perform gered a private sector response that helped above average in achieving density, suggest- accelerate the expansion of housing stock, ing efficient land use and higher productivity; while, on the demand side, mortgage-based and informality in housing is well below what finance was expanded, particularly over the 16 Chapter 1: Enabling a System of Cities for National Growth last decade, with extended maturities that al- management across a broader footprint. Tur- lowed the housing sector to go down market. key’s landmark legislation – the Metropolitan Fifth, interventions through national programs Municipality Law passed in 1984 -- provided to support the expansion of access to water, the legal and administrative basis for manag- sanitation and other basic municipal services ing cities at a metropolitan scale that so many helped fiscally-constrained localities meet developing countries are lacking. Sixteen met- national coverage targets through the use of ropolitan municipalities were elevated to that matching grant subsidies. Sixth, policies that status between 1984 and 2012, and in Decem- promoted market-based pricing of municipal ber 2012, an amendment to the Metropolitan services helped attract private equity to share Municipality Law created fourteen more, for a the financial burden, while private sector man- total of 30. The Law contains many key provi- agement know-how enabled innovation and sions that enable metropolitan municipality efficiency gains in service delivery. These les- regimes to formulate policies and take decisive sons from Turkey’s experience are further ex- action that support linkages across a city’s ad- plored below. ministrative boundaries and in line with its eco- nomic footprint. For instance, the Law enabled Developing a System of Cities: The metropolitan municipalities to undertake their Metropolitan Municipality Law own higher scale territorial planning (1:50,000 scale) that provides a strategic framework to Turkey’s Metropolitan Municipality Law was plan city development. Urban transport plan- a game-changer for managing cities. It was ning and investment functions7 were also con- precisely during the period of economic liber- solidated at the metropolitan municipality alization and a surge in urbanization in the first level, enabling planners to ensure access and half of the 1980s that the Government of Tur- mobility across a metropolitan municipality’s key adopted a new municipal administration entire footprint. regime. Not only in Istanbul, Turkey’s megac- ity, but also in newly emerging urban conur- Turkey’s Metropolitan Municipality Law also bations, there was a need for a regime that provisioned for more efficient management would enable more effective metropolitan of water supply and sanitation services. Figure 7: Water Supply and Sanitation Service Pricing and Domestic Consumption per Capita in Turkey and Comparator Countries 3.0 600 Combined Water Tari ff (US$ /m3) 2.5 500 Domestic Use: Liter/Person/Day 2.0 400 1.5 300 1.0 200 0.5 100 0.0 0 India China Mexico Korea, Russian Italy Turkey Spain Republic Federati on of Combined Water Tariff (U SD/m3) Domestic Use: L iter/Person/Day (right axis) Source: Global Water Intelligence, GWI Market Report, vol. 12, Issue 9, September 2011 7 With the exception of interior roads, which remain the responsibility of district municipalities. 17 Rise of the Anatolian Tigers - Turkey Urbanization Review Among developing countries, Turkey was one essentially four different administrative and of the innovators in thinking through efficient decision making authorities and structures. ways of providing water supply and sanitation Attempting to forge a cohesive metropolitan services. Faced with growing populations in its transport plan or to deliver water/sanitation cities, it needed to find an institutional model and other city services in a coherent fashion is that would achieve greater scale efficiency and a major challenge. Another example is Manila, it looked for a solution at the metropolitan whose metropolitan area comprises nineteen scale. In 1981, Istanbul initiated the first suc- different municipalities without a higher tier cessful corporatization of water supply and mechanism for coordinating policy, planning sanitation services. Doing so helped Istanbul and investment decision-making across juris- to more effectively manage and monitor its dictions. water supply and sanitation services, particu- larly by removing such expenditure outlays Turkey’s Metropolitan Municipality regime from its municipal books and shifting them to promotes economic growth. Every city’s de- ISKI, Istanbul’s corporatized water utility. This sire is to remain vibrant as its economy evolves arrangement helped ensure cost recovery in with the ability to attract and retain firms and pricing of water, sanitation and wastewater human capital and to gravitate over time to treatment services and avoid cross-subsidies higher value-added activity. The Metropoli- from other municipal revenue sources. Istan- tan Municipality Law provides a critical plan- bul’s successful corporatization experience was ning framework for Turkey’s metropolitan ar- then formally adopted within the Metropolitan eas that has a direct impact on infrastructure Municipality Law in 1984, requiring all of Tur- provision and coordination in the delivery of key’s metropolitan municipalities to establish a services. Used effectively, its provisions can corporatized water utility and to operate them help a city administration to promote mobility at arm’s length distance on the principles and across a metropolitan area and ensure connec- practices of cost recovery. As of 2011, Turkey tivity for residents and prospective businesses. compares very favorably with peer countries in In that regard, the Metropolitan Municipality its market pricing of water supply and sanita- regime can have an important impact on eco- tion services, as well as cost recovery, and this nomic performance and city competitiveness. has also had a positive impact in discouraging As further detailed under the City Competitive- waste and promoting water conservation (Fig- ness Chapter, this is called the “metropolitan ure 7). Market pricing has also helped Turkey effect.” That is, the ability of the metropolitan to attract the private sector in the provision of regime to disproportionately attract firms and water supply and sanitation services. generate agglomeration economies. This phe- nomenon is illustrated by the heavy concen- Inter-jurisdictional coordination at the city tration of firms in Turkey’s metropolitan mu- level is a key challenge in many developing nicipalities in comparison to non-metropolitan countries that lack a metropolitan regime. municipalities. Developing country experience for managing metropolitan cities is mixed but generally lacks Urban form has an important impact on the an effective legal and regulatory framework to economic viability of a city and its sustain- enable city management at metropolitan scale. ability. In principle, achieving urban density In Cairo, a metropolitan city of nearly nine mil- can yield multiple economic benefits. It can lion people, there is no enabling legislation lower the cost of infrastructure provision, or, that supports inter-jurisdictional manage- put another way, increase the number of ben- ment and coordination across the metropoli- eficiaries per unit cost of infrastructure. It can tan area’s economic footprint. While the core reduce carbon emissions by making mass- city of Cairo (Cairo Governorate) comprises a transit more feasible as an alternative to pri- land area of 450 km2, the metropolitan area vate vehicles. And it can also maximize the of Cairo spans an estimated 1,700 km2 (over efficiency of land use, reducing land costs per three times the Cairo Governorate), and is ad- built area, which translates into lower housing ministered by four different Governorates with costs, as well as higher productivity and tax 18 Chapter 1: Enabling a System of Cities for National Growth value of land assets. Cities reliant on proper- strong economic foundation for Turkey’s cities. ty tax as their main source of revenue have a Turkey’s railway network and eventually its built-in incentive to make efficient use of their highly developed road network provided the land and typically seek to promote density in economic backbone that supported vibrant lo- their development planning. Analysis further cal economies, even within the interior of the detailed in the next chapter highlights how country. Turkey’s system of cities has achieved a high Turkey’s early investment in settlement plan- degree of density, suggesting an economically ning, dating back to the founding of the Re- efficient pattern of urbanization, while noting public, set an important foundation for the that achieving density alone is not sufficient unless it is accompanied by effective spatial future of Turkey’s cities. It was during the Re- planning and appropriate levels of infrastruc- public Period (1923-1950) that a nation-wide ture services. industrialization and urbanization process firmly took root beyond Istanbul. To realize Connecting the Hinterland: Early this vision, policy makers recognized the need Infrastructure and Settlement to actively promote the planning and devel- opment of settlement areas. Given its geo- Planning graphical location in the interior of the country Connective infrastructure was a hallmark of without the typical endowments that would Turkey’s nascent system of cities, enabling attract people and firms, Turkey’s capital city the flow of goods and human capital that fuel of Ankara is a prime example of a planned city. Turkey’s urban economies. Connecting cities A metropolis of 4.5 million people today, An- with an efficient railway system starting in the kara owes its modern day existence to such early days of the Republic had not only the po- planning efforts. Across Anatolia, planners in litical objective of linking settlements across the early days of the Republic selected small the country in an effort to promote national Anatolian cities for the development of indus- cohesion, but also the motive of improving trial enterprise at a time when the State was a accessibility and connectivity that provided a majority owner of commercial activity. State Figure 8: Development of Railways and Population Concentrations in Turkey in 2000 District Population of Turkey in 2000 100.000 to 1.000.000 50.000 to 100.000 20.000 to 50.000 10.000 to 20.000 0 to 10.000 Railways in 2000 Districts Source: Ministry of Transport, Maritime Affairs, and Communications 19 Rise of the Anatolian Tigers - Turkey Urbanization Review manufacturing investments, public enterprises quite another to ensure they have adequate and transport investments were designed and financing to fulfill those functions and build executed to expand development eastward. the needed infrastructure. Turkish policy mak- The Marmara region actually experienced a ers were keenly aware of this need and with population decline during this period in favor private banks not able or willing to provide of the Anatolian hinterland. This spatial trans- long term finance for infrastructure Iller Bank, formation was spearheaded by state interven- or the Bank of Provinces/Municipalities, was tion. Twenty-three settlements were planned founded in 1933. Iller Bank’s mandate was to over a decade starting in 1923 (Tekeli 2009). provide the long-term financing necessary for newly prepared municipal development plans Turkey’s planning system evolved during the and infrastructure service needs. Iller Bank transition years of the 1960s and 70s. It was remains to this day a critical institution in the during the two decades of the 1960s-70s that financing, planning and development of cities. full-fledged urban planning took hold. In 1966 an Istanbul Master Plan Office was established Addressing Regional Inequities: and the city’s Masterplan completed, followed Targeted Provision of Municipal shortly thereafter by Izmir and Ankara in 1968 and 1969 respectively. Large public works Services in Small Rural Towns & projects of a monumental scale were under- Engaging with the Private Sector in taken across numerous cities. However, during Advanced Cities the late 70s, the State’s role as a technocratic Interventions at the national government lev- agent of development shifted. During this pe- el in cases of market failure have been a hall- riod, the state began to recede from its activist mark of Turkey’s approach to support its sys- interventionist mode to more of an enabler of tem of cities. Beyond the Government’s foray the private sector. into Housing Policy in the 1990s, efforts were A further key action of the Turkish Govern- also made to shore up the provision of basic ment was to ensure its cities were adequately urban services. Municipalities from their own financed. As many developing countries have resources and those supplied by the central experienced, it is one thing to plan a city and government began over time to regularize in- devolve functions to local administrations. It is formal settlements, including the provision of Figure 9: Turkey Substantially Expanded Public Expenditures on Water, Wastewater and Solid Waste Infrastructure between 2003 and 2008 3.5 3.2 3.0 2.5 2.5 In billion TL 2.0 1.5 1.0 0.9 0.9 0.7 0.5 0.3 0.0 Water Wastewater Waste 2003 2008 Source: Ministry of Development, Public Investment Data 20 Chapter 1: Enabling a System of Cities for National Growth road infrastructure, as well as network water, together with a national system that provides sanitation, and wastewater treatment to the financing for municipalities through Iller Bank point that most have become permanent fea- and commercial banks have contributed to tures of the urban landscape in many cities. As raising Turkey’s access to water supply at near- a result, many of Turkey’s informal settlements ly universal coverage by 2011, and sanitation look and are much more habitable, sanitary services at 91 percent (Figure 10). and livable than the slums that persist in parts of Latin America and South Asia. In addition, Managing Rural-Urban Migration: Iller Bank provided financing to larger cities A Permissive Policy Stance on Infor- for infrastructure network expansion as they mal Settlements grew, enabling many to keep pace with rapid urbanization. But there were also acknowl- While urbanization was steadily increasing edged gaps in service coverage, particularly during the 1950s-70s, it was during the 1980s among small towns and villages that generally that Turkey experienced a major surge of ru- had a very low economic base and insufficient ral migrants to cities, causing rapid expan- revenue streams to service debt. In response sion of informal areas in urban settlements. to this market failure, special programs were Many cities were unable to accommodate initiated by the Government to ensure that this growth, and the influx of migrants took water, sanitation and solid waste services were place so quickly that these informal settle- adequately maintained in these fiscally depen- ments became known as gecekondu, literally dent areas. “houses erected overnight.” Estimates of infor- mal housing in major cities during that period For small towns and villages, development ranged between 30-60 percent of all urban programs initiated by the Ministry of Devel- housing stock. Most in-migration during this opment, such as KÖYDES and SUKAP, were phase was concentrated in large cities along designed to fill a critical gap. KÖYDES, or the the coast (Istanbul and Izmir) and Ankara. small villages water and sanitation project, spanned in its first phase a period of eight years (2005-12). The main aim of this program was to ensure broad-based access to water and sanitation services across all of Turkey’s settle- ments, particularly small villages in remote rural areas. Other programs focused on towns and small cities, include BELDES, the Municipal Fund and, more recently, SUKAP, which was established in 2011 and through Iller Bank has reached millions of beneficiaries in a span of only three years. Its target has been small mu- nicipalities and involves a 50 percent subsidy to municipalities to encourage them to borrow from Iller Bank and invest in critical infrastruc- ture service needs. As reflected in Figure 9, in- vestment in water, sanitation and solid waste infrastructure rose dramatically from 2003 to 2008, due in part to programs like SUKAP. Programs supporting fiscally-constrained municipalities with matching grant subsidies helped dramatically expand water supply and sanitation service coverage, particularly over the past decade. These programs, taken 21 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 10: Turkey’s Water and Sanitation Service Coverage (1991 - 2011) 100 99 100 98 97 100% 94 93 94 Percent of popula tion with access 90% 86 83 86 81 80% 70% 60% 50% 40% 30% 20% 10% 0% Turkey EU Members Growth Markets MENA Average BRICS Average EU Candidate Average (excl. Average Average Romania & Poland) Improved water source 1991 Improved water source 2011 100% 100100 96 91 90 92 90% 84 Percent of popula tion with access 83 80% 77 69 70% 65 60% 50 50% 40% 30% 20% 10% 0% Turkey EU Members Growth Markets MENA Average BRICS Average EU Candidate Average (excl. Average Average Romania & Poland) Improved sanitation facilities 1991 Improved sanitation facilities 2011 Source: WDI Note: Country groups are ranked by urbanization rate in 2011 (highest to lowest). The “EU Members” refers to Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovak Republic. “Growth Markets Average” refers to unweighted average of Indonesia, Malaysia, Mexico, Philippines and South Korea. “MENA Average” refers to unweighted average of Egypt, Jordan, Morocco, Syria and Tunisia. “EU Candidate Average” refers to unweighted average of Albania, Croatia and Serbia. Turkey adopted a permissive policy toward ru- the notion that all Turks have a right to some ral migration and this policy stance likely en- form of basic housing. The amnesties gave res- couraged migrants to flock to cities. Over the idents either outright legal title to the land or period from 1949-90, eight amnesties (Buğra the right of usufruct and removed the fear of 1998) were issued by the Government of Tur- eviction. With security of tenure, as witnessed key legalizing irregular residences. Whatever in other developing countries, residents of in- the motivation may have been the prevailing formal areas began to invest in their housing, attitude of the Turkish Government at the time in some cases adding rooms that were subse- and tacitly accepted by the general public was quently rented to new migrants8. Turkey was 8 Turkey’s attempt to address supply-side housing challenges was similar to what Mexico attempted to do. Both countries recognized what Spence argues, namely that “only a greater supply of serviced land and housing can lower costs, because it helps to solve the problem at its root as well as contain the fiscal burden of subsidies”. According to Spence, Mexico offered an upfront subsidy combined with efforts to provide better infrastruc- ture and security of tenure, allowing households to make investments in their home on their own. 22 Chapter 1: Enabling a System of Cities for National Growth also in a fortunate position to take such deci- rates with long-term payback periods. The Law sions as the vast majority of land on which the also called for the establishment of a Housing informal settlements took shape was public Agency -- the Mass Housing and Public Partici- land. These circumstances perhaps helped pation Administration – which was set up the circumvent property rights criticisms from pri- same year as an autonomous agency, but later vate land owners. split into two agencies in 1990 -- the Public By the 1980s, as rural in-migration was peak- Participation Administration and Mass Hous- ing, urban planning responsibilities were ing Administration (TOKİ). devolved to local authorities and planning The entry of TOKI to the housing supply mar- regulations were relaxed to accommodate ket was significant. TOKI, founded in 1990, rapid urbanization and changes in land use created a “wholesaling” mechanism for the patterns. With the emergence of the private large scale supply of housing for both low and sector during this period of economic liberal- middle income market segments during Tur- ization, development plans lost their dominant key’s most pressing period of urbanization. role and were not directly led by the central Its purpose and orientation was to create the government. This was a period of enormous enabling environment to promote the entry significance for urbanization, as the largest of large scale housing supply by the private shift in population from rural to urban settle- sector. This was largely accomplished through ments took place during this time. The Devel- TOKI’s brokering role, which helped to cut red- opment Law (No. 3194), which was enacted in tape, streamline administrative procedures 1985, delegated increasing functions to local into an effective “one-stop-shop”, facilitate the administrations in planning processes, while assembly of public land at a scale sufficient for the State turned its hand to regional planning large scale housing development, and mobi- focused on economic zones and leveraging of lization of housing finance. This, in turn, cre- economic endowments of a trans-jurisdiction- ated investment opportunities for large con- al nature. It was at this time, particularly in the tractors and real estate developers, and the early 1980s that metropolitan cities turned to scaling up from the traditional cooperative an “incremental planning” approach9 (Tekeli, housing model that could not keep pace with 2009). increasing housing demand. This could only be achieved because Turkey’s approach to low Meeting Housing Needs: Social income housing was not to supply it directly Housing and Evolution of the TOKI by the public sector but to use market mecha- Model nisms to encourage real estate developers and building contractors to go down market. To do The mid to late 1980s were also an important so, TOKI relied on the leveraging of public land period in which other key institutions were which factored in as a subsidy to make housing established to more effectively manage rapid affordable to low income groups. Provisioning urbanization, which at this point had reached for low income housing was based on small its peak. The first measure was the establish- scale, limited space (often around 50-80 m² ment of the Mass Housing Fund through the units) housing models that developers would passage of Mass Housing and Public Participa- not have developed without the state’s inter- tion Law (#2985) in 1984. This law provided vention. one of the first formal state interventions in the housing policy arena to that point. The law TOKI’s approach to housing evolved over time recognized the urgency of responding to rapid and in some respects benefitted from lessons urbanization, which was peaking, provisioning learned. While early projects were criticized for financing of low income housing at nominal for poor quality and location choices, as well 9 For many analysts, this planning juncture marked the beginning of the decline of Turkish cities. They argue that the flexibility granted to cities and large-scale private developers ultimately undermined effective city planning, contributing to urban sprawl and unplanned development. 23 Rise of the Anatolian Tigers - Turkey Urbanization Review as the absence of amenities and surrounding and an incremental housing supply approach infrastructure, TOKI factored these consider- was no longer adequate to keep up with de- ations into later models. Many later develop- mand. ments also considered mixed income facilities. Limitations to the TOKI Model: Trade-offs be- The mixed income feature of many TOKI hous- tween Efficiency and Accountability. Despite ing projects was made possible through cross- subsidies derived from the auction of devel- these positive contributions, TOKI’s establish- opment rights for the benefit of low income ment law and subsequent amendments pro- groups. The feature of mixed income housing vides it with significant powers, including the has also enabled Turkey to avoid clustering ability to develop land without adhering to the the poor in low income housing projects that scale and character of the existing built envi- can lead to vertical slums. TOKI’s entry into ronment as reflected in the city plan. Where the housing market may have also helped to there may be popular political support for such improve the country’s overall housing supply residential buildings, as well as market de- capacity by providing new housing stock that mand, community consultations of those most could free up older stock for incoming rural mi- directly affected have been faulted at times for grants. This likely scenario, ultimately helped being perfunctory and without full participa- alleviated pressure on the state to provide tion of all stakeholders. More recently, TOKI’s public-sponsored housing. financial accounts and the feasibility and finan- The entry of TOKI to the housing market went cials of specific transactions have been made beyond the provision of low and middle-in- more open to public access. However, while come housing. TOKI’s housing model enabled the concept of combining functions into a Turkey’s housing supply market to scale up by single agency made good sense and delivered mobilizing the land, financing and a private over 500,000 housing units in the span of less sector delivery mechanism that promoted the than seven years, there is today a need to work emergence of larger-scale real estate devel- across multiple agencies, including at the na- opers and construction companies. This was tional and local administration levels to bring critically needed during Turkey’s period of integrated solutions. For such purposes, es- rapid urbanization, as the prevailing coopera- tablishment of a multi-agency “Housing Com- tive housing model which facilitated pooling of mission” would be a suitable vehicle for coor- savings among individuals and investor groups dinating policies and intervention strategies. 24 Chapter 2: City Competitiveness Chapter 2: CITY COMPETITIVENESS What features of Turkey’s system of cities substitute for land by building high rise fac- have enabled them to contribute to eco- tories or by designing processes where use of nomic growth and what key challenges re- land is minimized. And services can be carried main ahead? Having reviewed in the previous out in buildings on any size – further increas- chapter in broad economic terms the linkage ing the substitution of land by capital. In addi- between Turkey’s economic growth and ur- tion, the presence of scale and agglomeration banization, this chapter aims to take a more economies increases likelihood of the spatial granular look at city performance, consider- concentration of industry and services. The ing factors and trends relating to city density, functioning of industries require complemen- firm location, the prevalence of human capi- tary services such as banking and finance as tal, urban land values and management, as well as proximity to other manufacturing fa- well as the connectivity of cities. The findings cilities for procuring inputs as well as selling in- suggest that Turkey’s system of cities has had termediate products. Similarly for many retail a significant “metropolitan effect,” which is and business services, a minimum population attributable in large part to the metropolitan catchment is needed for profitability (invento- municipality regime adopted in 1984. This has ries in retail trade and consumers for financial enabled metropolitan municipalities to attract services). Hence, the combination of scale and a disproportionately higher number of firms agglomeration economies and comparatively per capita, achieve a higher degree of econom- high non land- land substitution elasticities in ic density, promote higher human capital con- industry and services enhance gains from ur- centrations, and produce a more diverse range banization. of goods and services, many of which are not produced by other cities. Key challenges go- The Metropolitan Effect: Are Turkish cities le- ing forward include: (i) initial signs of urban veraging agglomeration economies? Zooming sprawl with a larger number of non-ICT firms into metropolitan areas, there appears to be a seeking to locate at the periphery of cities; and clear divide in the location of firms within and (ii) horizontal imbalances across the western outside of metropolitan municipalities. Even and eastern parts of the country that suggest when controlling for population (by calculat- the need for a more geographically-diversified ing the ratio between the number of firms and policy approach. These issues are further ex- total population in the district) the number of plored below. firms and employment is considerably higher in districts within metropolitan areas. When Economic benefits from urban growth come looking at the spatial distribution of firms, Fig- from exploiting economies of scale and ag- ure 11 below shows a considerable decline in glomeration, enabling substitution between the number of firms per inhabitant when mov- land and non-land inputs. The link between ing outside metropolitan municipality bound- urbanization and economic growth is based on aries. Districts within 20 and 50 km from the the propensity of non-agriculture activities, i.e. metropolitan core have twice as many firms manufacturing and services – to concentrate as districts that are within 50 km of that same in urban areas. Why? Non-agriculture activi- core but are not part of the metropolitan mu- ties respond to the size and density of a settle- nicipality. ment. As agriculture is land intensive, there is limited scope for a large number of people to Economic concentration within metropolitan concentrate in one settlement. Even though municipalities spans multiple jurisdictions. some degree of substitution between land and Evidence suggests that the metropolitan ef- capital as well as land and labor is possible, its fect goes beyond market accessibility effects scope is limited compared with manufacturing and on average, the coordination functions of and services. For manufacturing, capital can metropolitan municipalities seem to be paying 25 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 11: Average Number of Firms per Inhabitant Source: TOBB and ABPRS, TurkStat off in terms of facilitating economic activity. negative coordination externalities and there- Regression analysis suggests that even after fore can benefit from the inclusion of several controlling for the distance to the city cen- districts and fully enjoy agglomeration effects. ter (an approximation for market accessibil- A likely contributing factor is the metropolitan ity measures), there is still a positive and sig- municipality regime, which is granted respon- nificant effect of belonging to a metropolitan sibility for urban planning and the planning municipality, both in the number of firms and of transportation networks across the entire employment in a district (see Box 3 below for metropolitan area such that districts inside the further technical details). It seems that met- metropolitan limits enjoy positive coordina- ropolitan municipalities are able to internalize tion and connectivity effects. 26 Chapter 2: City Competitiveness Box 3: A parametric analysis of the “metropolitan effect” In order to assess metropolitan effect, it is important to distinguish between firms located in proximity to a metropolitan municipality and those included within a metropolitan municipality administrative unit and benefitting from its regime advantages. Comparison of the average number of firms per district in metropolitan municipalities (260) and outside of metropolitan municipalities (29) shows that districts in metropolitan municipalities host almost 10 times more firms per district than non-metropolitan districts. This difference exists for population too, but metropolitan districts house on average only 5 times more inhabitants than non-metropolitan districts. Indeed, in a regression of the number of firms per district against the distance to the closest metropolitan core, proximity to a city center is statistically significant and it shows that, on average, districts have 0.85 less firms per km away from the city. There are 153 districts situated within 50km of a city center, but not included in the metropolitan city boundary. Regression analysis was carried out to test metropolitan effect by seeing whether distance to the city center can have a different effect inside and outside of the metropolitan municipality and test whether there is an extra-effect of being administratively part of a municipality. To do this, a variable representing the square of the distance to the center is included to allow for non-linear effects (such as suburbanization for example). The results indicate that distance to the closest metropolitan municipal- ity (as well as the square of that distance) does not matter at all for districts outside of the metropolitan municipality (the coefficients are not statistically different from 0), but there is a strong effect inside the metropolitan municipality and a significant non-linear component to it. Beyond these results, the most striking one is that the effect of being within the city limits not only persists (the coefficient is highly sig- nificant) after controlling for distance to the city center, but actually increases. Results from this regres- sion, presented in the following table, are used in the simulations. Number of Firms Comparison of Averages Effect of Distance Full Specification Constant Term 28.75*** 139.39*** 39.63** (5.101) (9.261) (16.87) Metropolitan Effect 230.97*** 336.73*** - (13.20) (28.60) Distance Within MM -13.18*** - -0.8533*** (2.779) Outside of MM (0.08630) -0.089 - (0.289) Distance Within MM 0.188*** Squared - - (0.0638) Outside of MM -0.0001 - - (0.0011) Note that the effect persists if the four greatest cities are not taken into account (and all the districts for which one of the four largest cities is the closest metropolitan municipality), even if it is smaller. There- fore, while it is true that the effect is largest for the largest cities, it would be wrong to say that it is driven only by the large municipalities, as it is an effect that exists for smaller cities too. 10 * denotes significance at the 10percent level, ** at the 5percent level and *** at the 1percent level. 27 Rise of the Anatolian Tigers - Turkey Urbanization Review These market principles are well illustrated high spatial differences with very high concen- in Turkey, as the country features a relatively trations around the metropolitan cities/ mu- concentrated economic footprint, dominated nicipalities, as well as along Turkey’s borders. by the sixteen metropolitan municipalities. On the other hand, some eastern parts of the Analysis of 2006 firm level data by location, country witness very low levels of economic employment and industrial type from the activity. Another noteworthy observation is Union of Chambers and Economic Exchanges the substantial number of firms being estab- of Turkey (TOBB) shows high levels of geo- lished in the interior of the country, among the graphic concentration of economic activity, as emerging Anatolian Tigers, which are now cap- can be seen in Figure 12 (see Box 4 for details turing the positive economic spillovers from on data and analysis). It is clear that there are Turkey’s leading cities. Figure 12: Spatial Distribution of Firms Established through 2006 Source: TOBB Figure 13: Spatial Distribution of Firms Established between 2007 and 2012 Source: TOBB, 2012 28 Chapter 2: City Competitiveness Economic activity in Turkey exhibits a great shows the regression results at the industry degree of stickiness -- with new activity fol- level, focusing on the construction sector. It lowing historical patterns. When compar- shows that overall activity matters in explain- ing firms established in or before 2006 with ing the location of new construction firms, but “new” firms established between 2007 and that stickiness is above all a within-industry 2012, a strikingly similar pattern of firm loca- phenomenon, with construction firms locating tion emerges, suggesting high levels of geo- where other construction firms are and as a graphical stickiness (Figure 13). The similarity second order phenomenon, where overall ac- of the two maps shows that new businesses tivity is. The last column shows that there is a have tended to follow their peers. This issue “metropolitan effect” for construction firms. In of stickiness or convergence of districts where other words, construction firms have recently districts compensate for an early disadvantage established disproportionately in metropoli- is addressed later in this report. Further analy- tan districts even after accounting for existing sis of the firm data indicates a very strong cor- differences, such as population. This further relation (0.9386) between the location of old underscores the point that markets are func- firm (prior to 2007) and location of the new tioning well in Turkey, as metropolitan districts firms of new firms. have experienced faster population growth Analyzing results beyond the dynamic of old than their non-metropolitan counterparts, and new firms reveals interesting and differ- thereby generating higher demand for con- ent industry patterns. The following table struction. Box 4: Data and Level of Analysis Studies on localization and concentration of economic activity usually use data on real wages or produc- tivity. In the case of Turkey, computing real wages was not possible, as housing or transportation costs are very hard to derive. Similarly, city level data on productivity is not available. Different data sources are used in this study. First, population and education data come from the 2000 Census and the Address Based Population Registration System from TURKSTAT. Second, firm location, employment and branch of economic activity are obtained from the Union of Chambers and Economic Exchanges of Turkey (TOBB). This data consists of more than 60,000 observations representing all registered Turkish firms. It contains their economic activity, number of employees, employment classification, location, and, for most of them, their date of establishment. Therefore, the heart of the analysis is firm or job data. It is important to highlight that the firm level data contained in the dataset has been aggregated at the district level, when most previous work was done at the province level. Having access to a more granular level of data (there are 957 districts but only 81 provinces) allows for a more in-depth understanding of mechanisms and patterns of distribution of economic activity in Turkey, particularly at the city level. It is a significant contribution made by this report insofar as it allows for a deeper understanding of the dy- namics within and external to the metropolitan municipality regime. All of the first sixteen metropolitan municipalities are included within the scope of this report11 . Source: Urbanization Review Team 11 Greater metropolitan municipalities are created by the Turkish Parliament according to criteria defined in the Greater Municipality Act of 1984 and the New Greater Municipality Act of 1984. They are (in alphabetical order): Adana, Ankara, Antalya, Bursa, Diyarbakir, Erzurum, Eskisehir, Gaziantep, Istanbul, Izmir, Kayseri, Kocaeli, Konya, Mersin, Sakarya and Samsun. 29 Rise of the Anatolian Tigers - Turkey Urbanization Review Table 2: New firms in construction All Districts Number of Old Construction 0.311*** 0.267*** 0.350*** Firms (0.0214) (0.0250) (0.0191) Number of All Old Firms 0.0032*** - - (0.00056) Metropolitan Effect 0.3316*** - - (0.116) Population 1.77e-06*** - - (3.68e-07) The metropolitan effect on the ICT industry, based classification) suggests even less ben- as expected, is the most pronounced of all efits from agglomeration economies. Specific sectors. Figure 14 shows that eighty percent service sub-sector analysis would likely yield a of ICT firms are concentrated in metropolitan more diverse picture. For instance, it would al- cities. Manufacturing is also concentrated in low for distinctions to be made between ser- the largest cities, with over 50 percent of firms locating in cities with more than one million vices such as pharmacies (broadly distributed inhabitants. However, the construction sector in response to consumption markets) and in- evidences less of an agglomeration economies novation and know-how services that typically effect, while services (because of its broad- benefit from agglomeration economies. Figure 14: Distribution of Firms Across City Sizes - by Sector Source: TOBB 30 Chapter 2: City Competitiveness But the positive effect of a metropolitan mu- grant, as well as some money being collected nicipality attracting firms varies across the through the levying of local Council Tax. Re- system of cities. While on average the effect is sponsible for the administration of an area in positive, this effect is not present for all cities. excess of 610 sq miles, the GLA shares its pow- In Izmir, for example, some suburbanization is ers of local governance with the councils of the observed in a small radius around the city core 32 London boroughs and the City of London (10-20km) when looking at employees per in- Corporation. Created as a means of improving habitant. Figure 15 below also shows that for the coordination of local governance, the GLA’s Izmir the metropolitan effect is not apparent, powers were enhanced by the 2007 GLA Act, with non-metropolitan districts concentrating which saw the Mayor of London and London a larger number of firms than metropolitan Assembly gain further influence in a number districts in the 20-50 km distance band. of areas, including housing, planning, climate Creating metropolitan municipalities is not change, waste, health and culture. Although enough to ensure coordination across dis- the GLA does not provide any direct services tricts. The right incentives for coordination itself, it is responsible for coordinating land use need to be provided. For example, the Greater planning in Greater London, while also work- London Authority (GLA) is the top-tier admin- ing with the rest of the GLA Group - Transport istrative body for Greater London, consisting for London (TfL), London Fire and Emergency of a directly elected executive Mayor of Lon- Planning Authority (LFEPA), and the Mayor’s don and an elected London Assembly, which Office for Policing and Crime – and a range of has 25 members. As the strategic regional au- other stakeholders, to deliver the Mayor’s vi- thority, the GLA has three fundamental areas sion for London, as laid out in the London Plan. of responsibility: Economic development and The GLA, furthermore, offers London a degree wealth creation, social development, and en- of continuity in terms of delivery of this vision vironmental improvement. The GLA derives its as it is a permanent body, unlike the elected funding largely through a direct government Mayor and London Assembly.12 Figure 15: Average Employment per Inhabitant in and around İzmir Source: TOBB and ABPRS, TurkStat 12 http://www.london.gov.uk/who-runs-london/greater-london-authority/ 31 Rise of the Anatolian Tigers - Turkey Urbanization Review Urban Density as a Contributor to While density contributes to agglomeration economies, physical population density by Agglomeration Economies itself is not a recipe for success. What is im- Urban density is a key factor in leveraging portant is that densities are articulated and agglomeration economies and large cities in allow for capital intensity. For this to happen Turkey exhibit densities comparable to other it is necessary that land markets are efficient, globally prominent cities. Densities in some of and floor space and other capital structures Turkey’s cities are comparable to Los Angeles accompany population density. This brings to (US), Rio de Janeiro, (Brazil), and Buenos Aires, the forefront the importance of effective ur- (Argentina). In fact, compared to other world ban planning. Without a concerted effort to cities, Turkey’s largest cities have performed plan cities and effectively manage urban land, above the mean. Figure 1613 shows estimated there are high risks of sprawl and inefficient densities for over 1500 cities around the world land uses, a phenomenon that is beginning to and suggests that cities such as Tarsus, Diyar- emerge in Turkey. Underpinning this approach bakir, Bursa, Gaziantep, Mersin, Konya and is a well-designed land valuation system. Izmir are denser than internationally-compa- Land prices are central for land markets to rable cities. Istanbul’s density is very close to function efficiently. When land prices are the international average density for its popu- high, as they typically are in central business lation size. On the other hand, Ankara, Antalya, districts, developers will supply dense devel- and Eskisehir have densities slightly below the opments, including high-rise office buildings, international average of similar cities in terms large shopping centers and multi-story hous- of their population size. ing. They do this because they need to gener- Figure 16: Population and Density in Turkish Cities 40000 Diyarbakir Gaziantep Population Density (pop/sq mile) Adana 30000 Izmir Istanbul Mersin Konya 20000 Ankara Kayseri Antalya Eskisehir 10000 0 10 12 14 16 18 lnpop lowess: Density_per_sqmile Density_per_sqmile Note: Using information on population and densities for over 1500 cities, local averages are estimated and depicted through the blue line. For any given population level the trend line indicates the average, or expected density. Cities above the trend line have densities above the international average for their population size, while cities below the line have densities below the international average. Source: Data from Demographia (2008) and Urbanization Review Team calculations 13 This report used Lowess plotting to find the non-linear relationship between population and density. LOWESS- Locally Weighted Scatterplot Smoothing- carries out robust locally-weighted time series and scatter plot smoothing for both equispaced and non-equispaced data. 32 Chapter 2: City Competitiveness Figure 17: Inefficient urban expansion land registry offices while also providing more when land prices are distorted predictable and buoyant revenue streams for local administrations. 3,000 Managing peri-urban expansion will be a criti- 2,500 cal determinant of how successful cities will Urban Land Price Undervalued agricultural land price be in harnessing agglomeration economies Price of land per m2 Market value of agricultural land 2,000 as well as in inducing efficient resource al- location into the future. In Turkey, there is 1,500 Limit of urbanization an emerging risk illustrated by the fact that when agricultural land is valued at market price in 2011 the growth rate of the metropolitan 1,000 municipality population residing more than Limit of urbanization when agricultural land price is undervalued 20 km away from the center is larger than in 500 A1 D1 2000. Location of economic activity follows D2 A2 a similar pattern to that of population inside 0 5 10 15 20 25 metropolitan municipalities. This is to be ex- Distance from city center pected because land in core urban areas is Source: http://alain-bertaud.com/ largely fully utilized, leaving few options for new firms without concerted efforts at urban ate revenues from selling or renting buildings redevelopment. Empirical data analysis shows that will cover both construction costs and that manufacturing, services and construction land costs. Higher land prices routinely lead to firms are distributed almost at even rates with higher density –enhancing productivity spill- respect to distance to the nearest metropoli- overs and potentially increasing supply of af- tan core (see Figure 18). However, this is not fordable housing and managing demand for the case for ICT, which is highly concentrated transport. When ‘official’ land prices do not re- in the cores. ICT is also disproportionately lo- flect demand and are depressed at the urban cated in metropolitan municipalities, reinforc- periphery, it is likely that sprawl or suburban- ing the role of city cores in enabling ICT. ization will be excessive (see Figure 17). In fact, spatial expansion or peri- urban development Traditional activities, such as manufacturing, across a range of countries–Uganda, China, are moving out to the metropolitan suburbs. India, and Vietnam– point towards rapid peri Overall, industries that benefit from urban- urban development when land is not priced ization economies and their agglomeration right. This creates a major urban governance effects (such as ICT) are located in the cores, challenge as the scale at which urban and met- and industries that benefit from localization ropolitan economies now operate often do not economies (such as construction) are situ- coincide with their physical and administrative ated in the suburbs or more geographically boundaries – and the jury is still out on the diffused. This can be better seen in Figure 18 type of institutional arrangements that can en- plots “firm density” (number of firms per km2) hance coordination across these entities. for construction and ICT. The curve for ICT is significantly steeper showing that ICT firms are In moving towards a better system of land val- highly concentrated in the cores, when con- uation and dissemination of land price data, a struction firms benefit more from being able key step is to move towards property registra- to expand outside of the core. tion values that are closer to market values. Historically, there has been a tendency to un- Suburbs are home to large firms and those derestimate property values in Turkey due to benefiting from localization economies: Eco- the existence of taxes and charges associated nomic suburbanization is characterized by the with transaction values. Moving away from movement of larger firms to the suburbs. Fig- transaction charges and towards a system of ure 19 suggests that firms in extended suburbs property taxes should contribute both to im- are larger than firms in other parts of the cit- proving the quality of the data collected by the ies. Interestingly, the relation is not monotonic 33 Rise of the Anatolian Tigers - Turkey Urbanization Review with the distance to the core and, in fact, firms being located close to other similar firms. Old situated inside the cores are larger than what firms are systematically larger than new firms, could have been expected given the constraints which should not come as a surprise14. The associated with city centers, e.g. limited access slope is steeper for old firms as one moves to to developable land and increased congestion. the extended suburbs, suggesting that subur- This shows that some advantages must coun- banization happens both because more new terbalance those constraints, such as ease of firms are created in suburbs (as in Figure 20) access to transportation or the advantages of and because old firms are larger in suburbs. Figure 18: Spatial Distribution of Firms - by Sectors Source: TOBB Data, WB staff calculations 14 Especially given the potential survivor bias. 34 Chapter 2: City Competitiveness Figure 19: Average Growth Rate Figure 20: Average Size of Firms of Population in Metropolitan (Old and New) Municipalities by geographical area (2000-11) Source: 2000 Census, ABPRS, TurkStat and TOBB data, WB staff calculations Suburbanization of economic activity is lim- between distance to the core and economic ited to Turkey’s largest cities in terms of spa- activity only matters for very big cities. Second- tial expansion (average size, 45km) as Figure ary city cores are emerging in suburbs, while 21 below suggests. In other words, the impor- smaller cities remain fairly monocentric. tance of the non-linearity in the relationship Figure 21: Simulated Number of Firms per District and Distance to City Center, for an average city and an average large city Source: TOBB Data, WB staff calculations 35 Rise of the Anatolian Tigers - Turkey Urbanization Review The Importance of Human Capital products and services offered, while ubiquity refers to the number of cities producing the to City Competitiveness same good or service. High diversification Building an effective high quality education suggests enhanced competitiveness that relies system is essential for fostering growth and on a range of human capital. A low ubiquity enhancing competitiveness of cities. Today, score also suggests stronger city competitive- half the working-age population in Turkey has ness, as it indicates that a given city is able to less than basic education; this undereducated produce goods and services that other cities segment of the population accounts for 64per- are not able to product, relying on high quality cent of the jobless and 65percent of informal human capital. As can be seen from Figure 22, workers (World Bank, 2012). Introducing a sys- there is a strong negative correlation between tem of financing public education that focuses diversification and average ubiquity, which on equity concerns is likely to contribute to the shows that diversified cities are not only able competitiveness of the whole country. Stud- to produce many different products but also ies suggest that per capita financing schemes products that are not produced elsewhere. for education are more effective in reducing Large cities situated in the Western part of the equity concerns by generating per student ex- country (Istanbul, Izmir, Kocaeli for example) penditures that reflect variations in the real are very diversified and capable of producing cost of education across places (World Bank, non-ubiquitous goods, making them highly 2011). Improving targeting of public resources competitive. The challenge will be for other towards groups with greatest needs (the poor, cities in Turkey to improve their performance girls, and those in rural areas) may also con- in the diversity and non-ubiquitous (innova- tribute to decreasing spatial disparities in edu- tive) nature of the goods and services they cation and enhancing competitiveness across produce. the urban portfolio (Harmon et al. 2003, Patri- Turkey’s largest cities such as Istanbul and An- nos 2008 and World Bank 2011). kara lead innovation. For these cities to main- City competitiveness is strongly influenced by tain and improve their competitiveness, and a city’s human capital base. Figure 22 below to expand their pool of innovators, building a presents the diversity and ubiquity of product skilled labor force is important. Improving ac- and service offerings for a wide range of cit- cess to and the quality of education – not only ies in Turkey. Diversity refers to the range of in the large cities but throughout the urban Figure 22: Diversity and Average Ubiquity in Turkey’s Cities 50 ARDAHAN BİNGÖL 40 KARS ERZURUM Ubiquity ŞANLIURFA 30 DİYARBAKIR EDİRNE K-MARAS MALATYA TRABZON MERSİN KAYSERİ 20 ADANA DENİZL İ MANİSA KONYA KOCAEL İ GAZİANTEP BURSA ANKARA İZMİR İSTANBUL 10 0 500 1,000 1,500 2,000 2,500 Diversification Source: TOBB Database and TEPAV Calculations Note: A wide range of products produced by the city, while a high ubiquity score signals that the city is producing products that are widely produced by other cities, often by firms in easy-entry industries with limited innovation. 36 Chapter 2: City Competitiveness system – should be a priority. However, the percent (see Figure 24 below). Diyarbakir has illiteracy rate among the Turkish population an illiteracy rate (11.4percent) that is in fact aged 15 and more15 was 5.7 percent in 2011, more than its higher education rate (8.7 per- while people with more than a high-school ed- cent). Interestingly, Ankara has by far the high- ucation represented 10.8 percent of the popu- est rate of high school or higher 19.9 percent, lation. Figure 23 shows that the distribution a city, notably, with Turkey’s highest share of of educated people follows very closely the ICT firms. distribution of the urban population. This dis- A “metropolitan effect” is also observed in tinction is even further accentuated between education attainment: When comparing city metropolitan municipalities and the rest of the population illiteracy and higher education at- country. While rural districts house a very small tainment levels spatially across districts within fraction of highly educated people, metropoli- metropolitan areas and those outside, sharp tan municipalities house a disproportionately contrasts emerge. Figure 13 plots the illiteracy large number. and the higher education attainment rate for city districts by their dis- Figure 23: Human Capital in Turkey tance to a city center and whether they belong to a metropolitan municipal- ity. A fairly uniform pat- tern for illiteracy emerg- es within metropolitan municipality boundaries, as distance to the city center seems not to mat- ter (there is no suburban- ization of human capital). However, there are much stronger dynamics relat- ing to population with higher education attain- Source: APBRPS, TurkStat, WB staff calculations ment across metropoli- There are also wide disparities in human capi- tan municipalities, where there is a signifi- tal even across Turkey’s largest cities. In Ga- cantly higher level of educational attainment ziantep for example, only 7.4 percent of the in the city cores and relatively sharp declines population has high school or higher educa- when moving toward districts outside the city tion, a rate very close to its illiteracy rate of 7.2 core. This inverse relationship of higher edu- Figure 24: Human Capital across Turkey’s Cities Source: APBRPS, TurkStat, WB staff calculations 15 In the following analysis, all the education statistics concern the population aged 15 or more. 37 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 25: Human Capital and Distance to City Center Source: APBRPS, TurkStat, WB staff calculations cation attainment declining from metropolitan across income levels as well as geographical city cores to the periphery and to non-met- areas seem to perpetuate disparities in educa- ropolitan areas and illiteracy rates rising with tion outcomes. Education financing in Turkey movement away from the center of the metro- is highly centralized and distributed based on politan city underscores the significant metro- a fully norm-based scheme where per school politan effect in attracting human capital. Ear- allocations are assigned based on a small set lier patterns of firm location featuring strong of indicators that do not reflect demand nor ICT industry presence in the metropolitan city include equity considerations (World Bank cores is a strong explanatory variable in the 2005b, 2006a, 2011). While this remains spatial patterns of educational attainment. true for recurrent investments, an analysis of As part of an effort to address the human investment spending in Education in recent capital disparity in the eastern parts of Tur- years (Figure 25) suggests that government is key, spending on public education has shifted seeking to further improve access to educa- over the last decade, signaling an important tion in the traditionally under-served eastern policy response. Significant disparities in pri- regions by increasingly shifting new education vate and public financing of education both investments towards these regions. Figure 26: Spatial Distribution of National Expenditures on Education in 2001 and 2011 2001 2011 Source: Ministry of Development Public Investment Data, WB staff calculations 38 Chapter 2: City Competitiveness The Importance of Connectivity to gates than the lowest performers, i.e. average speeds are faster that the top exporters reach City Competitiveness major border gates faster than the worst17. Improved transport infrastructure can in- Better performers save on average 14 minutes crease competitiveness and productivity of for every 100 km traveled compared to the Turkish cities. Recent empirical studies sug- works performers (World Bank, 2011b). gest that transport infrastructure can increase Some exporters, with variation across differ- competitiveness and productivity in connected ent regions in Turkey, identify transport as an areas.16 Given the wide disparities in terms of obstacle to doing business more frequently income and production across western and than non-exporters. A recent perception sur- eastern provinces and among large and small- vey among producers suggest 47 percent of er cities in Turkey, connective infrastructure exporting firms interviewed report quality of is likely to have a positive effect on competi- transport as an obstacle for doing business in tiveness and productivity in both areas (World Turkey as opposed to only 41 percent of non- Bank, 2011b). Table 3 below shows the top exporting firms (see Figure 27 below). There and lowest performing provinces in terms of are also variations across regions. While more exports, between 2001 and 2009, together than 44 percent of the firms located in the with the average travel speeds when traveling Black Sea and Eastern regions identify trans- toward a border gate. The numbers in Table 3 port as an obstacle, the percentage is below suggest that provinces that perform better in 38 for firms locating in Central Anatolia and terms of exports have better access to border Aegean regions. Table 3: Provincial Export Performance and Access to Border Gates Top Five Exporters Average Speed Lowest Five Exporters Average Speed Istanbul 73.1 Tunceli 64.7 Bursa 73.2 Gumushane 64.3 Izmir 71.2 Bingol 62.1 Kocaeli 75.1 Ardahan 58.3 Ankara 74.0 Bayburt 63.3 Mean 73.3 Mean 62.6 Figure 27: Transport as an Obstacle to Doing Business Source: The EBRD-World Bank Business Environment and Enterprise Performance Survey (BEEPS) 2008 and World Bank mimeo 2010 16 Donaldson (2009), Banerjee, Duflo and Qian (2009) 17 The difference between the means of the two groups is significant at the 99 percent confidence level. 39 Rise of the Anatolian Tigers - Turkey Urbanization Review Other international indicators of connectiv- to sustain such trends over time. Over the ity, such as the Logistics Performance Index last decade this was shown to be particularly (LPI), suggest Turkey’s system of cities may be the case in the secondary cities or Anatolian performing satisfactorily overall, but sub-op- Tigers. The metropolitan municipality regime timally in some regions. The 2010 LPI report is also a likely contributing factor in achieving ranks Turkey 39th out of 155 countries with a higher than average urban densities to date in score of 3.22. According to LPI, more than 63 Turkish cities. And metropolitan municipali- percent of the survey respondents believe that ties, particularly the leading three, have been quality of railways in Turkey is either low or able to attract human capital necessary to fuel very low. This percent is around 18 percent for innovation and promote their competitive- roads and ports, putting Turkey below some of ness. its international comparators such as China, But urbanization is a dynamic process and Taiwan, Malaysia, Republic of Korea, South ongoing trends suggest risks that need to be Africa and Czech Republic. Recent passage of considered in Turkey’s second generation ur- the Rail Reform Law will help to improve this ban agenda. Turkish cities are experiencing performance overall, but particularly in cities changes in firm location, with increasing num- that suffer most from inefficient rail transport. bers seeking to locate at the periurban areas Identifying priorities for investments in con- within the metropolitan area. Without strate- nective infrastructure can make a vast differ- gic spatial planning interventions, this can lead ence for cities, and the whole country. Invest- to substantial risks of growing congestion and ments in connective infrastructure are likely the inability to align land use planning with ur- to increase competitiveness across the system ban transport networks. As such, city planning of cities by setting priorities to identify the and promotion of connectivity within and be- most effective additions and improvements to tween cities will take on greater importance. the networks will increase the impact of lim- This reality is compounded by the issuance of ited financial resources. Better understanding the new Metropolitan Municipality Law in De- of flows across the networks can contribute cember 2012, which extends the boundaries to identifying the segments that are likely to of all metropolitan municipalities to their pro- reach high congestion levels in the near future, vincial limits, and is likely to facilitate sprawl and where investments would have higher dis- without an effective planning regime in place. tributional impacts. Connective infrastructure Improving land valuation systems will also have within cities is perhaps Turkey’s greatest bind- an important impact on encouraging dense ur- ing constraint to competitive cities and is as- ban development, where land will need to be sessed in detail in Chapter 3. used even more efficiently in central business districts in particular. Current efforts by the Key Findings and Policy Government of Turkey to test and potentially Recommendations rollout a more efficient, market-based prop- The stylized facts and analysis reviewed in erty valuation system are a very encouraging this chapter highlight various aspects of the sign. Such methodologies would also enable economic competitiveness of Turkey’s cities. improved local revenue mobilization (a key This competitiveness has hinged on a forward recommendation of Chapter 5 – Financing Cit- looking Metropolitan Municipality Law issued ies) to help Turkey leverage the increasing val- in 1984 that promotes policy and implemen- ue increment that urbanization brings rather tation coordination and coherence across a than placing additional burden on the central metropolitan footprint, likely influencing the budget for increased fiscal transfers to meet strong metropolitan effect in attracting firms growing city infrastructure finance needs. and population. Metropolitan municipalities were also shown to have a degree of “sticki- ness” that enables them not only to attract firms but also to retain them and to be able 40 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Chapter 3: Improving Access to Affordable Housing in Turkish Cities Housing is central to successful urbanization. ing agenda over past decades. These included Access to housing improves the living condi- the creation of a Housing Development Ad- tions and can have a positive impact on health, ministration (TOKI) in 1984, which was granted improve school performance of children, and broad powers to facilitate impact and interven- self-satisfaction among others. However, a tion in the provision of housing collaboratively well-functioning housing market is also es- with the private sector. A series of amnesties sential for the economic performance of cit- were also issued, granting residents of infor- ies and countries. Housing is usually the most mal areas legal tenure and both national and important tangible asset of the economy. As local administrations acted to provide basic an example, housing assets represent over 57 services to these settlements that were over percent of the total value of tangible assets time regularized. And access to longer term in the British economy. Furthermore housing finance for housing mortgages has improved also plays a role in the creation of jobs. The particularly in recent years. Over time, how- construction sector is a large employer in de- ever, this agenda has evolved and expanded veloping countries as it is typically more labor geographically, where urbanization pressures intensive than other sectors (Collier and Ven- have increased in Turkey’s Anatolian Tigers ables, 2012). Today, over seven percent of em- which are less equipped and experienced to ployment is concentrated in the Turkish con- deal with the problem. Provision of afford- struction sector. able housing therefore remains a key part of the second generation urban development Given its importance both for quality of life agenda. and economic performance, efficient housing markets are essential. However, achieving ef- To better identify and understand the bottle- ficiency is not a simple matter, as it requires necks of the housing market in Turkey, this coordinated actions of several institutions Chapter organizes the challenges the country both at the national and local levels. Collier faces around the five vulnerabilities identified and Venables (2012) compare 19th century by Collier and Venables. We start by present- London with the challenges that many devel- ing some stylized facts about the housing sec- oping countries face today with rapid urban- tor in Turkey and identify the main challenges ization. While in developing countries hous- its cities face. The five vulnerabilities are then ing for rapidly growing urban populations has reviewed in the Turkish context. Finally, some been solved through the informal market, in policy options to address these vulnerabilities 19th Century London, the formal market kept are presented. The coordination of policies up with increasing demand. Collier and Ven- across the planning-connecting-financing pol- ables attribute the successful development of icy framework of the Urbanization Review can the housing market in 19th Century London to a lead to expansion of affordable housing. central government that addressed five poten- tial vulnerabilities of the market in a coordinat- ed manner. These five vulnerabilities relate to affordability, legal rights, financial innovation, supporting infrastructure, and opportunities for income. Turkey’s housing sector challenges have been met with early engagement, as well as per- sisting supply shortages. Chapter 1 highlights the numerous measures taken by the Turkish Government to address the low income hous- 41 Rise of the Anatolian Tigers - Turkey Urbanization Review Turkey’s urban areas need an estimated 1.4 ziantep and Antalya are also experiencing rapid million houses.18 In 2012, the housing need urban growth with increasing housing needs. was estimated at 1.2 million and is expected There is a gap of 9 years between demand and to have increased to 1.4 million by today (see housing starts. Figure 29 below presents the below). This increase has not been uniform trend in the ratio of housing starts to housing across cities. A couple of cities bore the maxi- needs.20 The annual housing starts picked up mum brunt mostly due to their location and during 1990s reaching 500,000 in 1993. How- respective economic importance (Figure 28).19 Among the 8 major metropolitan cities, hous- ever, a massive earthquake in the North-west ing need in Istanbul grew much faster than followed by an economic crisis thwarted the in other cities, followed by Ankara and Izmir. positive growth trajectory (Turel, 2012). With The remaining five cities, e.g., Adana, Antalya, increasing population pressures in cities, the Bursa, Gaziantep and Konya shared a common supply of formal housing has lagged demand pattern. Both Istanbul and Izmir experienced throughout the period between 1950 and a sudden jump in housing needs during the 2010. A Granger causality test between hous- early 1960s and continued growing for a de- ing starts and housing need for the period be- cade. In the 1980s, one third of the total urban tween 1955 and 2010 is used to statistically population in Turkey lived in these three met- test this hypothesis.21 The test, evaluated with ropolitan centers. While this trend of uneven 1 to 15 annual lags, confirms that between spatial growth in population still continues and 1955 and 2010, housing starts respond to there has been concentration of settlements housing need with a gap of at least 9 years. in coastal regions, recent trends indicate that This causality is strong (statistically significant other medium and large sized cities like Ga- with a 99 percent confidence level) (Table 4). Figure 28: Trends in urban population and housing needs for Turkey and its major urban agglomerations Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision and World Urbanization Prospects: The 2011 Revision, August, 2012. 18 Estimation is based on population data published by Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision and World Urbanization Prospects: The 2011 Revision, August, 2012. We consider 4.5 as the average size of a Turkish household to compute housing need. 19 Additional housing need is measured as the change in number of households between two years. 20 A lower value of the ratio indicates a wide gap between needs and starts. 21 The Granger test is a statistical test of “causality” in the sense of determining whether lagged observations of one variable have incremental fore- casting power over another variable, when added to a univariate autoregressive representation of a variable. For technical details see Box A3 in the appendix. 42 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Figure 29: Trend in housing starts to need ratio in Turkey Source (for Permits): TUIK, Building Construction Statistics (Annual) Source (for housing need): Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision and World Urbanization Prospects: The 2011 Revision. Table 4: Granger causality Wald tests Equation Excluded lags ᵡ2 Prob> ᵡ2 Δ2 log permit Δ2 Log housing need 1 0.355 0.55 2 0.352 0.84 3 2.08 0.52 4 5.21 0.27 5 7.61 0.18 6 7.44 0.28 7 9.39 0.23 8 11.73 0.16 9 24.43 0.004*** 10 38.39 0.000*** 11 55.45 0.000*** 12 83.77 0.000*** 13 106.59 0.000*** 14 153.11 0.000***     15 200.99 0.000*** Note: Detailed methodology is provided in the Appendix. Δ2 indicates unit root test with second difference operator. 43 Rise of the Anatolian Tigers - Turkey Urbanization Review In the absence of a fully developed financial housing are increasing. This is a serious con- market, better off people use housing as a cern as households with limited budgets are security against inflation. As shown in Figure making tradeoffs between alternative expen- 30 below, between 1998 and 2010, the share ditures. Households make tradeoffs in how of gross domestic savings to GDP went down much housing to consume and how much to by 10 percent while the share of value added spend on commuting. However, in many cities to GDP rose by the same percentage. Between – zoning prohibits poor people to live close to the hyperinflationary period and 2003-04, it employment opportunities, and the failure of was preferable for well off households to in- affordable transport means that people fur- vest more on housing rather than putting their ther away pay much more (in time or money) money aside on savings; the rise in value addi- to access jobs. tion in dwellings during that period may also have been promoted by the low interest rates Identifying the and easy access to capital. Vulnerabilities of the While Turkey has done much to reduce the in- Housing Sector in Turkey formality of housing for the poor, it remains As opposed to other private goods, the hous- a persisting challenge. Despite early initia- ing market is subject to several points of “vul- tives to address the urban housing pressures nerability” given the fact that it is a household in the 1980s, as population in Turkish cities has asset produced by the non-tradable sector continued to grow, formal housing supply has (Collier and Venables, 2012). These vulnera- not been able to fully keep pace with demand, bilities can be addressed through government creating a persisting challenge of dealing with interventions and policies. But for this to be gecekondus. Literally translated as ‘erected successful, what is more important is the coor- overnight’, these informal structures are not dination across all policies. slums but squatter villages that are home to The first vulnerability is affordability of hous- Turkey’s poorest segment of the population. ing. To evaluate housing affordability it is nec- Housing rigidities are creating affordability essary to look at what households spend on concerns. With limited housing supply and a housing and get a better understanding of the lag of 9 years in reacting to demand, prices of tradeoffs they are facing as they access housing Figure 30: Trends in share of gross domestic savings value addition in dwellings to GDP Source: Data Development Platform, World Bank 44 Chapter 3: Improving Access to Affordable Housing in Turkish Cities of different qualities and adjust their expendi- minimizing administrative costs and reducing tures given a limited budget. But understand- risks may improve access to housing. ing where affordability problems stem from Supporting infrastructure is the fourth vulner- requires looking at several things that may ability. This vulnerability is linked to the fact influence the cost of housing. Among these are construction costs, including the price of that access is not enough, quality is essential. cement and labor costs for example, building And quality includes supporting infrastructure standards and regulations, and also the market that must go hand in hand with the provision structure – monopolistic structures may lead of housing. These infrastructure services in- to higher prices than in a competitive setting clude things such as roads, drainage, water, or it may also lead to market segmentation and street lighting among many others. Be- leaving some sectors of the demand without cause many of these services are network or the associated supply and pushing these sec- simple public goods and investment in infra- tors of the demand into the informal market. structure is associated with a series of positive externalities, there is scope for government As urbanization pressures increase, demand for land rises and tools for accommodating intervention in the provision of these goods, urban expansion and redevelopment become either by directly providing them, distributing increasingly important. However, the success subsidies, or providing incentives. Coordina- of these tools is typically based on both the tion of infrastructure provision and housing clear definition of property rights and a set of provision is essential for cost-effectiveness as robust systems for assessing land values. This costs of retrofitting may be prohibitive. is in fact the second vulnerability, which Collier The fifth and last vulnerability is that of op- and Venables refer to as the vulnerability of le- portunities for income. As mentioned above, gal rights. This vulnerability affects the housing infrastructure is essential. But access to basic market in several ways, including through im- services is not enough. Households must be pact on ownership, security and marketability connected to the city to be able to have op- of housing assets. Clear definition of property portunities for employment both within and right and transparent appraised land values beyond the immediate vicinity of where their prevent land related conflict at the moment of acquiring land for infrastructure expan- house is located. For external opportunities, a sion. Institutions that improve the information good public transport network is important, foundations of the valuation process, including roads that link residential areas with job cen- a trained cadre of appraisers in property valu- ters are essential. For internal opportunities, ation, contribute to ensuring transparency in facilitating mixed land uses and encouraging the valuation process, and to making informa- higher densities that promote the colocation tion of land values widely accessible. of jobs and residences would open addition- al employment alternatives for households. The third vulnerability is access to housing As densities increase, a positive externality is finance. Housing finance is essential to en- reflected in the increased economic opportu- sure access to housing through to different but interrelated mechanisms. First, housing nities that appear in the area. The presence finance is needed for the short term support of this externality opens the door for govern- of construction. When working capital is not ment intervention, to guarantee that the posi- available for construction firms, supply will be tive externality is reflected in higher densities, limited and therefore access to housing may even when private costs would prevent it. In decline, in particular for low income house- what follows, this chapter provides an assess- holds. Second, long term housing finance is es- ment of Turkey’s housing market performance sential to allow households to purchase prop- through the lens of the five vulnerabilities de- erties. Financial innovations that contribute to scribed above. 45 Rise of the Anatolian Tigers - Turkey Urbanization Review Vulnerability 1: Affordability erage expenditure shares see Table A1 in the appendix). With limited housing supply in the formal sector, affordability is an increasing concern Rental cost increases for the poorest house- in Turkish cities. The share of housing rent and holds represent the highest share of house- utilities together, increased by 10 percentage hold expenditure increases. Exploring the points between 2005 and 2009 for the poorest growth of average expenditures in rent and households in urban areas in Turkey (see Fig- utilities between 2005 and 2009 and compar- ure 31 below). Today, a large number of low- ing it with the growth in average consump- income households do not have the means to tion through the same period, contributes to purchase or rent housing units within the legal further strengthening the above market. This housing stock. analysis confirms that the increase in share of rent and utilities in total expenditure is indeed Between 2005 and 200922, the rising share of due to an increase in average real spending on household expenditure on rent and utilities these items and not due to the shrinkage of has been a major concern among the poor. overall real consumption. Figure 32 presents Overall, an increasing trend is observed for the the growth in rent, utilities and overall aver- lowest three deciles, while for the middle and age consumption between 2005 and 2009.23 high income groups the trend is mostly either As the figure clearly suggest, for the poorest stationary or declining (see Table A1 in the households (decile 1), increases in the budget Annex A). For the lowest decile, the share of share of housing costs between this period are monthly expenditures on rent and utilities in- driven by increases in rent. While rents in real creased from 34 to 43 percent between 2005 terms increased on average 28 percent in the and 2009 (Figure 31 (A) and (B) above). The period studied for the lowest decile, the aver- situation is however better and does not seem age growth for utilities costs and total expendi- to be a serious concern for middle- and high tures in real terms was around 15 percent. This income groups (for the full distribution of av- confirms that the increases in budget shares of Figure 31: The share of housing rent on total expenditure increased more for the poorest households between 2005 and 2009 (A) Share of Rent and Utilities on Total Expenditure (B) Share of Rent and Total Expenditure Source: HBS several years and authors calculations 22 We excluded 2003 from the analysis because being immediately after the crisis and with hyperinflation still lingering, it was no appropriate as a reference year. 46 Chapter 3: Improving Access to Affordable Housing in Turkish Cities housing costs observed in Figure 34 point at Figure 32: Growth in rent, utilities and affordability concerns rather than at shrinking consumption between 2005 and 2009 overall real expenditures. Further, while rent expenses for the highest decile also increased between 2005 and 2009, their increase was on average almost 14 percentage points low- er than that for the lowest decile (for growth rates for all expenditures deciles see table A2 in the Annex). But rental rate increases have not fully kept pace with property value increases. The trends shown in Figure 33 below suggest that in Turkey renting a house may be more afford- able than buying one, especially for lower in- come groups. While property prices have in- crease steadily starting on the first quarter of 2009 and after a steep decline throughout the Source: HBS several years and authors calculations. 2008, rent prices have remained below 2007 levels. market, developers could also decide to dis- criminate buyers by focusing only on high qual- Construction costs may be driving up proper- ity housing, leaving lower income groups with ty prices, exacerbating affordability concerns. no choice and creating a segmented market Increases in production cost between 2008 where low income groups rely on self-building and 2011 made housing less affordable to the for example. Alternatively, in a market where poor. Figure 34 shows that between 2008 and only a handful of developers controls the vast 2011, the increasing trend in housing price majority of housing production, if one of these was influenced by rising trends in materials developers falters there is a high risk not only costs. During this period, labor costs increased of limited housing availability but more impor- steadily. While materials costs decreased con- siderably in 2009, driving property prices down tantly, given the role that housing has as the below 2008 levels, they have been increasing most important tangible asset, there is the risk at an exponential rate since the first quarter of overall economic instability. of 2010. The exponential growth of material Construction market competition is generally costs seems to be driving the increase in hous- healthy at the national level but less competi- ing prices. Lack of information does not allow tive in regions. While information is not avail- to identify the sources of these increases in able for all new construction in Turkey, analysis costs but this is clearly an area where addition- of TOKI construction projects in the last years al efforts to understand the market dynamics suggest there is not a high concentration of would be of great value. the market at the national level (see Box 5 for Limited competition in the construction sec- a detailed discussion). This means that at the tor is a likely contributor to high costs of mate- national level, the construction sector appears rials. Just as in any other market, the structure to behave competitively. At the local level on of housing market should have a strong impact the other hand, the market seems to be con- on prices, and therefore, on affordability. If centrated in a handful of local firms. Consider- only a few developers are available, it is likely ing that TOKI projects are usually mass housing that they will exhibit monopolistic character- projects and not small scale developments it is istics, driving housing prices up and raising af- not surprising that concentration is observed fordability concerns. Further, in a monopolistic at the local level. 23 Growth rates are calculated on consumption values given in 2005 constant prices. 47 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 33: The house price index and house rent index across Turkish cities Figure 34: Trends in house price and cost indices Source: The Association of Real Estate Investment Companies Report, 2009 and 2011. 48 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Box 5: Herfindahl-Hirschman Index - Measuring concentration of construction firms in Turkey The Herfindahl-Hirschman index (HHI) is a measure of industry concentration equal to the sum of the squared market shares of the firms in the industry. A commonly accepted measure of market concentra- tion. The HHI number can range from close to zero to 1 when shares are represented as fraction of the total equals 1. The HHI is expressed as: HHI = (s1)2 + (s2)2 +( s3)2 + ... +( sn)2 Where, sn is the market share of the nth firm. The value of HHI tends to 1 as the market gets closer to monopoly.We construct the HHI to find out the concentration of construction firms in TOKI housing projects across metro municipalities in Turkey. The following table presents the Herfindahl-Hirschman index of construction firms across metro municipalities. We used each firm’s share in total (i) housing and (ii) worth across metropolitan municipalities separately. The sum of ‘squares of share of each con- tractor’ for each metro provides us the HHI/metro. As per the thumb rule that any value larger than 0.1 (10percent) indicates concentration, the follow- ing HHI across shows that construction companies are highly concentrated across cities other than the larger cities such as Istanbul, Ankara and Izmir. Using a similar approach to find nationwide concentra- tion however, there does not appear to be evidence of concentration of the market in the hands of a few construction firms. The results suggest that construction companies are only locally (rather than nationally) concentrated in Turkey.   HHI in terms of HHI in terms of Metro_name Number of housing Total worth of the projects Adana 0.50 0.30 Ankara 0.24 0.21 Antalya 0.23 Bursa 0.48 Diyarbakir 0.37 Erzurum 0.34 0.24 Eskisehir 1.00 0.38 Gaziantep 1.00 0.39 Istanbul 0.10 0.11 Izmir 0.13 0.30 Kayseri 0.33 0.51 Kocaeli 0.52 0.44 Sakarya 0.37 Samsun 1.00 0.71 Meeting Housing Needs: Social the central government in influencing housing supply, in particular through the role of TOKI. Housing and Evolution of the TOKI In its own words, the mission of TOKI is to “of- Model fer hope to millions of Turkish citizens who, un- At the national level, TOKI is a key player in der normal market conditions, would not have implementing national housing policy in Tur- an opportunity to own their own home, or live key. One of the salient features of the hous- in a neighborhood with modern schools, busi- ing market in Turkey is the increasing role of ness areas, hospitals, mosques and libraries.”24 24 www.toki.gov.tr 49 Rise of the Anatolian Tigers - Turkey Urbanization Review Currently TOKI participates in housing supply providing housing for high-income groups. under several models. For the poor and dis- These projects are expected to generate funds advantaged, TOKI provides housing with no to be used in housing projects for low and mid- down payment and low repayments of up to dle-income groups as TOKI is an autonomous 25 years. These units are usually quite small, administration and does not receive any al- being between 45 and 65 square meters. This location from the central government. Under model is a housing production program imple- this model, TOKI participates as a partner in mented in coordination with the Ministry of developing projects by providing the land and Family and Social Policy for the poorest seg- assigning contracts through a competitive bid- ments of the population and is the most com- ding process. TOKI receives the land for social prehensive project implemented for this in- housing projects at no cost. The land that TOKI come group in Turkey. For low income groups provides can come from Treasury, public en- with larger payment capacity, properties be- tities, government agencies or individuals (if tween 65 and 87 square meters are offered necessary). For project implementation, the with down payments around 12 percent and land values are said to be assessed through a low re-payments of about 200 USD per month market valuation process. TOKI reports that, as for up to 15 years. These two low-income of January 2015, the portfolio size of the lands groups are identified as the lowest 20-40 per- owned by TOKI is approximately 170,705,716 cent of the income distribution. Under the cur- m2. rent structure of Turkey’s housing supply sys- What role do housing cooperatives play? tem, a considerable percentage of households Housing cooperatives played a significant role at the bottom of the income distribution are in supplying low and middle-income housing inevitably excluded in mass housing projects, in Turkey for a long time (Turel, 2012). During and Turkey needs to consider alternatives to the import substitution regime, the housing property ownership, including options for af- cooperatives generally built on public lands, fordable rental property. For middle-income supplied by the municipalities at a price below groups, properties between 87 and 146 square market rates. The value added tax (VAT) was ei- meters are offered with alternative down-pay- ther not applicable or at its minimum. The co- ments (10 and 25 percent) and market adjust- operatives improved its credit extension after ed re-payments of up to 8-10 years. the mass housing law was amended in 1984. How much of TOKI housing is reaching the The share of housing cooperatives in total poor? TOKI officials estimate that about 87 housing supply increased from 8.7 percent in percent of the housing stock they build ben- 1980 to 25.2 percent in 1990-92 (Berkim and efits medium to low income households. Of Osmay, 1996; Ozdemir, 2011, Turel, 2012). that about 22 percent benefits the lowest The importance of housing cooperatives was, 10% of the income spectrum. Further, TOKI however, greatly affected immediately after reports that 31 percent of the housing loans that. Cooperatives began to precipitously de- have been received by workers, 30 percent by cline as a business model roughly at the same civil servants, 7 percent by retirees, 13 percent time that credits from public funds declined by tradesmen and the remaining 19 percent by heavily. As Figure 35 A and B suggest, the others. The housing units are allocated among share of private sector starts rose from 75 in applicants by lottery with notary public25. 2001 to 85 percent of the total in 2010. Dur- An important characteristic of TOKI is that un- ing the same time the share of cooperatives der its business model it includes a revenue in total housing starts has fallen from 15 per- sharing structure, where the agency works cent in 2001 to around 5 percent in 2010. Turel with the private sector under a PPP model, (2012) mentions that the inverse relationship 25 www.toki.gov.tr 50 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Figure 35: Distribution of housing construction and occupancy licenses across producing sectors Source: Turkish Statistical Institute, Construction License data. between rise in the share of the private sector contrast, in a country like Colombia, a similar and fall of that for the cooperatives was more permit takes only 46 days. While the relative important than the termination of financing cost of obtaining a permit has decreased in the from public funds (ibid, 2012). last years –from over 430 percent of income Cumbersome processes for obtaining con- per capita in to 197.7 percent in 2012, it is still struction permits also increase the construc- considerably high compared to the average in tion costs by imposing constraints to the ef- OECD countries (45.7 percent).26 Taxes, fees ficiency of land and housing markets and and other charges can drive up the prices of increasing coordination problems in Turkey. land and housing; some have estimated the Today, Turkey ranks 155 among 183 countries in terms of ease of dealing with construction sum of taxes, fees and other charges to repre- permits. It takes about 24 procedures and sent as much as one third of total construction 189 days to process a construction permit, in costs (Ozdemir, 2011). 26 Doing Business - Turkey (2012) 51 Rise of the Anatolian Tigers - Turkey Urbanization Review Vulnerability 2: Legal Rights ing loans in total bank loans increased sharply from merely above 2 percent to 10 percent. Valuation of land is not well developed in Tur- However, it stagnated for the next six years key. While valuation services are provided by (see Figure 36 (a) below). By contrast, between domestic and foreign companies for private 1997 and 2011, the average size of housing purposes, valuation methods are not standard- loans per borrower increased by more than ized and requirements for public agencies are ten-fold. Given the total volume is stagnant, a not clearly established. Further, regulations in sharp rise in the average size of loans suggests this field are multiple and not integrated, and that banks are providing financing increasingly multiple agencies and organizations have been for larger housing loans (and potentially medi- assigned duties, powers and responsibilities um or high income groups) by restricting small (TKGM, 2012). Lack of data availability and low borrowers access to housing loans (Figure 36 quality of existing data is also a big concern (b) below). in the estimation of property values. In many cases, property prices are not indicated in the Real interest rate for housing finance is not land registry making valuation of such prop- pro-poor either in Turkey in recent years. Col- erties a challenge when methods based on lier and Venables (2012) recommend that the sales comparisons are chosen. At the moment, interest rate for housing loans be indexed with there are no common procedures to routinely wages in such a way that it stays more or less gather information about real estate and land constant in real terms. When the real interest transactions. Each municipality defines its own rate fluctuates it creates a cyclical fluctuation in practice and therefore data availability varies housing demand that undermines affordability greatly depending on local capacity. However, (see Figure 37A). The fluctuation in real inter- new efforts are being made to improve prop- est rates in Turkey underscores the fact that erty valuation, which should help in confirming it is not properly indexed with wages. In the market values and using such properties as a post-hyperinflation period, particularly during legal basis for collateral in mobilizing financing. the 2008-early 2010, the real interest rate for housing finance declined substantially before Vulnerability 3: Access to Housing it started rising again in the recent years. And Finance throughout the period, it was always above A weak and limited segmentation housing 10 percent (Figure 37A). During 2011-12, the finance sector has exacerbated affordability nominal rate increased faster than the increase concerns, and made housing finance unaf- in nominal wages. As a result, the real interest fordable for the poor. During the import sub- rate shot up making financing less affordable stitution regime (1950-1980) there was an in recent years, as compared to 2010. overwhelming dominance of only four banks The term structure of housing finance also that collectively controlled 50 percent of to- imposes additional constraints on the de- tal outstanding credit (Oncu, 2010). During mand for housing. Today, long term finance this period the state policy required to chan- for housing is improving but is still behind the nel credits to priority sectors and commercial curve (see Figure 37B). The share of housing banks were prohibited from extending loans loans with terms between 15 and 20 years to housing. The only non-bank financial insti- is negligible. Loans with maturities between tutions that extended credits to housing mar- 5 and 10 years represent the majority of the ket were the government owned real estate housing loans portfolio, with over 40 percent bank, EKB, and the workers’ social security of the loans falling in this category. Most inter- fund. Both of them together covered only 10 estingly, this category has gained importance percent of the housing produced in the formal since 2011 gaining terrain over shorter term market. loans of only 3 to 5 years. Between 2007 and Recent efforts have been made to increase ac- 2012, and the share of financing with terms cess to housing finance but it is still quite lim- between 5 to 10 years has increased by more ited. Between 2003-2006, the share of hous- than 20 percentage points. While this repre- 52 Chapter 3: Improving Access to Affordable Housing in Turkish Cities sents a move in the right direction, a stronger finance should always bear in mind prudential financial market for housing loans with longer regulations, avoid “over-reach,” as has been terms are likely to improve access to housing, the case in developed country markets, e.g. especially for middle and lower-middle income the United States and Spain most recently, and groups. Such measures for expanding housing should be set on a solid policy foundation. Figure 36: Trend in Financial sectors’ performance in Turkey (a) Share of housing loan in total bank loans 12% 10% 8% 6% 4% 2% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: The Banks Association of Turkey, Banking Regulation and Supervision Agency (b) Average size of housing loans per borrower (TRY) 80000 70000 60000 50000 40000 30000 20000 10000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Association of Turkish Banks. http://www.tbb.org.tr/eng/Banka_ve_Sektor_Bilgileri/Istatistiki_Raporlar.aspx 53 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 37: Weekly trend in real interest rate and housing loan financing in Turkey (a) Weekly trend in real interest rate in Turkey Source: Central Bank of Republic of Turkey (b) Weekly trend in housing loan financing (percent shares in total) 60% Percentage Share of Total Mortgage Loans 50% 40% 30% 20% 10% 0% Oct-10 Oct-11 Oct-09 Oct-07 Oct-08 Jul-11 Jul-12 Jul-09 Jul-10 Jul-08 Apr-12 Apr-09 Apr-10 Apr-11 Apr-08 Jan-11 Jan-12 Jan-09 Jan-10 Jan-08 Less than 3 years 3 to 5 years 5 to 10 years 10 to 15 years 15 to 20 years Source: Central Bank of Republic of Turkey Vulnerability 4: Supporting regulations leads to a static view of long term Infrastructure planning and rigid laws that do not adjust to the needs of rapidly changing cities. Take the Coordination of land use planning with infra- case of Hanoi in Vietnam. A projected new structure provision is lacking in Turkey. In Tur- mass transit system will extend out in several key, urban planning has, since the 1980s, lost directions from today’s central business dis- its binding nature and many cities no longer trict—but it will not reach an emerging second prepare or apply planning instruments that ef- central business district, southwest of the city, fectively link land use planning with infrastruc- where dense housing developments called ture provision. New Urban Zones are already being built (Fig- In Turkey, land use planning regulations are ure 38). While Law 3194 governs land use governed under law number 3194 (1985). planning regulations and assigns responsibili- This law focuses on spatial development and ties to local authorities, low implementation physical regulations, while socio-economic capacity in Turkey and a series of exceptions, concerns are left aside. Focusing on physical bring in a number of uncoordinated players to 54 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Figure 38. Hanoi presents an example areas. Such institutions include the Ministry of uncoordinated plans for housing and of Environment and Urbanization, Iller Bank, mass transport Ministry of Culture and Tourism, Ministry of Science, Technology and Industry, Ministry of Forestry and Waterworks, and the Hous- ing Development Administration (TOKI). The lack of coordination across institutions and between national government agencies and local administrations has led to several prob- lems including conflicting decisions and plans that do not correspond to the local needs and challenges. Furthermore, the new Law on Transforma- tion of Areas at Risk of Disaster and the in- creasing role assigned to central government agency intervention has the risk of increasing coordination challenges in terms of city plan- ning. The multiple exceptions included under Law 3194 –of which the Transformation law is the most recent- provide planning authority to multiple central government agencies. The lack of coordination across institutions and Source: Vietnam Urbanization Review 2011 between national government agencies and the process of urban planning. LAW 3194 was local administrations has led to several prob- the first to provide spatial planning authority to lems including conflicting decisions and plans local administrations. Specific planning guide- that do not correspond to the local needs and lines are provided at the national level through challenges. There is thus a need to clarify and the Spatial Planning Guideline for Planned Ar- harmonize the different powers and authori- eas, but municipalities are given authority to ties of central and local authorities with re- prepare and adjust these guidelines to their spect to development planning, a matter that own needs and characteristics. While law 3194 is now under deliberation in the Government defines and provides the authority for imple- of Turkey. menting regional plans, development master The Law on Transformation of Areas at Risk of plans, and implementation master plans, this Disaster is an attempt to include risk consider- law also includes several exceptions under ations in urban planning and redevelopment, which the regulations included in such plans but brings very high risk with it: increased are not binding. Exceptions include provisions number of takings and public discontent. In under all special laws, such as the Tourism Sup- a recent effort to increase resilience of cities port Law (2634) and Protection of Cultural and to disasters and earthquakes in particular, the Natural Assets (2863). Grand National Assembly of Turkey (TBMM) While law 3194 assigned the planning respon- passed in June 2012 a draft of the Law on the sibility to local authorities, many local admin- Transformation of Areas at Risk of Disaster - istrations lack implementation capacity. This, Law 6306- (see Box 6 for further detail). The together with a strong central government law sets out the principles regarding the reha- role in some instances and the existence of the bilitation, rectification, and renovation of areas above mentioned exceptions, has led to many at risk of disaster as well as the lands and plots central institutions taking a local planning involving risky structures in other areas. Under role and preparing spatial plans for certain this new law, risky structures will be identified 55 Rise of the Anatolian Tigers - Turkey Urbanization Review by agencies and entities licensed by the Minis- strict they may not translate into safer building try of Environment and Urbanization (MOEU) structures but rather turn into opportunities and hired by the owners of buildings or their for corruption. An example of this is the ar- legal representatives with all costs borne to rest of 40 municipal officials in three towns in owners. Once risky structures are identified, Turkey in 2006. The arrests occurred as it was they may be selected for transformation and discovered that officials were taking bribes in renovation projects to be carried out by MOEU return for allowing unlicensed construction in close collaboration with TOKI. Buildings that (Escaleras, Anbarci, and Register 2007 and are not under risk but are located under areas World Bank 2010). selected for a transformation project may also Inclusion of vulnerability and risk consider- be intervened by the government. ations in planning strategies is increasingly Law 6306 assigns strong competences both important in the Turkish context due to high to MOEU and TOKI aiming to increase im- seismic risk. Seismic fault lines crisscross the plementation efficiency. With this new law, country going through many of the major cit- MOEU will have the authority to prepare all ies. Two highly destructive earthquakes in plans, projects, set land regulation standards 1999 provide evidence of the high risk that and prepare urban designs for transformation Turkish cities face. Many, if not all of the build- laws. This law is also considered an exception ings that collapsed during these earthquakes under Law 3194 and therefore supersedes such did not meet the requirements of the building law. In an effort to solve coordination problems codes as a result of lack of enforcement.27 So that arise in urban development projects, the while in some cases regulations may be strin- new transformation Law strengthens the role gent as discussed in the previous section, in re- of MOEU in local planning, assigning it as the ality, many regulations such as those for safety main authority over almost any issue related and disaster risk mitigation are not enforced. to urban transformation zones and reducing There are several ways in which construction the role of local administrations. can be more resistant to earthquakes. Even While efforts to increase resilience of cities to though risk is high in Turkey, a large percent- natural disasters in general and earthquakes age of buildings are not built to be resistant in particular are commendable, there are to earthquakes. About 30 percent of publicly- also several risks. First, transformation and owned buildings in Istanbul are vulnerable to renovation projects are likely to involve a large earthquakes and a large number of households number of takings, which may lead to public still live in houses with no skeleton.28 Buildings discontent and large number of objections if with a reinforced concrete, steel or wooden properties taken are not priced properly and skeleton are less likely to suffer considerable owners are not compensated for displacement damage from earthquakes. Poor households costs. Having in place the appropriate institu- are more vulnerable to earthquakes, with a tions for land valuation is essential for the suc- smaller percentage of households in the low- cess of these policies. est quintiles living in houses with a skeleton. Figure 39 below shows that in 2005, only about Second, low capacity in municipalities may 55 percent of households in the lowest income put implementation at risk and open the door quintile lived in households with a structure for corruption. Many municipalities, includ- that included a skeleton while over 90 percent ing Istanbul, do not have enough accredited of the households in the highest quintile did. engineers and their planning departments are understaffed and under-financed. In these cas- Noncompliance of buildings with construc- es, even if restrictions and building codes are tion codes that would make them resistant 27 World Bank (2010). “It is not too late: preparing for Asia’s next big earthquake” Policy Note 57683, GFDRR, The World Bank, Washington, D.C. 28 World Bank (2010) Natural Hazards UnNatural Disasters 56 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Box 6: Highlights of the new Law on the Transformation of Areas at Risk of Natural Hazards Under this new law, MOEU is authorized to give a lead time to the owners of buildings for them to de- termine whether their structures are considered risky or not. However, if such identification is not done within the lead-time given, it will be undertaken by the MOEU or municipalities and special provincial administrations. Owners of buildings will be able to file objections to such identification decisions within 15 days. The owners of structures found to be risky will be given a minimum 60-day notice for the demoli- tion of these buildings. If the building is not demolished by the owner during such course of time, they will be notified that the building will be demolished by “administrative authorities”, and some additional time to vacate will be provided. Upon the request of the MOEU, the immovable properties allocated to public administrations in risky ar- eas owned by the Treasury and in reserve structure areas , including those covered by the Law on Military Prohibition Zones and Security Zones will be allocated to the MOEU through a Council of Ministers Decree in consultation with the Ministry of National Defense; those areas not allocated to public administrations will be allocated to MOEU or transferred to the Housing Development Administration (TOKI) or munici- palities. A key point stressed in this law is that both TOKI and the municipalities will be authorized to temporarily suspend all types of developments in risky areas, on immovable properties located on risky areas and in reserve structure areas. These immovable properties will not be sold, leased or allocated by the Ministry of Finance until the conclusion of transfer and allocation procedures. If requested by TOKI or municipalities, MOEU will not permit the provision of electricity, water and natural gas services for structures located on risky areas and risky structures, upon consulting right holders, and will stop provision of already provided services. Definition of regeneration areas will require an absolute majority of votes of all members of the provisional general of special provincial administrations and mu- nicipal council of municipalities. Decisions taken in respect of renovation areas will be submitted to the Council of Ministers through the proposal of MOEU. The law also amends the Decree-Law on the establishment of MOEU. The Law states MOEU will perform all survey, plan, design, cost calculation and construction works under its domain by creating a building supervision system, and will also perform the duties assigned thereto under the Building Supervision Law. MOEU will establish the principles and procedures to be followed by administrations in the rehabilitation, regeneration and transformation practices to be undertaken in urban and rural areas and settlements, including shanty houses, coastal areas and facilities, and areas excluded from forest areas and rangelands due to degradation. The MOEU will also carry out, outsource and approve surveys, maps, plans, subdivision plans and building designs of any scale, for special project areas that would enhance the brand value of cities and contribute to the improvement of cities, such as financial and commercial centers specified by the MOEU, fair and exhibition areas, recreational areas, and main gates of cities. MOEU will also conduct all these activities for any project under the Shanty settlement Law, as well as issue building occupancy permits and ensure establishment of apartment condominium rights in these areas. MOEU will facilitate expropriation, li- censing and construction processes, issue building occupancy permits and ensure the establishment of apartment condominium rights in these areas. to earthquakes is a key concern in Turkish cit- licenses that require not only testing but also ies. Noncompliance is to a great extent a result experience. In California for example, recent of the fact that currently there is no require- graduates typically practice with more experi- ment for a specific license or certification for ence engineers before they take the required civil engineers to be able to design any kind of exams to obtain their own licenses. The licens- project. Other countries with high seismic ac- ing process is enforced by the State of Califor- tivity require civil engineers to obtain special nia.29 29 Ibid 57 Rise of the Anatolian Tigers - Turkey Urbanization Review After the 1999 earthquake, The Turkish gov- commuting. This implies some combination of ernment tried three main strategies to re- sites that are more proximate to the city cen- duce the impact of future disasters: First, it ter and therefore have higher land prices, and increased insurance coverage; second, it tried more investment in transport infrastructure to to improve building quality; and third, it put connect sites further away. in place better measures of response in the Many housing projects for low income groups case of a seismic event. The first effort is com- are located in the periphery of the city where mendable in that Turkey promoted insurance commuting costs can eat up a large portion of on commercial terms. However, despite being wages. While granular data at city level is not mandatory30, penetration rates in 2009 were available for a robust analysis of project alloca- only 22 percent, much lower than those pre- tions and household location decisions, docu- dicted for 2001 and 2006, at 30 and 60 per- cent, and lower than in California, where insur- mented case studies suggest connectivity of ance coverage is not compulsory (World Bank new housing centers is a problem in some cas- 2010). es here in Turkey. Given that in TOKI’s model the government’s participation is guaranteed through the provision of land, developments Figure 39. Poorest households live in for lower income groups are in many cases lim- more vulnerable structures ited to the periphery of cities. In cases where Construction with Skeleton centrally located land is available, projects for by quintile higher income groups are developed lead- % of Households living in a dwelling with skeleton ing to gentrification concerns. Availability of 1 TOKI’s land may influence also the location of new projects under the Urban Transformation 8 program. An increased supply of low-income 6 housing in areas that are distant from city cen- 4 ters may force households to cope with longer and more costly commuting. 2 0 Priorities for Policy 1 2 3 4 5 In this section we highlight priorities for Skeleton includes reinforced conctrete, steel or wooden skeletons policy makers to reduce the vulnerabilities discussed above. To identify these policy pri- orities we use the framework developed under Vulnerability 5: Opportunities for the Urbanization Review program centered on Income planning, connecting and financing cities. This Housing needs to be of decent quality and af- framework is the result of diagnostic work in fordable, but it must also enable households over 10 countries including Uganda, Sri Lan- to access job opportunities. This involves phys- ka, China, India, Indonesia, Vietnam, Brazil, ical access to places of work, the accumulation Colombia, and the Republic of Korea among of pertinent characteristics for employability, others. The framework identifies three main and information about opportunities in other dimensions of urban development, also the fo- parts of the city. Physical access is the most cus of the three main chapters in this report:31 straightforward aspect to plan. It requires that Planning: Relaxing formal rules, including in combination, the location of settlement and permits and regulations where appropriate, investment in transport infrastructure permit would help reduce construction costs and im- 30 The insurance was mandatory for all residential buildings within a municipality. For industrial and commercial buildings and private homes outside a municipality the insurance was not mandatory. 31 Priorities for City Leaders. Planning, Connecting, and Financing – Now. Urbanization Review Flagship Report (2012) 58 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Box 7: The value of safer structures Table: OLS regression of LN Rents Using information from property prices for owner occupied houses in Turkey, it is possible to esti- Coefficients Variable (standard errors) mate the impact that property characteristics may have on prices using a hedonic model. Using the -0.0038 Age 2005 Turkish Household Budget Survey a hedonic (0.0015)** equation was estimated, where the logarithmic of 0.00004 property prices is used as independent variable, Age Squared (0.00001)*** and property characteristics are used as explana- 0.0794 tory variables. Characteristics of the house include Banyo (0.0486) its age, age squared, and a series of indicator vari- 0.0711 ables for things like having a Jacuzzi, a sauna, a Oda say (0.0199_*** bathroom within the house, and a telephone con- -0.0002 nection among others. Finally, the model includes Kon alan (0.0006) an indicator variable that takes the value of one if Skeleton 0.1339 the property has a skeleton of reinforced concrete, (0.0222)*** steel or wood. As mentioned in the main text of Jacuzzi 0.8800 this section, properties with these kinds of skel- (0.3950)** etons would be more resistant in the event of an 0.2867 earthquake. Tuvalet (0.0313)*** The results presented in Table B4.1 suggest that 0.5040 Mutfak households would be willing to pay a premium for (0.1161)*** a house that has a strong skeleton and is therefore 0.2446 Heating safer. For an average house and assuming a capi- (0.0547)*** talization premium of 50 years, the premium for a 0.2204 safer structure is estimated at 16,309 TL. Further Su_sis (0.1061)** analysis would be required to determine whether 0.0613 affordability is a barrier for households to actually Garage (0.0945) pay this estimated premium for a safer house. If af- Telephone 0.1511 fordability was a concern, the government could connection (0.0265)*** think about the incentives necessary for house- 0.5551 holds to invest in this structures, including for ex- Dog gaz (0.0509)*** ample things like tax breaks. 0.3173 sicaksu (0.0234)*** Source: HBS 2005 and authors calculations 0.2553 klima (0.0558)*** 1.5392 Constant (0.1592)*** R2 0.3992 prove competition. Georgia provides an exam- ranked 29 in terms of ease of dealing with con- ple of a country that reduced transaction costs struction permits has only eight procedures. and red tape for property registration. Today, With a third of the procedures required in Tur- registration involves a single procedure with a key, Colombia processes a construction permit public registry and on average takes only two in 46 days but costs are more than twice the days and costs 0.1 percent of the property’s average in the Latin American region. Table price. In Turkey, these costs have increased in 5 below compares the procedures needed in recent years, going from 3.3 percent in 2012 Turkey to those required in Colombia and sug- to 4 percent in 2014. In Colombia, a country gests avenues for simplification in Turkey; while 59 Rise of the Anatolian Tigers - Turkey Urbanization Review Table 5. International evidence suggest that simplification of rules and regulations is possible Step Step Turkey Colombia No. No. 1 Obtain lot plan 1 File for and obtain construction license Pay variable charges and tax on Urban 2 Obtain cadastral plan 2 Delineation (Impuesto de Delineación Urbana) at the bank 3 Obtain road datum document 3 Request water connection approval from EAAB 4 Hire an independent building inspector 4 Receive water inspection from EAAB Obtain approval of architectural drawings from the 5 5 Obtain water connection from EAAB municipality 6 Obtain approval from the Fire Department 6 Receive inspection from authorized contractor Obtain approval of technical drawings from the Turkish 7 7 Request and obtain telephone connection Electricity Corporation (TEDAS) Obtain approval of technical drawings from the phone 8 8 Receive final inspection by Mayor’s office company Obtain contractor registration document from the 9 chamber of commerce Obtain project approval from the civil defense 10 directorate of the district governor’s office Obtain proof of payment and clearance of water and 11 sewerage infrastructure Receive foundation registration number from the 12 Social Security Institution 13 Obtain building permit 14 Obtain proof of tax payment 15 Request inspection from the civil defense experts Receive inspection from the civil defense experts in the 16 district governor’s office. 17 Receive final inspection from the municipality. 18 Obtain occupancy permit. 19 Obtain proof of real estate tax payment. Change the title deed from a land title deed to a 20 building title deed Request water connection and permission for 21 discharge of sewerage and rainwater. Receive inspection and obtain connection from the 22 water and sewerage department. Obtain approval of telephone system from the 23 Telephone Regional directorate. 24 Obtain telephone connection Source: Doing Business 2012 Turkey and Colombia there is not a one to one correspondence in all clearly quite important, this can be done more steps, it is easy to see how some steps overlap efficiently with fewer control checks that are and where there is some room for improve- more effectively administered. ment in the Turkish process. While exercis- ing control over the issuance of construction Promoting competition among developers permits to prevent sub-standard buildings and will also contribute to lowering housing pric- ensure the safety and quality of buildings is es. As the market moves towards a competitive 60 Chapter 3: Improving Access to Affordable Housing in Turkish Cities structure, individual developers would have near metro stations). In New York for example, less power in setting prices and housing may commercial areas in midtown and downtown move toward more affordable prices. More Manhattan allow much higher densities than importantly, as competition increases, devel- do uptown residential areas. To fund infra- opers are more likely to cater all income levels structure improvements, cities can sell devel- rather than focusing only on a specific income opers the right to build at higher densities than group. While it is unlikely there are regulatory would otherwise be allowed in a given loca- barriers that limit the entry of a larger num- tion. Aligning land use and infrastructure can ber of small private developers, other vulner- also help manage the formation and growth of abilities may be leading to the concentration slums.33 of the production of housing and therefore the coordinated policies to address other vulner- It is important for Turkey to think beyond abilities is also likely to contribute to the move coordination of land use and infrastructure toward a more competitive market. planning and include vulnerability and risk considerations in planning strategies. In think- Coordinating land use planning ing about coordinating land use policies with with infrastructure provision and infrastructure plans, it is also important to con- risk mitigation sider vulnerability from natural hazard risks as part of the overall planning process. While 70 To meet new demand, cities must have strat- percent of high-income countries integrate egies that are adaptable and respond to de- land use and natural risk management, only mand. A city’s demand for physical structures, about 15 percent of low-income countries are infrastructure, housing, and amenities will doing so.34 However, countries like Colombia change with time as its population grows. Cit- are making efforts to think about urban trans- ies strategies to respond to demand must be formation and risk prevention (see Box 8 be- flexible to adapt to these changing challenges. low). Otherwise their decisions and policies can lock cities into physical forms that may prove The new Urban Transformation Law has the to be suboptimal. For example, density lim- risk of imposing additional constraints and its—though important—should not impede regulations that may only add to the list of economic growth or prevent the development inefficient, and, in many cases, ineffective of affordable urban housing. The city of Ban- regulations. By providing information and galore in India provides an example of how appropriate incentives, Turkey may achieve density regulations can reduce economic effi- better results in terms of resilience than by ciency. Research shows that if the city’s density forcing stringent regulations that will not turn restrictions were lifted, its radius would be 8 into practice. The importance of putting inde- kilometers rather than the present 12, i.e. the pendent and transparent valuation systems in city would grow in a more compact form. Com- place together with information about hazard muting times would shrink, saving households risk cannot be overemphasized. Prices of land about 4 percent of their income through lower and property incorporate a wealth of informa- transport costs.32 tion as they reflect the forces of demand and Land use policies need to be aligned as well supply. They can reflect all kinds of property with infrastructure plans (such as plans for characteristics, including information about public transit). Singapore and New York pro- hazard risk. In 2000, property values in Istan- vide good examples where density regulations bul were found to be lower near the fault lines vary by location, planned use, and infrastruc- in the Sea of Marmara (Onder, Dokmeci, and ture availability (with higher densities allowed Keskin, 2004). 32 Bertaud and Brueckner (2004) 33 World Bank (2012) Priorities for City Leaders 34 World Bank (2012). Green Growth for all. 61 Rise of the Anatolian Tigers - Turkey Urbanization Review Increasing awareness regarding disaster risk what may be at times a “messy array of over- can also allow individuals to take better and lapping agencies entities (the media, neigh- more informed choices. A first step in increas- borhood associations, engineering groups)” ing awareness is to invest in geological surveys (World Bank , 2010). Bringing the community, and hazard monitoring stations, as well as dis- the private, and public sectors together and semination of the resulting information. Mak- promoting diversity is likely to be more effec- ing information on risks available as a public tive in spreading information and increasing good is likely to lead to higher private invest- community participation in prevention. ment in preventive measures. It is also likely Turkey can also learn from its own experi- to generate more favorable public reactions ence. The Istanbul Seismic Mitigation and when takings necessary to reduce the risk of Emergency Preparedness Program is an exam- vulnerable populations. Security of property ple of a successful and on-going earthquake through titling often leads to higher invest- risk management program in Turkey. The pro- ments in preventive measures. However, this gram started in 2006 and is expected to be does not mean providing title in areas that are completed by 2015 and focuses on addressing known to be high risks and allowing people to the vulnerability of public buildings in Istanbul. remain there. In the United States for example, The first steps of the project included develop- FEMA purchased properties in flood plains to ing standards for the selection of structures to move people to safer locations (World Bank, be strengthened, definition of procedures for 201035). design and third-party review of the structural Participation of affected stakeholders in the designs and detail procedures for quality as- formulation of any risk management plan is surance. This has been a collaborative effort also essential. There are several reasons why led by the Istanbul Governorship through the participation of affected communities is es- Istanbul Project Coordination Unit (IPCU), with sential for the success of any risk management the support of the National Disaster Manage- plan. First, the population at-risk is not only a ment Presidency under the Prime Ministry, the victim if the hazard manifests, but it can be a World Bank and other International Financial key partner in managing and mitigating the Institutions.37 risks for the overall population. Second, com- munities can contribute to understanding the Creating institutions for valuation sources of the risks, estimating the potential In term of creating the institutions for valua- impacts, defining acceptable levels of risk, and tion of land and property Turkey is moving in implementing mitigating measures. Collabora- the right direction. The recent establishment tion between the community and local author- of the Turkish Valuation Specialists Associa- ities will increase the probability of success in tion, as a professional organization recognizes managing risks.36 the importance of the existence of a set of well Finally, fostering good institutions to permit trained and certified cadre of appraisers. This public oversight will contribute to success- institution is likely to contribute to improving ful risk mitigation. A recent World Bank study the quality of valuation techniques, promoting suggests that countries with well-performing unification towards international standards, institutions are better able to prevent disas- improving the quality and training of valua- ters. Fostering good institutions does not tion professionals and offering a certification mean concentrating all powers in a single au- mechanism that provides quality control on thority but rather supporting the evolution of the practice. 35 This is World Bank (2010) Natural Hazards, UnNatural Disasters, the economics of effective prevention. The United Nations and The World Bank. Washington, D.C. 36 Correa, E., Ramirez, F., and Sanahuja, H. (2011) “Populations at Risk of Disaster: A resettlement guide”. World Bank and GFDRR, The World Bank, Washington, D.C.34 World Bank (2012). Green Growth for all. 37 World Bank (2012). “Achieving Prosperity for All: Country Partnership Strategy for the Republic of Turkey”, The World Bank, Washington D.C. 62 Chapter 3: Improving Access to Affordable Housing in Turkish Cities Box 8. Other countries are thinking about urban transformation and risk prevention Disasters are an increasing concern in developing countries. Between 1970 and 2010, disasters related to natural phenomena have caused more than 3.3 million deaths and US$2.3 trillion worth of material losses worldwide —slightly more than Brazil’s GDP in 2010. Colombia has not been immune to this. In the last forty years, the country has been hit by disasters, caus- ing US$7.1 billion in losses. The consequences of the La Niña phenomenon in 2010 and 2011 —heavy rains and floods throughout the country— reflect the complexity of the risk situation prevalent in Colom- bia and the deficiencies in terms of risk management. This is evident in the following figures: 3.5 million victims, 8 thousand homes destroyed and more than one million hectares of agricultural land affected. A Comprehensive Vision Colombia has positioned itself as a Latin American leader in terms of developing a more comprehensive vision with regards Disaster Risk Management. The government strategy seeks to reduce damages and losses, paying particular attention to prevention and risk-reduction efforts, as well as controlling the fiscal volatility —the impact on public finances— resulting from these events. Efforts towards disaster risk management started in Colombia with the formulation of the National Plan for Prevention and Relief in 1989 (following the devastating Popayan earthquake of 1983). Further, the last four National Development Plans (1998 to 2014) have included DRM as an important topic. Efforts have also been made on improving the monitoring of natural hazards, the enforcement of building codes (since 1984), and organizing local disaster response capacity. The work undertaken in Colombia has resulted in a relative drop in loss of life; however, damage to prop- erty, infrastructure and livelihoods continues to increase, proving that disasters are not natural events per se, but rather the result of inappropriate development models. This means that efforts have not been sufficiently effective due to increasing vulnerability. This has led to a success in reducing the loss of lives. However, the damages and losses to property and livelihoods due to natural hazards are still growing ev- ery year. The dramatic increase in the number of disaster-related damages reported in Colombia over the past decade is not due to a change in the hazard patterns. It is a result of inadequate land use planning and urban population growth. Since 1997, Colombia has put its efforts in this direction by giving priority to strengthening the incorpora- tion of DRM into municipal land use plans (POTs) and developing associated risk management strategies. This process has advanced rapidly in some larger cities, which are among the leaders in DRM in Latin America. However, approximately 95percent (1,050) of Colombian municipalities have had significant dif- ficulties in making any progress on disaster risk management due to low technical capacities and a lack of investment. The World Bank and GFDRR are supporting a technical assistance processes using an open- source risk assessment platform to integrate probabilistic risk modeling into specific policy-making pro- cesses. This is done through the Probabilistic Risk Assessment Initiative (CAPRA) first developed in Central America is now being implemented in Colombia among other South American countries. CAPRA provides a risk calculation platform that integrates exposure databases and physical vulnerability functions under a probabilistic approach. CAPRA uses a multi-hazard risk approach to evaluate risks in terms of physical damages and estimates direct economic and human loses. Source: Colombia DRM report 2012 and CAPRA project highlights #4 Korea provides an example of early efforts and asset-replacement-costs were used by lo- towards a systematic, professional and trans- cal administration officials. In 1972 the govern- parent system of land valuation. During the ment introduced the Basic Land Prices system, 1970s Korea encouraged the development of a which mandated the assessment of land and cadre of property appraisers—bringing trans- buildings by certified private appraisers. Esti- parency to the valuation process while making mated property values from two appraisers information on land values widely accessible. were averaged for a final value; if the two ap- In previous land acquisitions, market-values praisals differed by more than 10 percent, a 63 Rise of the Anatolian Tigers - Turkey Urbanization Review third private appraiser was selected and a new uals) to execute the bargaining process based average calculated.38 This provided a first step on the estimated value. However, the law does to define independent assessments. The larg- not stipulate any professional or technical re- est cities of Colombia, and in particular Bogota quirements for the members of such commit- also have a history of efforts towards land valu- tees leaving their selection guidelines to each ation (see Box 9). individual entity. Introducing legal and institu- tional structures that unify the requirements Despite efforts to improve valuation tech- for both public and private sectors is essential. niques and create a strong cadre of appraisal This will contribute to transparency in land professionals, the new regulations are not acquisition processes and enhance compli- binding for public institutions and therefore ance with EU standards. In the current context serious problems in valuation processes re- where the new transformation law is likely to lated to land acquisition and other public open the door for additional takings, it is es- transactions is likely to continue being a prob- sential to first lay the ground for independent, lem. In fact, Law No. 4650, which regulates the transparent and consistent valuation methods. procedures for expropriation of immovable Without the institutional capacity to help dis- properties, assigns public administrations the cover and disseminate the value of land, the power to carry out valuations. Public offices acquisition process offers considerable scope are required to form appraisal committees of for undervaluing it and leading to public dis- at least three individuals, as well as reconcilia- content and what may be considerable nega- tion committees (also of at least three individ- tive social impacts. Box 9. Updating the Cadaster in Bogotá, Colombia Bogotá has been considered a pioneer in land valuation in many ways. Between 2008 and 2010, the city successfully updated its cadastral database, revaluing the 2.1 million urban properties in the city. This updating process implied a 30percent increase in property tax revenue and 171 million dollars of addi- tional revenue in FY2009 and FY2010 (Ruiz and Vallejo, 2011). Uribe (2010) summarizes the key elements behind the successful update of cadastral values as follows: improved management of human resources, introduction of information technologies, mitigation of the project’s impact on the property tax, engage- ment of stakeholders and career civil servants, openness to review the project’s results, and improved massive assessment techniques. Improvements to the massive assessment techniques included incorporating the use of spatial informa- tion collected using GIS systems into the econometric techniques used for the estimation of property values. Distance to key sites and amenities were used as important determinants in the estimation of property values. Given that no market information was available for the city, initial price data used in this process was collected using a team of expert appraisers that applied a combination of market, cost, and income valuation approaches to arrive at the best possible appraisal value. Further, close interaction be- tween assessors and econometric modeling teams, helped ensure that sensible values were obtained for all areas of the city. Today, this data is made available for research purposes under confidentiality agree- ments. The information collected is also shared among government institution to enhance the quality of the planning process across different agencies and sectors. Because there was a considerable lag in the cadastral values, a significant increase in the base for prop- erty taxes was expected after the updating process was completed. To maintain the progressiveness of property taxes and minimize resistance from property owners the city put forward a new legislation to introduce an increase ceiling on property tax. Under the assumption that property values are strongly cor- related to ability to pay, the maximum increase in property tax was set to augment proportionally to the logarithm of the property’s value (differentiated ceilings were also set for residential and non-residential uses). These ceilings partially separated the property value from the increase in taxes and gave property owners additional certainty on the tax increase (Ruiz and Vallejo, 2011). Sources: Ruiz and Vallejo, 2011 and Uribe 2010 38 ADB 2010. 64 Chapter 3: Improving Access to Affordable Housing in Turkish Cities In moving towards a better system of land Connecting land-use planning with housing valuation and dissemination of land price provision that anticipates growth is essen- data, a key step is to move towards property tial for rapidly urbanizing cities. Proactive registered values that are closer to market land-use planning for city expansion can help values. Historically, there has been a tendency avoid costly urban redevelopment later. Today, to underestimate property values due to the TOKI suggests that in the near future, the main existence of taxes and charges associated with goals of the administration include strong ef- forts on urban renovation and urban transfor- transaction values. Moving away from transac- mation projects, construction of social housing tion charges and towards a system of property for the lowest income groups, building satellite taxes should contribute both to improving the towns in big cities such as Istanbul, Ankara and quality of the data collected by the land reg- Izmir, and increasing the production of land istry offices while also providing a constant with infrastructure, among others. As Turkish stream of revenues for local administrations. cities think about managing urban expansion In the context of the new transformation law, and increasing densities, there is the need to it is also essential to promote greater accu- provide public open spaces and rights of way for infrastructure. In this context, coordinat- racy in the valuation of public land. The real ing land and housing policies with decisions value of the land used has to be incorporated on connective infrastructure becomes increas- in benefit-cost analysis to obtain a genuine un- ingly important. derstanding of the economic components of transformation projects. With increasing land South Africa provides an example where poor values that accompanied urbanization, pub- location choices led to limited impact of a lic land in urban areas has become extremely very large mass housing project. Poor loca- tion choices and lack of fully tradable property valuable. When such lands are turned over to rights are the most likely determinants of the private developers, they can and should yield limited impact of the Reconstruction Devel- high returns, which are necessary to deliver opment Program for housing in South Africa supportive infrastructure and to provide tar- that started in 1994. In a recent study, Lall geted subsidies for low income households. et al. (2012) suggest that while RDP has had Considering the beneficiary profile of public an impressive roll-out in terms of numbers, housing in Turkey, it is not clear that the ben- its impact is disappointing. The study argues efits of public land assets are being effectively that this is the result of a poor match between used for low income groups. what the government is supplying and the ac- Box 10. Finland - clear and transparent institutions for land valuation The land registry and cadaster information of Finland is recorded by the National Land Survey of Finland (NLS). The Institution with the headquarters situated in the capital city of Helsinki, conducts similar tasks to those of the General Directorate of Land Registry and Cadaster in Turkey. 12 regional units and 35 local offices throughout the country are affiliated with the General Directorate. Real estate information in Finland is recorded using a GIS enabling system called “JAKO System” which bears resemblances to Turkey’s Land Registry and Cadaster Information System (TAKBIS) and Cadaster Data Consolidation (KVK). However, as opposed to TAKBIS, all real estate information is available on the internet for public access. Public availability of regularly collected and standardized data enables systematic and accurate valua- tions. In fact, mass valuations are conducted every five years by the Finland Technical Research Center and used for taxation purposes. Private valuation companies are left out for public valuation processes where the land registry and cadaster organization plays a key role. But there are situations where the companies are asked for their opinions and studies when necessary. The valuation companies carry out the valuation studies in accordance with International Valuation Standards and RICS Valuation Standards. 65 Rise of the Anatolian Tigers - Turkey Urbanization Review tual demand. The study suggests that house- Continuing efforts in opening holds who receive RDP housing are not satis- financial markets and increasing fied with their dwellings as these are often far from employment centers: the new houses credit availability were often built in the old apartheid locations Housing finance through commercial banks (which were deliberately sited far from urban is still in its infancy and more efforts are re- centers and white neighborhoods). quired in this area. Commercial banks have in- Even examples of housing policies that are creased their involvement and became the pri- considered successful present an array of mary source of mortgage credits by 2004 when challenges. Chilean housing policy has for the new AK Party government stopped HDA to long been considered in Latin America as an advance new credits. However, the unvarying example of a pioneer and successful approach share of housing loans to total bank loan be- to housing problems. Today, Chilean housing tween 2007 and 2011 suggests that housing policy model is being imported either directly loans became stagnant in recent years. Two or indirectly through technical advice to many other stylized features that identify the major countries. These policies have contributed caveats of present housing finance situation in to increased ownership rates and improved Turkey are – (i) the limited volume of longer quality of housing. About 85 percent of the term housing loans and (ii) increasing supply increased owner-occupancy rates ownership of housing loans to potentially medium or high between 1992 and 2003 can be attributed to income groups. All these caveats suggest that the efforts of the Housing Ministry (MINVU) the banking sector has limited access to risk (see Ruprah and Marcano, 2007). insurance. Thus to create a pro-poor financing strategy, the government not only has to re- A recent evaluation of the housing policies in move these bottlenecks but, at the same time, Chile, however, suggests some weaknesses has to protect the financial sector by providing that may also provide lessons for other coun- proper credit insurance schemes. tries (Ruprah and Marcano, 2007). One of the key points highlighted by this evaluation is the fact that as cheap land for public housing became scarce, public housing started being built in isolated areas. Public housing projects moved farther away from the city center and resulted in residential segregation (Sabatini 2001, 2003). Seeking lower costs, both gov- ernment and private sector provided solutions that are only in areas disconnected from the city center and where in many cases, the poor were already located. As a result of the hous- ing programs the poor have been segregated to the periphery of the city and are now facing reduced income opportunities. Other studies have also confirmed that housing subsidies led to residential segregation in Santiago (Vargas, 2006). 66 Chapter 4: Why Urban Transport Matters in Turkish Cities Chapter 4: WHY URBAN TRANSPORT MATTERS IN TURKISH CITIES Trends in Urban Transport larger metropolitan areas in recent years (zero growth in Istanbul today and 1.5 percent in An- in Turkey kara between 2009 and 2010), while it contin- In metropolitan cities in Turkey, urban trans- ued to grow in smaller cities, reaching over 5 port is changing rapidly and facing various percent in most of the metropolitan provinces challenges that arise from the coincidence and as high as 8 percent in Konya (see Figure over time of several trends. First, urban popu- 41). lation is growing rapidly in the metropolitan And, third, road traffic volumes are now reach- municipalities over the last four years rang- ing levels in relation to road capacity at which ing from 8 percent in Konya to 21 percent in the performance of the road network is partic- Kayseri and 23 percent in Mersin. In all cases, ularly sensitive to further traffic increases. It is metropolitan growth is greater than at the the non-linearity of the latter two relationships provincial level. Second, household incomes which is at the heart of the challenge. continue to grow and have already reached the level at which the growth of car ownership Faced with early signs of deterioration, cities increases at a much greater rate than incomes. have introduced or are exploring new tech- As documented in the literature, motorization nologies and solutions, with varying degrees rates (number of cars owned by 1,000 persons) of success. Many of them have invested in grow at least twice as fast as economic growth moderately inexpensive light rail transit (LRT) when a country’s GDP per capita is between systems, suppressed the most polluting and $4,000 and $8,000 (see Figure 40). Consistent congestion-inducing modes of public trans- with these global trends, during 2001-2010 in port (particularly the dolmuş), and shifted to Turkey, car ownership per capita grew much less polluting energy sources (either electric- faster than GDP per capita in most metro- ity or natural gas). All of the cities reviewed politan areas, almost twice as fast in Kayseri, for this study considered improved and clean Konya, Istanbul and Gaziantep. Car owner- transport an important policy objective. Some ship growth has reached a saturation point in of the technology adopted or being developed Figure 40: Vehicle ownership growth much Figure 41: Annual growth rate of private faster than GDP growth between $4,000- car ownership compared to GDP per 8,000 per capita capita growth (2001-2010) Source: Dargay, Gately and Sommer (2007) Source: Tüik Stat, World Development Indicator Note: GDP per capita measured in constant US$ 67 Rise of the Anatolian Tigers - Turkey Urbanization Review is state-of-the-art. Examples of this include operate transport infrastructure and services the development of traffic signal control sys- at metropolitan level. The division of functions tems based on automated vehicle license rec- between the metropolitan and district authori- ognition technology (in Kayseri), modern light ties is generally appropriate in the urban trans- rail technology (in Eskisehir), and electronic port sector: the former is responsible for de- ticketing systems in public transport and the vising overall planning and operation of public widespread introduction of LED street lighting transport services; and the latter for mainte- systems in several cities. Characteristics of the nance of some roads and local planning. Mu- cities reviewed under this study are summa- nicipality Law No. 5393 also allows non-met- rized in Table 6. ropolitan municipalities in provinces to make In some respects legal and institutional ar- necessary arrangements (presumably invest- rangements are conducive to a comprehen- ments and planning) relating to public trans- sive response to the emerging problems. The port, though it does not specify how these will law on municipalities (Law No. 5216) recog- be coordinated between district and central nizes that urban transport, along with other municipalities. In short, both regulatory am- municipal services, is a metropolitan scale is- biguities and current practices point to incon- sue. This legal provision is an important basis sistencies between the assignment of powers on which metropolitan municipalities plan and and allocation of resources across different Table 6: Summary of Urban Transport Characteristics of Selected Turkish Cities Adana Ankara Eskisehir Gaziantep Izmir Kayseri Kocaeli Konya Trabzon Basic Characteristics and Transport Demand Population (million) 1.617 4.891 0. 700 1.556 3.367 1.090 1.499 1.527 1.601 of which growth rate 1.1% 2.6% 1.2% 2.8% 2.1% 2.4% 2.4% 1.1% -0.2% (% 2009/10) Cars registered per 194 260 196 225 240 thousand people of which growth rate 6.3% 1.5% 5.9% 6.2% 2.8% 5.1% 7.6% 8.1% 7.8% (%, 2009/10) Public transport share 69% of all trips (%) Transport Infrastructure and Services Metro/LRT 20 km 23.4 km 16 km 9.3 km 94 km 17.5 km Municipal buses 160 1,973 40 26 1700 212 241 Minibus/dolmuş 1,084 2,453 379 487 0 530 Commuter rail Yes Yes Bus equivalents per† 3,344 389 621 560 568 thousand people Metro/LRT share of PT 11% 20% 20% 24% trips Municipal bus share of 47% 23% 5% 5% 5% 37% PT trips Dolmuş share of PT 43% 37% 70% 60% 38% trips Source: Data collected from selected cities and Bank staff assessment † The calculation of standardized public transport vehicles is a weighted average, where a 12 meter bus has a weight of 1, dolmuş 0.33, tram or LRT 2.0, and special schools or works buses a weight of 0.5 (as they are only in operation for the relevant parts of the day). 68 Chapter 4: Why Urban Transport Matters in Turkish Cities types of municipalities. The legal provision as Istanbul, but have already begun to see the for coordination of action in urban transport risks. As experience in other cities suggests, if through the Transportation Coordination Cen- not met with appropriate transport policies ter (“UKOME”: Ulaşım Koordinasyon Merkezi) and infrastructure, this rapid increase in traffic intends to ensure that the interaction between volume will lead to congestion and air pollu- policies and possible conflicts of interest is well tion that generate substantial externalities and recognized and can be addressed. The actual economic costs. practice in each city, however, varies. Patterns found in other countries suggest pos- At the implementation level, cities are often sible scenarios of future trends in motoriza- poorly organized to mobilize technology in tion and road sector energy consumption in a comprehensive and consistent way. This Turkey, which can increase substantially in the arises from several causes. The existence of next ten years. Motorization rate is positively UKOME is often wrongly interpreted as an al- correlated with income (see Figure 42); the fu- ternative to a well-integrated urban transport ture number of motor vehicles in Turkey can strategy. The UKOME secretariats within the be estimated to be between the lower and up- metropolitan organizations are typically very per bounds of motorization patterns of higher sparsely staffed so that strategic issues such income countries— the lower bound follows as parking policy, or bus and taxi licensing, are East Asian and Northern European trends and dealt with mechanically and superficially in the the upper bound is found among countries in absence of strategic principles and city trans- North America, Oceania and Southern Europe. port data and analysis. As a result, in many cit- By 2022, when Turkey’s GDP per capita could ies, UKOME function as a mechanism that re- reach US$20,000 (in constant 2012 prices) at solves conflict among various interest groups, an annual growth rate of 4 percent, the coun- and the decision-making process becomes try’s motorization rate could reach between excessively political. In many cases, decisions 350 to 700 vehicles per 1,000 persons, which are made as political judgments of the mayor, translates into an annual growth rate of be- rather than being based on sound technical tween 7 and 13 percent. This could lead to a analysis. manifold increase in the share of trips made by private cars in Turkish cities in comparison The legal framework for urban transport de- to the current level. velopment also inhibits policy development in some respects. In particular, the existence Motor vehicle ownership is not the sole de- of rights of operation viewed as being in per- terminant of future modal shares and travel petuity, both for dolmuşes and for some bus patterns in Turkish cities can also be affected operations that have arisen from conversion of by other factors, such as the coverage and dolmuş operations, has limited the flexibility quality of public transport, urban form, price of municipalities in public transport planning. of motor fuels, among other things. Never- This has been evidenced by the difficulties in theless, the trends in higher income countries reforming either the dolmuş or the private bus show another very strong positive correlation markets in almost all sample cities. As noted between the motor vehicle ownership and earlier, even the municipalities that succeeded road sector energy consumption per capita in eliminating dolmuş operations have not re- (Figure 42). Assuming that Turkey would fol- solved the issue of perpetuity of contracts in a low the average trend among higher income fundamental way. countries (regression line from the cross-sec- tional analysis shown in Figure 43, by 2022, Cost of Doing Nothing road sector energy consumption in Turkey is With these challenges, urban transport in estimated to be between 460 and 915 kg pe- secondary Turkish cities appears to be bal- troleum equivalent per capita. In other words, anced on the edge of a precipice. These cities it would increase between 2.5 and 5 times the have not yet experienced the levels of conges- current level of 185 kg petroleum equivalent tion affecting large metropolitan areas such per capita (in 2009). 69 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 42: Relationship between GDP per capita and motorization rate, trends during 2003-09 Source: World Bank Data (data.worldbank.org) Figure 43: Relationship between motorization rate and road sector energy consumption, trends in selected countries during 2003-2009 Source: World Bank Data (data.worldbank.org) Beyond offering a guide to estimate future are in Norway. Similarly, at the same level of trends, the above patterns also suggest a vehicle ownership, depending on the composi- wide gap among high-income countries in the tion of vehicle stock as well as traveler choices automobile- and energy-dependency of their and behavior, actual use of vehicles and con- mobility. At similar income levels, people in sequently the intensity of energy consumption New Zealand own 20 percent more vehicles varies greatly. Australia’s road sector is about than those in Spain; in the US, there are 39 83 percent more energy-intensive than that percent more vehicles per capita than there of Italy, both at a motorization rate of around 70 Chapter 4: Why Urban Transport Matters in Turkish Cities 680 vehicles per 1000 persons; the road sec- about 25 percent to the cost of wasted time.41 tor of the US consumes about 98 percent more Experience in other countries is similar, though energy than that of Iceland, while the former there is considerable variation in estimates owns only 7 percent more vehicles per capita. due to differences in the methods of estima- In other words, economic growth can be de- tion. For the United Kingdom a relatively re- coupled from the increase of energy intensity cent estimate is that the total cost of conges- and fossil-fuel dependency to some extent. tion with 2005 traffic levels at 1996 prices was just under $40 billion.42 Earlier estimates put The cost of doing nothing is substantial, since the cost of congestion as a proportion of GDP policies and infrastructure set up now will at 1.3 percent in the U.S., 2.0 percent in Japan, have lasting impact on the economic and 2.1 percent in France and 3.2 percent in the environmental sustainability of Turkish cit- U.K.43 In a more recent study, cost of conges- ies. With rising motorization rates and private tion in Europe was estimated at €200 billion, car use in Turkish cities, external costs of road approximately 2 percent of GDP. transport—traffic congestion, high energy con- sumption and dependency, air pollution and Air pollution and associated health costs are road traffic casualties—will keep increasing. another very important externality of road Experiences of other cities and countries offer transport. A recent study estimated that ad- good estimates of the potential cost of inac- ditional fine-particulate-matter emissions that tion. can be traced back to traffic congestion in the 83 largest urban areas in the United States led In most developed cities, costs associated to more than 2,200 premature deaths in 2011 with traffic congestion, both in terms of travel and caused nearly $18 billion in public-health time loss and reduced reliability, are substan- costs.44 This covered only the impacts in the 83 tial. Cost of congestion is the most studied ex- urban areas and only the cost of related mor- ternality of road traffic growth.39 In 2009 a spe- tality and not the costs that could be associ- cial study commissioned by the United States ated with related morbidity, healthcare, insur- Department of Transport (USDOT) estimated ance, accidents, and other factors. However, that congestion on the urban road network in the study did find that the number of addition- the United States cost the nation about $85 al premature deaths and public-health costs billion per year, the equivalent of $763 per due to traffic congestion have been declining commuter annually. Significantly the 14 larg- over the past 10 years and will continue to de- est metropolitan areas investigated in their cline until about 2030, as older, more polluting report incurred over 62 percent of costs asso- vehicles have been replaced with today’s low- ciated with road congestion. Travel time costs emission vehicles. accounted for 71 percent of the total ($60.6 billion annually), while reliability costs are es- timated to contribute about $10.1 billion.40 Vehicle operating costs are estimated to add $11.2 billion annually based on the assump- tion of a $2 per gallon (53¢ per liter) gasoline price. A study of road congestion costs in large Australian cities, using a similar methodol- ogy, found that reliability-related costs added 39 In the US, for instance, the Texas Transport Institute publishes annual estimates of total congestion costs. 40 Reliable costs are. 41 Bureau of Transport and Regional Services (2007), Estimating urban traffic and congestion cost trends for Australian cities, Working Paper No. 71, Canberra, Australia 42 Tweddle et al 2003 43 Quinet, 1994 44 Harvard Center for Risk Analysis (2011) “The Public Health Costs of Traffic Congestion: A Health Risk Assessment,” Environmental Health. 71 Rise of the Anatolian Tigers - Turkey Urbanization Review Box 11. Evaluating health costs of air pollution and road accidents For both air pollution and traffic accidents, expressing the impacts in monetary terms requires some evaluation of both morbidity and mortality impacts. Morbidity effects are usually addressed by separately evaluating (1) the value of the work time lost due to the illness; (2) the medical costs of treating the ill- ness; (3) the amount the sufferer would pay to avoid the pain and suffering associated with the illness; and (4) the value of the leisure time lost due to the illness. Lost work time is valued at the wage rate and medical costs are imputed based on the full social costs of providing the care. The cost of pain and suffer- ing avoided and the value of leisure time gained are usually estimated by contingent valuation method (CVM) or stated preference methods. Mortality effects are usually addressed through the calculation of a value of a statistical life through willingness to pay or stated preference studies. This issue was specifi- cally addressed for the Value of a Statistical Life (VSL) by Miller (2000) He found that the VSL averages at least 120 times the per capita income of the country and that income elasticity of the VSL varied between 0.85 and 1.00 in country level regressions, so that income level adjusted values can be obtained for any particular country. Accident costs are a third major social cost of The longer action to address these issues is urban road transport, where Turkish perfor- delayed, the more difficult it may be to ad- mance does not compare well. At the national dress them. For example, it is much easier— level the published number of fatalities per both technically and politically—to provide for one million persons was 134 for Turkey com- segregated road public transport at the design pared with 41 for the Netherlands, 35.9 for the stage of road facilities or when car ownership United Kingdom and 29 for Sweden. City data is relatively low, than to convert existing road is more difficult to obtain, but are known usu- space from general to segregated use when ally to be lower than national averages, par- roads have already become seriously congest- ticularly for large cities. For example, deaths ed. Similarly, it is much easier to achieve tran- per one million persons are less than 30 in sit-oriented development when that philoso- London, Madrid and Prague, with rates rising phy is the basis for new development than to to around 60 per million per annum in many retrofit it on an existing more dispersed urban southern and eastern European cities such as structure. This highlights the importance for Rome, Budapest and Warsaw. According to the Turkish cities of having well- integrated land World Health Organization the cost of road use and transport planning policies, structures crash injuries is estimated at roughly 1percent and mechanisms. Based on the above assess- of the gross national product in low‐income ment, this chapter proposes four priorities in countries, 1.5percent in middle‐income coun- urban transport as discussed in the following tries and 2percent in high‐income countries. sections. The economic costs for traffic crashes range between €7,347 per injury in Portugal and Priority 1 – Rethinking €119,174 in Sweden, and between €105,546 Urban Transport Planning per death in Holland and €2,160,000 in the Narrowing Gaps between Laws and U.S. The annual cost to the U.K. economy of all deaths and injuries remains significant at Practice around £13 billion (i.e. around 1percent of In Turkey, the legal framework is already es- GDP), with damage-only accidents estimated tablished for urban land-use planning and to cost a further £5 billion. Given the relation- design, according to Development Law No. ship between accident rates in the U.K. and 3194 first enacted in 1985 and subsequently Turkey, and the difference in GDP, this suggests amended. The system is hierarchical and nest- that the cost to the Turkish economy may be ed. Ministry of Development is responsible for well over 3percent of GDP. overseeing preparation of socio-economic di- 72 Chapter 4: Why Urban Transport Matters in Turkish Cities mensions of Regional Plans, while Ministry of Second, many cities need to develop strate- Environment and Urbanization oversees prep- gic transport planning capabilities. Although aration of Territorial Plans at the regional level many cities are spatially expanding very rap- and will also prepare Spatial Strategic Plans at idly, planning is often not done at the strategic the regional level due to an amendment in Law level in advance of development and growth of 3194 in 2013. These planning documents set urban areas. Rather, it is often done in a reac- out high-level priorities for the spatial devel- tive manner and in many cases to justify real opment of the country and the proposed lo- estate and development projects, rather than cation of economic and other activities within setting the strategic direction for the city’s de- it. The relevant line ministries prepare input velopment. This is caused partly by the ob- to this through a Development Framework vious disconnect between the land-use and Plan which sets out the general guidelines for transport plans and partly by the institutional implementation of the regional plan concern- capacity (discussed in the following section). ing respective sectors. Both of these are macro While Law No. 5216 requires both an overall level plan documents. Together they form the master plan and a transport master plan, it basis on which the lower level jurisdictions— does not specify what should be the nature metropolitan municipalities —are required to of those plans, or what they should contain. produce Provincial Territorial Plans and other While there is nothing to stop the transport sub-plans. These sub-plans consist of master- plans from extending beyond physical plan- plans that set out the main land-use alloca- ning to cover the full range of transport policy tions, settlement densities, and development issues in the city, there is nothing in the law to principles, including the requirements for require this. transportation systems. The Implementation Third, some problems are not formal or legal Plan sets out in detail, on a larger scale, the but are related to implementation and ap- detailed implications of the Master Plan. plication of such rules and regulations. City Despite the legal requirements, current prac- Implementation Plans, for instance, include tice of urban transport planning in Turkey is urban transport infrastructure such as parking, not fulfilling the intended objectives of the le- which is explicitly mentioned in the legislation. gal requirements for planning. Several weak- Because these are prepared at the municipal nesses are noted. First, in most cities, mean- level, and are subject to local consultation and ingful integration between land-use planning approval by the municipal council, the process and transport planning is not taking place. appears to be quite appropriate for achieving While both are required by law, they are usu- consistency and coordination between land ally prepared at different times with neither le- use and transport planning. The weaknesses gal requirement nor institutional arrangement of the system are thus not in structure entirely, to ensure their mutual consistency. For ex- but largely in performance. For example, while ample, it was stated that both the third bridge some cities—such as Konya—recognize that it and the third airport projects in Istanbul are will not be possible to provide for unrestrained being developed as transport projects despite automobile access to the central city, there is the fact that they are not included in the ex- no recognition at the spatial planning level of isting land-use development plan. At the mu- the implications of parking provision in inner nicipality level the functions of the UKOME do area developments, which cause congestion not extend to the coordination between trans- problems. port policy and land-use, which is under the Building an Institutional Basis for responsibility of city architecture department or equivalent. This suggests the need for new Successful Planning mechanisms for planning as well as organiza- The basis for good planning is always institu- tional arrangements at the municipality level, tional, and successful cities around the world including, preferably, changes to the legal and share several common characteristics in their regulatory framework. institutional setup. First, these cities common- 73 Rise of the Anatolian Tigers - Turkey Urbanization Review ly have an organization with overall responsi- UKOME should base their coordination and bility for planning and coordinating implemen- decision-making on good quality data, ana- tation of all the interacting aspects. Where a lytical and technical work, which should be municipality is the center of a wider metropoli- done by well-staffed technical units. The cur- tan region, it is common for a metropolitan or- rent UKOME structure for interdepartmental ganization (transport authority) to be formed. coordination and decision-making helps en- And these organizations are adequately fund- sure that all key stakeholders are represent- ed and staffed. London is a good example of ed in making important decisions. However, a city which has a strategic transport planning there are currently two main problems with agency at the metropolitan level. Transport for respect to how the UKOME structure is being London fulfills this function and is responsible practiced: (i) it does not have any powers to for overseeing road traffic management, park- participate in and help shape land-use and ur- ing and public transport in an integrated way. ban development plans, and (ii) the UKOME Second, cities following good practice have secretariat, which performs as a technical unit adopted appropriate processes for planning that produces background work in support of and implementation. Urban transport is an in- UKOME’s decision, is severely understaffed tegral and essential component of any urban and under-resourced for the job it is required development strategy. Indeed, it should be the to perform. In a small sample of cities visited, backbone of the city’s planning framework. It is UKOME generally had four or fewer staff for vital in connecting housing markets with labor the purpose of analyzing and contributing to markets and ensuring that low income house- planning on a wide range of urban transport holds can affordably reach job opportunities, issues. This secretariat structure appears to while contributing to the competitiveness of a undercut the analytical and technical studies city’s firms. Successful cities start their plan- that are undertaken by well-established de- ning process from setting a long-term vision partments designed for these purposes in bet- and goals for city development, recognizing ter managed cities. the interactions among multiple and often Sub-sectoral planning also needs to be competing policy objectives, and then address strengthened at the tactical and operational each problem—such as road network develop- level. Consistent with the above recommen- ment, traffic management, and improvement dation with respect to UKOME, it will be im- of public transport performance—in a coordi- portant to assign appropriate responsibilities nated manner. Urban transport strategy in the and staffing of functional units so that they are best managed cities is characterized as: (i) be- suitably equipped to perform the tactical plan- ing well integrated with other aspects of the ning and technical functions they need to per- city development strategy, such as land-use form. These functional units are (i) traffic man- plans, environment policies, and economic de- agement, (ii) parking administration, and (iii) velopment strategy, (ii) the planning process passenger transport planning and regulations. coinciding with the budgetary process, and (iii) the investment plans being constrained by It is crucial to strengthen the strategic trans- available fiscal and administrative resources. portation planning function in Turkish cities. Many metropolitan municipalities are or will Compared to these characteristics of better- be undertaking preparation of new compre- performing metropolitan/municipal trans- hensive urban development plans, many of port authorities, typical features of the or- which will be outsourced. It will be important ganizational structure in Turkish cities are at a minimum to ensure that appropriate city presented as in the schematic diagram in Er- inputs are made in these plans. Whether they ror! Reference source not found.. are outsourced or not, adequate staff and citi- In most Turkish cities reviewed in this study, zen input will be required to ensure that the the institutional structure for addressing ur- plan represents a vision of what the populace ban transport can be improved. First, the wants the city to become and not a plan that 74 Chapter 4: Why Urban Transport Matters in Turkish Cities Figure 44: Organizational Structure of Transportation-Related Functions of the Gaziantep Metropolitan Municipality Metropolitan Municipality UKOME Urban Machinery Control/Audit Technical Urban Supply (General Secretary Transportaiton (Bus Operation) Services Affairs Development appointed by the Mayor) UKOME : Road : Urban Secretariat (4 staff) consturction development and plan maintenance Transportation Planning (3 staff) Traffic Signaling (38 staff) Railway Operation (165 staff) Source: Interview with city officials Figure 45: Organizational Structure of Transportation-Related Functions of the Eskisehir Metropolitan Municipality Metropolitan Municipality UKOME Transportaiton Technical Urban (General Secretary Department Affairs Development appointed by the Mayor) UKOME : Road : Urban Secretariat (4 staff) consturction development and plan maintenance Public Transport (30 staff) Traffic Signaling (15 staff) Intercity Bus Terminal (20 staff) Source: Interview with city officials follows the traditional approach of concen- municipality has chosen to be the supplier trating largely on capital investments that are rather than the regulator of service provision. designed to accommodate perceived travel And the costs of the administrative burdens of demand. At present too much of the scarce operation deprive more strategic functions of supply of skilled municipal manpower is de- financial as well as human resources. voted to operations, in particular where the 75 Rise of the Anatolian Tigers - Turkey Urbanization Review Integrating Land-Use and Transport taken actions similar to the EU. In France, the requirement of local plans was introduced by Planning the Loi d’Oreintation des Transports Interieurs Effective planning and implementation re- (LOTI) law as early as 1982; the formation of a quires consolidation of comprehensive stra- metropolitan level association and the estab- tegic powers in one place, where plans are lishment of a comprehensive strategy docu- prepared and implemented and outcomes ment is a pre-requisite condition for financial are monitored. The notion of the assembly of assistance by central government for urban powers at the municipal or metropolitan level transport programs. Similarly in the U.S., fed- is derived from Western European experience eral funding at metropolitan level is contingent and the judgments of the major western Euro- on the preparation of a metropolitan transport pean Institutions over the last decade. For ex- plan and capital improvement plan. In the ample, the European Committee of Ministers United Kingdom, every relevant sub-national of Transport report on “Challenges to Imple- authority has the responsibility to produce a menting Sustainable Transport Policies” iden- 15-year strategy with a 4-year rolling imple- tified a number of impediments to successful mentation plan. First among Russian cities, policy formation, one of which is the absence the city of St Petersburg has chosen a simi- of an integrated planning framework at the lo- lar combination of a long-term strategy and cal or regional level.45 This points to the fact shorter-term action plan, broadly following that Turkey is not alone in facing this challenge. Western European practices. Common among the above frequently quoted good practices is The European Union (EU) strategy for urban en- a combination of the following: vironment, recommends that every city should develop its own “Sustainable Urban Mobil- • A long-term strategy statement that cov- ity Plans”46 and set out the rationale for such ers all modes and brings together all of plans. The EU strategy also provided some rec- the affected authorities where there is an ommendations on the planning procedures. In overlap of interest, 2010, the Directorate General for Internal Poli- • Engagement of civil society, including a cies (DG IPOL) of the EU further reviewed some wide range of non-governmental organi- key experiences in selected European cities zations in consultation about strategies including Paris, Brussels, Vienna, Orebro (Swe- throughout the strategy formulation pro- den) and Kouvala (Finland).47 From the review, cess, the DG IPOL drew main lessons that long-term • A short-term implementation plan, includ- vision, consistency in policy implementation, ing costs of implementation and selection integration of sector policies, and good moni- of priorities for action, toring to secure public acceptance are critical factors of good urban transport plans. France • An annual budgetary process which re- and the United Kingdom require the prepara- flects the plan, and tion of such integrated plans by law; in other • A secure and largely predictable income countries, they have been adopted for major stream to make the planning realistic and cities without legal requirements. meaningful. A number of countries globally have recog- Successful integration of transport and land nized this coordination problem and have development can yield high social and eco- 45 ECMT (2002), “Challenges to Implementing Sustainable Transport Policies”, Paris. Other key impediments identified in the report are: (i) lack of a national policy framework, (ii) poor policy integration and co-ordination, (iii) unsupportive legal or regulatory framework, and (iv) inefficient or counterproductive institutional roles or procedures. The last is expanded onto (a) lack of ministerial co-ordination at the national level, (b) inap- propriate degree of national government intervention in detail, and (c) the absence of an integrated planning framework at the local or regional level. 46 European Union (2007), “Sustainable Urban Transport Plans”, Brussels. 47 EC (2010) Directorate General for Internal Policies “Sustainable Transport Plans” EC Brussels 76 Chapter 4: Why Urban Transport Matters in Turkish Cities nomic dividends. Experience shows that when Mass Transit Systems urban development is intimately tied to major In many medium-sized Turkish cities, mass fixed-guideway transit investments, the results transit is often thought of simply in terms of are almost always positive: high ridership and rail-based modes and emphasis is usually on environmental benefits, fiscally sound invest- the technology choice. In reality, the range of ments, and pro-poor outcomes.48 Cities that mass transit system options is very broad, cov- are well known for their sustainable policies, ering not only choice of technology (e.g., rail, such as Curitiba, Singapore, Stockholm and light rail transit, bus rapid transit, monorail, Copenhagen, have succeeded in developing cable car), but also choices of horizontal and sustainable urban spaces by improving mobil- vertical alignment (underground is by far the ity and built environments in a synergistic way. most expensive), station spacing and location, To improve the land-use and transport inte- and degree and mechanisms of system inte- gration at the micro-level, traffic impact as- gration (i.e., schedule and fares coordination sessments should be instituted and practiced. among multiple modes, multi-modal transit The importance of traffic impact assessments stations). In a sample of cities analyzed for this report, decision-makers in several cities reject- has been recognized by many if not most Turk- ed certain technology options without rigor- ish metropolitan municipalities, but it is not ous alternative analysis. One of the exceptions clear that these tools are used consistently was in Eskisehir, where multiple technology across the board. This may be due to the fact options were being considered to complement that the process of preparing traffic impact the existing LRT. assessments has not been properly instituted in some if not most metropolitan areas. It will Choosing a technology inevitably involves also be important to specify under law to what confronting important trade-offs. Traditional extent the municipality can require the devel- metros can carry over 60,000 passengers per oper to make road improvements both on-site hour in the peak direction, but cost between and off-site to alleviate traffic problems. Figure 46: International comparison Priority 2 – Make Best Use of of public transport mode: Capacity vs. Capital Costs Limited Financial Resources 300 Maximizing Value-for-Money of Underground 80 Metro Capital Investments Transport infrastructure is among the most Elevated Capital cost (US$ million / km) capital-intensive physical assets owned by a 60 Rail municipality. Decisions on capital investments should therefore be made carefully on the basis 40 of their technical and financial viability, in or- der to maximize the long-term value-for-mon- LRT ey of the investments. This section discusses 20 how Turkish cities have made decisions on two BRT of the most critical and capital-intensive trans- 0 port infrastructures—mass transit systems and 20000 40000 60000 urban road networks—and how they compare Passengers per hour per direction with international best practices. Source: Vietnam Urbanization Review 2011 48 Geerlings, H., and D. Stead (2003), The Integration of Land Use Planning, Transport and Environment in European Research, Transport Policy, Vol- ume 10, Issue 3 pp 187-196. 77 Rise of the Anatolian Tigers - Turkey Urbanization Review Table 7: Comparison of Selected Typical Rapid Transit Systems Kuala Caracas Bangkok Mexico Tunis Recife Quito Bogota Example Lumpur Line 4 BTS Line B SMLT South Busway Phase 1 PUTRA Suburb Electric Diesel Technology Rail Rail Rail Light rail Light rail rail trolley busway 100 100 55 100 100 95 100 10 Vertical segregation percent percent percent percent percent percent percent percent tunnel elevated at grade elevated at grade at grade at grade at grade Stop spacing (km) 1.5 1.0 1.1 1.3 0.9 1.2 0.4 0.7 Length (km) 12.3 23.1 23.7 29.0 29.7 14.3 11.2 41 Capital cost US$ mln 90.25 73.59 40.92 50.0 13.3 11.6 10.3 5.2 per km Maximum cap 32,400 50,000 39,300 30,000 12,000 36,000 15,000 35,000 (pphpd) Avg. operating 50 45 45 50 13/20 39 20 20/30 speed (km/hr) Operations Private Private Public Public Public Public Public Private ownership (BOT) (BOT) Year completed 2004 1999 2000 1998 1998 2002 1995 2000 Source: World Bank (2002) $50 million and $150 million per kilometer, ally higher capacity and higher speed is associ- depending largely on the proportion of at ated with the more expensive alternatives. grade, elevated and underground running. LRT The conventional way to make this choice is systems usually have shorter trains, more fre- quent stops and lower maximum speed than by a classical cost/benefit analysis in which, metros. North American systems have cost be- in addition to the monetary costs and benefits, tween US$15 million and US$100 million per various intangibles, such as the value of time, kilometer. In middle-income countries, the Tu- of life or of environmental quality are mone- nis light rail system, which is mostly at grade, tized in order to reduce the issue to a single cost US$13 million per kilometer, while Putra decision criterion. However, for a more “broad and Manila LRT Line 1 cost around US$50 mil- brush” initial identification of alternatives it is lion per kilometer. A well-designed two-track common to use simpler criteria. For example, system can handle up to 30 trains per hour in China, Decree 81 (2003), sets ‘minimum cri- per track, achieving peak rates of over 20,000 teria’ necessary for metro development to be passengers per hour in each direction. More seriously considered shown in Table 8. advanced systems with separate rights-of-way using moving block signaling, as in the Putra The existence of an appropriate policy and in- system in Kuala Lumpur, can exceed 25,000 stitutional context is just as necessary for BRT passengers per hour per track. Bus rapid transit as it is for a rail metro. For example, (BRT), as exemplified in the system in Istanbul, • The greatest success has been achieved is usually the most cost-effective alternative where all elements of a BRT system have to build and the quickest to implement. They been designed together as an integrated are also flexible and can be closed—using spe- system; cialized vehicles for the BRT right-of-way—or open—allowing vehicles to run on and off the • BRT has been most successful when ac- segregated right-of-way. They cost between $5 companied by strong traffic management million and $15 million per kilometer. Gener- and land use strategy support; 78 Chapter 4: Why Urban Transport Matters in Turkish Cities Table 8: Criteria for Mass Transit Technology Selection used in China Criterion Metro LRT City population [million] >3 million >1.5 million City GDP [RMB p.a.] >100 bn >60 bn Passenger demand [passengers/hour/direction] >30,000 >10,000 City equity investment [this guards against excessive borrowing] >40 percent Source: Chinese government decree 83. • BRT is therefore likely to be most success- that capital investments in new roads devel- fully implemented where there is a strong opment, rehabilitation and repair are strategi- metropolitan planning function and insti- cally chosen and prioritized. Given that motor tution; vehicle ownership and use are growing rapidly • Implementation of BRT can be used as a in all Turkish cities (and as experiences in larg- catalyst for general structural change and er Turkish and foreign cities suggest), simply system improvement, and is most success- building more roads would not solve current ful when it forms the core of such a reform; and future traffic problems. Resources should thus be focused on high-priority roads rather • BRT can be superimposed on, and made than mere expansion of total road length, tak- compatible with, other existing mass tran- ing into consideration trade-offs between ad- sit modes, such as rail metro; however, ditional road capacity and lower-cost alterna- • Attempts to secure effective multi-modal tives, such as traffic management and demand systems require both physical and com- management schemes. Some general princi- mercial integration. ples of road network development include the following: The choice of mass rapid transit technology need not be “all-or-nothing”. An increasing • Typically, bypasses that are built around number of cities—particularly in Asia—are the cities can effectively reduce traffic combining technologies, using heavy rail met- congestion in city centers by insulating ros where the volumes are heaviest and lighter through traffic from in-city traffic. technologies where demands are more mod- • As important as the total road length and erate. That is the case in Beijing and Shanghai coverage (i.e., kilometer per square-me- in China, as well as in Seoul, Korea, where BRT ter), if not more, are the completeness of and traditional metros have been combined the road system. The trunk road network— in an integrated system. Similarly in Singapore highways and major arterials—needs to be LRT links have been added where volumes are completed without missing or low-capaci- relatively lower in the integrated system. ty links, so called bottlenecks; it should be Urban Road Networks well connected to lower-hierarchy feeder roads with clearly defined functions. Investments in road network development should be made strategically under a clear ur- • In city centers, however, expansion of ban transport strategy and master plan, but road network is however generally not should not aim to accommodate unrestrained recommended, not only because it is less traffic growth. A city’s road network is one of cost-effective in reducing congestion than the most capital-intensive physical assets of other measures such as traffic manage- the city, and thus its development has high ment schemes and parking policies, but opportunity costs—the resources that could also because more roads in the city center be used for other municipal infrastructure ultimately encourage more trips made by and services. It is therefore crucial to ensure private cars. 79 Rise of the Anatolian Tigers - Turkey Urbanization Review Improving Operating Efficiency of The underlying cause of this problem is that, when municipalities provide services directly, Public Transport Services management of public transport services is In many Turkish cities, municipal public trans- fragmented, with responsibility for service port service provision is not institutionally planning, operational control, vehicle main- designed on a commercial basis, undermin- tenance and replacement and finance resting ing the long-term financial sustainability of in different departments. No single manager public transport services. Public sector agen- is held responsible for the transit system op- cies providing public transport services are eration as a whole. As a result, service deci- not unique to Turkish cities, but commonly sions are taken without regard to their finan- found in many countries. However, in better cial consequences, and wasteful practices are performing foreign cities, they are established perpetuated. This applies equally to bus as to as a commercial company with comprehen- tram and light rail services. Even when there sive responsibility for equipment and service is an apparent company structure, as in EGO provision, and subject to financial objectives in Ankara, there does not appear to be any or limits. In other words, the books of public unified commercial management. There are transport operators are managed separately exceptions: for example, the LRT system in Es- from the city budget, and their financial per- kisehir is undertaken by a separate municipal formance is fully accounted for. Tariff or rider company ESTRAM, which ensures much better financial as well as operational discipline than fee charges are assessed on market principles. in similar systems in other Turkish cities. This This contrasts with the current arrangements model may be worth considering in other Turk- in Turkish cities, where the operating expenses ish cities. are often not fully captured and accounted for against the operating revenues from ticket The present role of the dolmuş is often con- sales. In the absence of financial accountabil- sidered inappropriate. Most of the cities vis- ity, as in many Turkish cities, vehicle replace- ited—including Ankara—have at some time ment tends to be inadequate and service suf- or other committed to eliminating the dolmuş fers, while cost-efficiency is low. minivans as being too small a vehicle for effi- ciency purposes and too difficult to regulate Ensuring financial accountability and com- for environmental purposes in large cities. But mercial arrangements is independent of these passenger vehicles still carry a large pro- whether public transport operations are sub- portion of total trips (more than a third of all sidized or not. In many countries, it is a poli- public transport trips in Ankara, Konya, and cy decision to provide certain public services Gaziantep). below cost for various economic and social Many Turkish cities face a legacy problem reasons. For instance, many cities with good of having issued long-standing permits to public transport services do often provide op- private operators – Dolmuş Minibuses, for erating subsidies to keep the fares low, as part instance -- that only recently have been con- of transport policies to promote public trans- verted to more environmentally- and cost- port use and benefit low-income households. efficient alternatives. Incentives provided to Such decisions on subsidies should, however, dolmuş operators only occur by negotiation. be strictly distinguished from wasteful spend- One city (Kayseri) has eliminated the dolmuş ing and uninformed management, particularly entirely through a 2 for one transfer to bus as these practices can undermine the long- permits. The largest private bus company op- term sustainability of the system. This is ap- erating in Ankara had its origins in such a trans- parently a critical problem in the several Turk- fer. Two other cities (Gaziantep and Konya) ish cities reviewed in this analysis, which did have offered a conversion at a rate of 3 dolmuş not have the knowledge about whether public per bus, but have not yet been accepted. Izmir transport operators are being subsidized and, has already succeeded in moving the dolmuşes if so, to what extent. to less densely-demanded suburban or rural 80 Chapter 4: Why Urban Transport Matters in Turkish Cities routes, and Kocaeli has managed to increase ties between the metropolitan and district mu- the size of the vehicles in the sector from 16 nicipalities is based on the width of the road to 25 seats. as measured from edge of pavement to edge Regulation of the private bus sector has also of pavement (including the median). All road been ineffective. In some cities many of the surfaces of 20 meters in width or more are the buses operate with permits in perpetuity like responsibility of the metropolitan municipali- the dolmuş, with similar adverse effect on the ties. This policy should be reviewed particu- capability of the authority to manage public larly considering that traffic volumes are in- transport supply. Conversion of dolmuşes to creasing in all cities. Many roads of less than buses with similar legal status simply shifts the 20 meters in width either are or will soon be problem without solving it. Even those buses carrying significant traffic volumes and might operated under contracts with the authority more appropriately be the responsibility of the tend to have long term contracts which they metropolitan municipalities. Many well run have paid for in advance, and hence are diffi- cities functionally classify each road segment cult to shift. Moreover, as the private bus in- according to their intended use (typically ar- dustry is very fragmented it has been neces- terial, collector, and local service) using such sary in some cities to manage them through a considerations as trip length, traffic volumes, complicated rotation system so that ensures and speed as considerations. The advantage of all a similar share of revenue potential. This this approach is that a more rational division of is difficult to manage and involves excess run- responsibilities is likely and perhaps as impor- ning of dead mileage. There would appear to tant decisions on road investment and main- be a simple solution to this, as introduced in tenance priorities could be better determined. Kocaeli. Given that revenue collection is mostly Road contracting practices in some cities are off-vehicle and is any case carefully controlled not cost-efficient. A very important aspect of through the electronic ticketing systems, it road management is the approach to be taken would be much simpler merely to pool the to- in either using in house staff or contracting out tal revenue and pay the operators on the basis road maintenance, and the method of contract- of the distances operated. Once this system is ing out if this option is to be used. It appears accepted it would then set the stage for a sub- that road departments routinely contract out sequent introduction of competitive tendering new road construction and major road reha- of franchises to increase efficiency. bilitation. The practice of contracting out road maintenance is mixed with some cities con- Maintaining Transport tracting out some or all such maintenance and Infrastructure Assets some doing all this work in house. It would be The overall management of the metropolitan useful to review the experience of cities using area road network can be improved. Among both methods by assessing the quality and cost the current problems in the management of of these alternative approaches in determining the metropolitan road network are (i) the lack which approach is most cost effective. Where of adequate functional road classifications and contracting of road maintenance is used it also the questionable method for assigning road would be useful to assess the effectiveness of maintenance responsibilities between the various kinds of road maintenance contracts. metropolitan municipalities and district mu- Among the options to be considered are (i) nicipalities, (ii) questionable contracting prac- the time period of the contract, (ii) the num- tices, and (iii) the lack of adequate road inven- ber and scale of maintenance contracts to be tory and asset management practices. These issued, and (iii) the use of performance-based issues are described below. contracting as an option. Road classification and assignment of institu- Road asset management measures need to tional responsibilities needs to be reviewed. be implemented as a priority measure in met- At present the assignment of road responsibili- ropolitan cities. Given the huge fixed cost of 81 Rise of the Anatolian Tigers - Turkey Urbanization Review the existing road system, it will be important cident detection and response, and demand- to install and maintain an appropriate road responsive controlling (i.e., dynamic and two- asset management system in all large metro- way information). politan municipalities. A computerized system In most Turkish cities, traffic management is supported by an adequately established and still narrowly defined, functionally, spatially maintained database could provide valuable and institutionally. In better performing cities, information for decision-making, including: (i) it has long been that traffic management cov- an optimum road network maintenance strat- ers much more than simple signal controlling egy and related budget; (ii) impact of different and road marking. Traffic management as an funding levels on future quality of the road integral element of urban transport includes (i) network; (iii) economic consequences of bud- city-wide traffic management policy, (ii) traffic get constraints in road maintenance financing; research, (iii) city-wide as well as local traffic and (iv) preparation of a multi-year work pro- management plans, (iv) traffic regulations, (v) gram for network maintenance and rehabilita- parking management policies and programs, tion within available budget resources. Cur- and (vi) evaluation and approval new road de- rently there appears to be a lack of funds or velopments and the traffic impact of land de- unwillingness to allocate such funds in many velopments. Overall, there is a need for com- cities to fully maintain the road system to a prehensive traffic management policies and desired standard, which is not uncommon in plans in Turkish cities. Due to the rapid emer- many cities, even comparatively rich ones. Giv- gence of traffic problems in Turkish cities it is en this condition a well-conceived road asset understandable that cities have often reacted management program could become invalu- in a piecemeal fashion to this problem. This able in making informed decisions. Few cities typically can be a wasteful or even an unpro- have such a system in place at present. ductive approach. Metropolitan areas need to prepare comprehensive traffic management Priority 3 – Provide Mobility and parking plans within the framework of an for People, not Automobiles overall urban transport and land-use planning strategy. Traffic Management as a In accordance with the broader and more Centerpiece of Transport Policy comprehensive definition of traffic manage- Many successful cities have long focused on ment function, its institutional and staffing traffic management as a cost-effective, policy arrangements need to be improved. Turkish and technical tool that allows them to utilize cities have not placed enough emphasis on se- the existing road capacity more efficiently. curing adequate numbers of competent staff In fact, in most well-performing cities, traf- in the traffic management discipline nor have fic management is one of the core elements they organized themselves properly to address of transport strategy, and one of the most a range of traffic management issues. This is in cost-effective measures to tackle congestion. part due to the lack of adequate professional Recognizing that congestion cannot be solved training in this discipline in Turkey. Moreover, by adding more roads, traffic management the consolidation of a range of traffic manage- focuses on the demand-side and is provided ment functions in a single traffic management with adequate institutional support and finan- unit (metropolitan transport authority), which cial resources. Since the introduction of intel- is accepted practice in most cities with good ligent transportation systems (ITS), the defini- traffic management practices, has not been ac- tion and scope of traffic management has also complished in most Turkish cities. Cities have broadened. It goes beyond simple mechanical established traffic signal units which operate controlling and marking/signing (i.e., static and maintain traffic signals and also install and and one-directional information), and includes maintain road signing and marking. Among real-time traveler information, performance the cities reviewed for this report, most traf- management of public transport services, in- fic management staff has been assigned to 82 Chapter 4: Why Urban Transport Matters in Turkish Cities operate and maintain the traffic signal system. effectiveness. MTMC’s National Smart Trans- This function in many cities around the world portation Systems Strategy Paper and Actions is contracted out to the private sector. Greater Plans, which call for inter-city and intra-city in- emphasis on staffing of traffic management telligent transport systems, are a move in the units should be on addressing the functions right direction. listed above. Parking as a Demand Management An urgent but relatively easy step to take is to improve the quality and effectiveness of Tool the existing traffic signal installations. At the In most Turkish cities, parking as a traffic man- present time many if not most metropolitan agement and demand management tool has municipalities do not have an effective cen- been underutilized. As traffic volumes increase tral control system for their traffic signals al- in Turkish metropolitan areas considerably though many are in the process of making this more reliance needs to be placed on expand- improvement. This will be an essential tool to ing on-street and off-street paid parking pro- implement a coordinated traffic management grams. The objectives of this initiative should scheme as cities expand and traffic volumes be to (i) improve the utilization of available increase. As more cars come out to the city parking spaces, (ii) reduce traffic circulating for streets, there will be a need to install more parking spaces, and (iii) use this measure as a traffic signals and to manage and coordinate travel demand management measure. An at- them better. As rough guidance, it is interest- tractive feature of paid parking is that it should ing to note that for most North American cities not result in a net cost to the city if properly there are typically 1,000 to 2,000 persons per instituted and might become a significant traffic signal in cities; and in Western Europe source of municipal revenue (even though this slightly more. For developing countries with should not be the primary objective). At pres- substantially lower motor vehicle ownership ent the amount of on-street paid parking in the need for traffic signals is less, but where the cities reviewed in this study could be con- the number of persons per signalized intersec- sidered minimal as is off-street paid parking in tion exceeds 5,000 in a major city this might be most cities. Overall both paid and free park- considered a rough threshold to suggest that ing arrangements in most cities suffer from the city is under- signalized. Among the four the following defects: (i) parking programs are cities reviewed in this report, the population not being developed within a comprehensive per traffic signal varies from a low of 5,400 to parking plan, (ii) parking requirements are a high of 9,800 persons per signalized intersec- often not appropriate, (iii) parking technol- tion. ogy utilized to date is inadequate, and (iv) the institutional arrangements for planning and Use of advanced technologies including vari- managing parking are not appropriate. These ous ITS applications is still in its infancy and issues are discussed in turn below. more investments need to be made in the medium-term. In most Turkish cities, ad- For most Turkish metropolitan municipali- vanced applications of Intelligent Transporta- ties, a city-wide comprehensive parking plan tion Systems (ITS) such as motorist/passen- needs to be developed. Provision of parking is ger information systems, bus management a complicated issue as it interacts with traffic systems, incident management systems, and management objectives, land development, traffic enforcement systems are at very early city finances, and urban politics. To date cities stage of deployment. These technologies can have typically provided parking in reaction to offer cost-effective solutions to reduce conges- perceived needs but without the useful frame- tion and improve the service quality and rid- work of a comprehensive parking plan which ership of public transport modes. The invest- should also fit within an agreed city develop- ment in new technologies should be carefully ment strategy and land-use plan. Those cities prioritized on the basis of needs and based on which have not produced parking plans should a medium-term plan in order to maximize cost- do this as a priority task. 83 Rise of the Anatolian Tigers - Turkey Urbanization Review Current parking requirements are inappro- pears to be as least partly handled by UKOME priate and need to be revisited. Parking re- staff in some cities, but as noted with limited quirements by type of land-use are set out resources and policy making authorities. As in a national law. While this was probably an the parking program grows in larger cities, the understandable initiative at lower levels of establishment of a separate full time parking vehicle ownership in guiding cities to set ap- unit should be seriously considered. The park- propriate parking requirements, it is too rigid ing plan or strategy might be handled either by a guideline to be applied uniformly across a traffic management authority or transporta- all cities. For example, it is common practice tion planning unit. in well-organized cities to reduce parking re- quirements in congested areas as a demand Transport for Livable Cities management measure. In addition, there are Setting standards for, and measuring, air qual- apparently limitations on the amount cities ity is a national responsibility in Turkey. At the can charge for parking. This also works con- national level, Environmental Management trary to the objective of pricing as a basis for General Directorate within the Ministry of Ur- appropriately managing the utilization of avail- banization and Environment is responsible for able parking spaces. Cities should be allowed air quality monitoring. This directorate has tak- greater freedom in implementing their parking en responsibility for air quality measurement, with 120 monitoring stations in 50 cities, the requirements, parking charges, and fines. results of which are publicly available on the Use of modern parking technology is limited. Turkstat website. Important transport generat- Among the cities visited there appears to be ed pollutants such as PM10 and SO2, are among a reliance on parking enforcement personnel the pollutants measured. However, with such as opposed to use of more advanced technolo- a small number of monitoring stations, and in gies as the basis for charging for parking. As the absence of any scientifically-established cities move toward implementing more paid and formal procedures of source apportion- parking spaces the introduction of more ad- ment, there appears to be little of an evidence vanced parking technology should be consid- basis to demonstrate the cost effectiveness of ered as a basis for better management of park- environmentally oriented policy actions (such ing, for better monitoring of real time parking as different investments in electric transport) conditions, and for better management of at the municipality level. There is also a na- funds received. Various smart transport sys- tional level action plan on air quality, includ- tems and technologies have been established ing advocacy to city governments to convert in well-managed cities to accomplish this goal. their bus fleets to CNG or LPG. However, this is only policy advice and is not backed by incen- An institutional home for parking planning tive schemes or established targets for fleet needs to be established in metropolitan mu- renewal, or powers of enforcement. nicipalities and granted with adequate pow- In many cities, urban freight movement can ers to develop policies and to enforce them. have severe environmental impacts. While While the operation and management of paid all major cities suffer from the environmental parking facilities both on-street and off-street impacts of truck movements, few have a com- is typically contracted out to the private sector prehensive policy on the issue. The creation of or to separate municipal institutions, there is special freight transport units and the articu- the question of who manages the preparation lation of specific plans for freight have been of the parking plan and the management of the successful in both London and Paris, and such overall parking operation. In most advanced measures have helped these cities to improve cities there is a separate unit that is placed their competitiveness as well. A critical feature in charge of managing the parking operation in both cities has been the involvement of the whether this work is contracted out or is ac- freight and distribution industry in a collabora- complished in-house. This function now ap- tive process. For transit traffic many cities pro- 84 Chapter 4: Why Urban Transport Matters in Turkish Cities vide by-pass roads, sometimes supported by are promoted to secure collaboration be- bans on movement within the outer ring for tween firms to develop a sustainable dis- traffic without a legitimate destination in the tribution strategy. Information technology city or by prescribed lorry routes within the has a role to play in the development of city. Direct limited access connections from na- such transshipment systems, with GPS, tional motorway systems to ports have a simi- tracking systems, route planning software, lar effect. For terminating traffic the problem is and electronic data interchange (EDI) con- more complex and a number of controls have tributing to a more efficient distribution been used, such as: pattern. • Controls on vehicles may be to limit vehi- • Controls on journey timing usually aim to cle size – where the problem is congestion separate truck movements from car traffic caused by very large vehicles – or to limit and aim to reduce the disturbance caused emissions – where the problem is air pollu- to residents by heavy lorries at night and tion. Low Emission Zones, from which high weekends by requiring night delivery to polluting vehicles are excluded, exist in retail premises at night-time or during the London, Rome, Madrid, Paris, Copenhagen ‘shoulders’ of the day on specified non- and several Swedish cities. Enforcement sensitive routes. For example, the London can be assisted by charging systems. In Mi- Lorry Control Scheme set up in 1986 led lan, the road pricing system or “congestion to long diversions, resulting in increased charge” for the central area is designed emissions and increased cost to industry. primarily to discourage polluting vehicles • Controls on truck routing exist in many by differentiation in the charges levied. cities but must be supported not only by • Controls on activity location have mostly effective enforcement but also by appro- been concerned with shifting the location priate infrastructure. For example, the of manufacturing and warehousing activi- absence of rear or off-street access for ties to the periphery of the city, as has been deliveries may necessitate that a high pro- very successfully achieved in many Dutch portion of deliveries to urban high streets cities. Changes in the structure of the retail and shopping centers are made by direct distribution sector have also seen a shift to curb-side access to the frontage. hypermarkets on the periphery of cities, Non-motorized transport is frequently seen supported sometimes by restructured bus as an important element in policy to limit the routings. environmental impact of urban transport. In • Controls on distribution systems are an the last decade walking and cycling has been extension from the control of activity loca- increasing slightly in the industrialized coun- tions, and involve the establishment of pe- tries—mainly for health and recreation pur- ripheral depots at which goods are trans- poses while in Africa and Latin America little shipped and consolidated into acceptable has changed, with 50percent of trips still walk- vehicles for the inner city. Publicly orga- ing trips in Africa. In contrast, there has been nized plans were popular in Germany in a steady decline in aggregate in the bicycle the 1980s but have declined since. Only sector in Asia. In China, bicycle ownership fell those that have a single agency control- from 1.9 to 1.1 per household between 1995 ling the whole supply chain – as in the and 2005 and the share of trips by bicycle is case of Heathrow Airport in London – have falling. In several countries, including Vietnam survived. That suggests a more collabora- and India, the bicycle is being rapidly replaced tive, free market approach to the issue. In by the motorcycle.49 This has not been helped the UK Freight Quality Partnerships (FQPs) by public policy. For example, although the 49 In Hanoi, motorcycle ownership had reached 0.5 per capita and they accounted for 65percent of all vehicular trips in 2006 (World Bank, 2006). 85 Rise of the Anatolian Tigers - Turkey Urbanization Review 2004 national Road Traffic Safety Law in Chi- and tertiary networks and wide roads with na in principle affirmed pedestrians’ rights, in large set-backs reduce pedestrian accessibil- practice policy at the municipal level was often ity to buildings – less than one quarter of the inimical to the bicycle.50 Even in Europe, while numbers of jobs are accessible within a ten many cities pay lip service to NMT by the cre- minute walk of major rail stations in Beijing ation of cycle paths (for example, both Warsaw than in New York (Torres et al, 2010). This is and St Petersburg have cycle path plans), for often accentuated by insufficient and poorly the most part they are directed at leisure cy- designed street crossing places, lack of pedes- cling (e.g. in parks) or are not fully segregated trian phases in signal setting, poor road condi- from motorized traffic. tion and impediments such as cars parked on sidewalks. Internationally there are signs of change in policies on cycling. A number of recent World Some relevant lessons for Turkish cities can be Bank projects in China have assisted cities in learned from this international experience. providing a more cycle-friendly environment, The World Bank urban transport strategy pa- including road design on a “safe corridor” per51 argued that there should be clear provi- philosophy, re-introduction and strengthening sion for the rights of pedestrians and bicyclists of separation barriers, and a shift from invest- in a national traffic law which would be a facili- ments in primary to secondary and tertiary tating framework for explicit formulation of lo- roads (Mehndiratta, 2011). Many pedal cycles cal NMT plans by municipal authorities. These in China are being replaced by electric cycles plans should provide for separate infrastruc- which have much of the same environmental ture where appropriate (for safe movement advantage but offer greater range, speed and and for secure parking of vehicles), while stan- comfort. Cycling is also increasingly being ad- dards of provision for bicyclists and pedestrians dressed as part of a system. A pattern of co- should be included in new road infrastructure herent, complete, segregated cycle networks design. Traffic management should be focused has been introduced with great success in on improving the movement of people rather Bogota, Colombia. Since the completion of than of motorized vehicles and traffic police the 300 kilometer cicloruta network in 2001 trained to enforce the rights of NMT in traffic bicycle use has been increased by five times, priorities. In 2008 the South African govern- and now nearly 400,000 cycle trips are made ment published its draft proposals for NMT, daily in the city. The synergy between the cycle which included the obligation for NMT plans (pedal or electric) as an access mode to mass to be prepared at both the provincial and local rapid transit in cities is increasingly recognized levels, and for an NMT fund to be established and planned for. Bogota’s Transmilenio and from part of the national Road Fund revenues the new major BRT network in Guangzhou are (South Africa Department of Transport, 2008). good examples of that integration with well- Transport for the disabled has been receiving organized bicycle parking facilities provided. increased attention during the last decade. In Turkey, benefitting from its level terrain, At the international level, the UN adopted a Konya has instituted a bike-path network that Convention on the Rights of Persons with Dis- is claimed to run over 150 km., as well as a abilities in 2006, and in 2010 established a bike-share program. Such examples could be group to prepare practical guidelines for coun- studied and adapted in other Turkish cities. tries which have signed the Convention. The The importance of “walkability” is also in- development banks have also incorporated creasingly recognized in urban design. Cities provisions for the disabled in their investment featuring large block sizes, sparse secondary projects, such as the World Bank’s funding of 50 Up to 2009 Guangzhou had not built a new bike lane for 12 years; Shanghai prohibited the use of bicycles on trunk roads in 2007; and Shenzhen changed its urban road planning standards, removing bicycle lanes to improve capacity for cars. In Zhengzhou the Bureau of Education prohibited primary school students cycling to school 51 Cities on the Move 86 Chapter 4: Why Urban Transport Matters in Turkish Cities accessibility improvements in sidewalks as- Priority 4 – Create a National sociated with the new Lima Metro. At the na- Framework for Sustainable tional level some large developing countries have now adopted laws on transport for the Urban Mobility Systems disabled (Brazil in 2004 and the Philippines, Developing a National Policy for Vietnam and Mexico in 2010), though this has not always had very immediate results. At the Urban Transport city level, accessibility improvements are now Currently the responsibility for urban trans- being introduced particularly in the context of port policy is fragmented at the national level. new mass rapid transit facilities (elevators in The Ministry of Environment and Urbanization metro systems and extended platform board- (previously Public Works and Settlements) has ing of BRT systems in Latin America) and ex- a wide ranging remit on urban development is- isting bus systems (for example low floor or sues, and has included the development of sus- wheelchair ramp equipped buses and vans). tainable transportation under Objective 5 of In Shenzhen, China, a substantial program of the Integrated Urban Development and Action investments in curb ramps, tactile guide ways Plan for 2010-2023 (Kentsel Gelişme Stratejisi, and accessible taxi and metro services, has which is abbreviated as KENTGES). Meanwhile, been developed on the basis of a municipal the Ministry of Development is responsible for regulation (AEI, 2011). allocation of some financial support for criti- Not surprisingly, poorer countries and cities cal urban public transport investments. Urban tend to do the least, partly because the infor- transport projects financed by the Treasury mal sector transit services on which they de- (e.g., Ankara metro project) are overseen by pend are particularly difficult to influence. But the Infrastructure Investments Directorate even in middle income countries, if there is no General of the Ministry of Transportation, legal obligation, progress tends to be concen- Maritime and Communications (MTMC). The trated in “show” cities, often the capital. For Ministry of the Interior also has some influen- example, while two thirds of buses in Buenos tial involvement as the leading proponent of Aires are accessible low-floor models, the pro- the extension of the metropolitan areas, but portion is only 5 percent in the rest of Argen- without offering a comprehensive strategy. tina. Retrofitting to existing systems is more costly and therefore more difficult to achieve Turkey’s national policy on urban transport than in new systems where good design rather is consequently weakly articulated and even than substantial extra investment is required. more challenging to implement. The content Co-ordination between interacting agencies is of the transportation section of KENTGES offers also often poor. For example, it took protract- a general direction but lacks substance to be ed legal action to secure compliance in mak- able to guide actual transportation plans and ing the city’s subway stations fully accessible in implementation at the city level. Moreover, Rio de Janeiro. So there is still much to achieve there appears to be no relationship between what is being developed in that plan and the processes or principles for allocation of fund- ing for urban transport projects through the Ministries of Development and Transport. Na- tional level finance is also being channeled to the metropolitan municipalities through the operations of the Iller Bank and a Develop- ment Fund, without reference to any explicit national policy in the sector. Responsibility for implementation and man- agement of urban transport formally lies at 87 Rise of the Anatolian Tigers - Turkey Urbanization Review the local or sub-national level in all major Providing Incentives for Reforms countries.52 However, in most cases, national and Investments governments play several important roles in the urban transport sector, while local authori- The roles for the national government are es- ties are responsible for implementation. sentially those of “holding the ring”, setting general conditions within which local and ini- • Technical standards for vehicle emissions tiative can be effectively exercised. They are and safety are usually set at the national universally acknowledged, though sometimes level, and are often administered by local not well performed. More controversial are departments of the national ministry rath- national measures which go further than this er than by local administration. in attempting to mould the actual policies that • Framework laws controlling the entry to are pursued at the local level. These include and regulation of the public transport mar- the following: ket are also usually set at the national lev- • Research and technical assistance on ur- el. Examples are the British Transport Acts ban transport may be managed at the na- of the 1980s, which introduced competi- tional level because of the economies of tion into the sector, and the French LOTI of scale and scope in the collection and dis- 1982 which established the arrangements semination of information on best tech- for conurbation level strategic transport nological and commercial practice. The planning. French nationally funded urban research institutes (CERTU and INRETS/IFFSTAR) • Competition laws, which are critical to the and the Korea Transport Institute (KOTI) success of competitively tendered fran- continue to be effective, while those in chising or concession agreements, are also some other countries (NIAAT in Russia and usually national. In some cases—for ex- TRL in the UK) have lost their effectiveness ample in the Russian Federation—the fact as national governments have distanced that they are general rather than trans- themselves from intervention in the sec- port-specific has sometimes hampered tor. In Brazil, a time-bound program of as- the development of processes appropriate sistance was given by the federal govern- to the sector. ment to municipalities. See Box 12. • Fiscal regimes are also nationally deter- • Formula-based counterpart funding pro- mined. Where significant responsibilities grams for capital investments are common are constitutionally assigned, or legally de- where the local fiscal or borrowing capa- volved, to the local level they can only be bility is weak. The danger of such arrange- properly performed if the responsible local ments is that they distort the choices made authorities have a proper financial basis. by local authority by effectively changing This requires either the exercise of local the relative costs of different policy inter- taxing powers or, in case the tax system ventions. is highly centralized, the establishment • Special financial assistance programs from of predictable arrangements for inter- central government have been used in sev- governmental transfer of funds. The fail- eral countries. In some they have focused ures of many public transport enterprises on encouraging the take-up of technical in Eastern Europe after 1990 were largely innovations, such as subsidies to the pur- due to the decentralization of responsibili- chases of front entrance/ rear-engined ties unaccompanied by adequate financial buses in the UK in the eighties and the provisions. much larger on-going program of support 52 In some countries traffic management is viewed primarily as safety issue for which the national police have responsibility. This attribution of re- sponsibility has tended to limit the comprehensive integrity of urban transport policy, and has certainly weakened the traffic management function in many developing countries. 88 Chapter 4: Why Urban Transport Matters in Turkish Cities for approved mass transit investments by the city plans for the expansion of mass transit the UMTA of the USDOT. In other cases, in- appear to be based on fashion – and the hope cluding Russia and Uzbekistan, they have that capital grants from central government simply been used as injections of “emer- will be available. All of this suggests that there gency” support for vehicle replacement would be much to be gained from a concerted as fleets have deteriorated unacceptably. effort by Turkey’s national government to as- This had the unfortunate disincentive ef- semble and distribute information on the eco- fect of encouraging the municipality to nomics as well as the technologies of the al- rely on such occasional support in place ternatives. To that end, MOTMC has launched of the establishment of proper vehicle re- studies for the preparation of a new Transpor- placement programs and therefore need tation Master Plan (TMP) that will establish a to be applied judiciously. balance between the transportation modes and guide transportation policies of Turkey in Turkish cities display a wide variety of policies future years, as well as create transportation and policy instruments. Both the road traffic infrastructure responsive international good infrastructure and the operating transport practice standards. The TMP will cover the pe- fleets range widely in age and technological riod 2016-2035 and one of its most important vintage, with some of the technology reflect- outputs will be a “Manual for Development ing state of the art. In mass transit technology of Urban Transport Masterplans,” which will there is a similar range, with some very modern be used for the development of guidelines for and some very antiquated technology, some the preparation of such masterplans at the city very expensive and some very cheap. Some of level. Box 12. Federal Urban Transport Agency in Brazil The federal government agency for urban transport, Empresa Brasileira de Transportes Urbanos (EBTU), was set up in 1975 by Law # 6261. The main objective of EBTU was to promote the goals of the National Urban Transport Policy and to act as coordinator of its implementation. Specifically, it was to: • Promote and coordinate the national strategy to prepare, analyze and implement transport master plans at the metropolitan and municipal levels. • Manage the Federal Government’s shareholding interests in companies linked to urban transport • Manage the Urban Transport Development Fund (which was defined by the Law that established EBTU) • Issue opinions on the priority and the technical and economic feasibility of proposed urban transport projects • Assist in implementing a national urban transport planning process. Aim for compatibility between the metropolitan and local transport policies with integrated development planning of metropolitan regions, as well as National Transport and Urban Development policies. • Promote and carry out the development of urban transport technology. EBTU was then abolished in 1991, when it was viewed that the capacity of municipalities has improved to the level at which active federal leadership was no longer necessary. 89 Rise of the Anatolian Tigers - Turkey Urbanization Review 90 Chapter 5: Financing Cities in Turkey Chapter 5: FINANCING CITIES IN TURKEY Financing of cities takes on increasing impor- municipal revenues and expenditures as a tance in periods of rapid urbanization. Tradi- share of GDP. The chapter then delves into tional approaches to taxation and revenue- specific policy questions and practices that raising strategies advocate marginal taxation may benefit from further review and interna- practices, i.e. taxing at the margin to raise tional experience. needed revenues for the delivery of desired Subnational expenditures present a mixed services in a particular locality. But rapid picture: they are relatively low as a share of urbanization presents a challenging dilemma GDP, but not entirely out of line considering because often planning and investment deci- expenditure assignment. The size of the lo- sions need to be made in anticipation of new- cal administration sector is currently about 5 comers to the city. In most cases, this also percent of Turkey’s GDP. In comparison with means that an increasing share of the tax other EU countries, Turkey’s subnational ex- base has yet to materialize. A municipality’s penditures are among the lowest. This may ability to leverage itself by accessing long term appear as somewhat surprising given the finance and using other debt and land equity increased pressures of urbanization and the instruments can often help to bridge this size of Turkey’s cities when held up to EU gap, while introducing the principle of inter- comparators. The two main reasons behind generational equity in infrastructure finance. In this are: a) the low level of locally-collected this chapter, we review the various elements revenues; and b) the narrow scope of local of Turkey’s system of financing cities, draw- service responsibilities. Unlike most European ing comparisons to other peer countries and municipalities, Turkish municipalities are not pointing to policy areas that may need fur- responsible for expensive social services like ther examination and could benefit from in- education, health, and social assistance, which ternational experience. The chapter begins by for the most part are provided at the national reviewing the macro picture by comparing level. Even street lighting has been paid over Figure 47: Sub-national expenditures in percent of GDP, 2010 36 MLT CYP GRE LUX TUR POR IRL BUL SKR ROM EST SLO LIT FRA HUN LAT CZE GBR POL ITA EU27 EU15 NET AUT GER BEL FIN ESP SWE DEN Source: OECD and Turkey Data; and Peteri and Sevinc (2011) 91 Rise of the Anatolian Tigers - Turkey Urbanization Review the years by public electric distribution com- ropolitan municipalities, and towns & borough panies prior to privatization when only a 10 municipalities, SPAs, and municipal affiliated percent share of that cost was passed on to entities. municipalities. International trends suggest Municipal revenues and expenditures are that local provision of these social services both steadily growing, albeit just keeping would shift the subnational share of expen- pace with inflation. There is a steady, robust ditures over 10 percent of GDP in Turkey, current balance53 at about 30 percent of total still substantially below the EU average (See revenues that indicates a healthy control over Figure 47). While the Turkish subnational sec- current expenditures and appears as a good tor has some room for expansion in the short cushion for financing investments and secur- term, over the long run, as local administration ing debt. By 2013, this has contributed to a capacity expands, there would likely need to gradual accumulation of cash reserves (about be a further devolution of service responsibili- TRL11bn.), which are concentrated in two ties from the central to local administrations institutional segments: the Special Provincial and a potentially a corresponding increase in Administrations (SPAs) (TRL6.6bn.) and Towns fiscal transfers. and Borough (T&B) municipalities (TRL2.1bn.). The aggregate budget of the Local Adminis- However, over the past five years, the current tration sector is stable with a five year trend balances have moved very differently, namely of growing current revenue surplus. Capital metropolitan municipalities have steady and expenditures were on average 38.0 percent of robust current balances, while the non-met- the budget total, financed from operating sur- ropolitan municipalities and the towns have plus, capital revenues, and debt (29.7 percent, small positive current balances. These cash 6.4% and 3.7 percent of Budget total respec- balances and current balances would drop if tively in 2013). These averages feature signifi- the local entities were to pay out their over- cant differences in revenues, expenditures, and due liabilities for certain taxes and loan ar- debts between various clusters or tiers of local rears owed to Treasury and social security entities: metropolitan municipalities, non-met- payments. Figure 48: Local Administration Sector Revenues and Expenditures 2007-2013 (TRL bn.)   2007 2008 2009 2010 2011 2012 2013 Current revenues 33.286 36.991 40.079 50.875 59.884 66.177 77.759 Current expenditures 22.767 27.707 30.509 34.367 39.008 44.203 51.768 Current balance 10.519 9.284 9.570 16.508 20.877 21.974 25.992 Non-recurrent Revenues 2.188 1.851 2.397 2.707 3.532 3.086 5.617 Capital Expenditures 16.617 18.235 17.718 17.859 22.004 25.096 35.822 Capital balance (14.429) (16.384) (15.321) (15.152) (18.472) (22.010) (30.205) Debt financing net 8.953 4.247 (6.887) 10.146 (0.901) 2.249 0.981 Balance total 5.044 (2.852) (12.637) 11.502 1.503 2.214 (3.233) Budget Total 39.384 45.942 48.227 52.226 61.011 69.299 87.590 Source: Turkey Ministry of Finance https://portal.muhasebat.gov.tr/mgmportal/ 53 Turkish municipalities do not prepare separate current and capital budgets, but this can be created from the line items and provides useful insights about their budget situation. Thus in this chapter we distinguish between current and capital revenue and expenditure items whenever it is pos- sible. 92 Chapter 5: Financing Cities in Turkey Figure 49: Local Administration Sector Current Budget 2007-2013 Source: Turkey Ministry of Finance https://portal.muhasebat.gov.tr/mgmportal/ The local administration sector is reliant on total in 2013); in contrast taxes and fee rev- transfers, including shared tax revenues and enues are very small; they provide about 9.9 government aid and donations. Central gov- percent of total revenues, which is very low ernment fiscal transfers and donations stood by international comparison. However, several at 38.3 percent and 16.7 percent respectively service fees are accounted as enterprise rev- in 2013. The bulk of government aid and do- enues. The share of transfer revenue is also nations are provided for the SPAs, not for increasing, driven by the booming economy municipalities. Enterprise and property rev- and growing national tax revenues sources of enues dominate the local administration sec- the divisible pool. tor’s own-source revenues (21.5 percent of Figure 50: Current Balance in percent of Figure 51:Sector Main Revenues Budget Revenues 2006-2013 2006-2013 Source: Turkey Ministry of Finance https://portal.muhasebat.gov.tr/mgmportal/ 93 Rise of the Anatolian Tigers - Turkey Urbanization Review Horizontal imbalances dominate the revenue difference between the largest and the small- picture. Behind the aggregate and compara- est NUTS1 region share in municipal revenue. ble total revenue figures, there are horizontal The population, the local economic situation, imbalances in municipal revenues across re- and particularly the presence of large com- gions and by size of local administration. As panies strongly influence municipal revenues. expected, local revenues are highly concen- Disparities in municipal revenues and expen- trated in the large metropolitan municipalities ditures are substantial and slightly growing. and in the western regions of Turkey where The disparity between the richest and the the tax base is robust. Four NUTS-1 regions poorest provinces in terms of municipal ex- collect over two thirds of municipal revenues, penditures was over three-fold in 2013. (See while the other 8 regions share less than a Figures 52 and 53) third of municipal revenues. There is a 27-fold Figure 52: Share of NUTS-1 regions in percent of total municipal revenues Source: Peteri & Sevinc 2011 Figure 53: Per Capita Municipal Expenditures by Provinces in 2013 (TL) Source: World Bank staff calculations based on MoF data (https://portal.muhasebat.gov.tr/mgmportal/ and http://www.turkstat.gov.tr/PreTabloArama.do) 94 Chapter 5: Financing Cities in Turkey On a per capita basis, transfer revenues are Expenditure assignment is formally limited less skewed. The per capita revenues show and differs by tier of municipality. The Law fewer differences than the total revenue vol- entitles municipalities to develop and oper- umes because of different population sizes by ate 22 various local services or expendi- locality and some equalization effects. Munici- ture functions. In practice, they focus largely palities in the richest province (TL1758 per cap- on general administration and basic functions, ita) had 2.9 times higher per capita revenues economic and urban services, housing, en- than municipalities in the poorest province vironmental protection, and recreation. Some (TL601). Indeed, equalization transfers have a urban services are off-budget in large metro- role to play. However, some rich Turkish re- politan municipalities and are provided by mu- gions receive higher transfers not only in abso- nicipal-affiliated entities like water and sanita- lute terms, but many also on a per capita basis. tion, light rail and metro lines and transport This is largely a result of the revenue sharing companies. Municipalities play a negligible system that returns 5 percent of tax revenues role in the provision of main social services back to source collected within the boundar- like health, education, and social protec- ies of metropolitan municipalities; and many of tion. The division of expenditure and service these cities host large companies that generate responsibilities between the metropolitan high corporate income tax (CIT), and personal municipality and the towns, boroughs54 and income tax (PIT) revenues. Revenue sharing by villages within their boundaries is blurred both source should be maintained, but the dispari- legally and in practice. The roles and functions ties above indicate the need for enhancing the in practice are sometimes found to be over- revenue equalization system. lapping, though to a different extent. Municipal Responsibilities The composition of municipal expenditures clearly reflects the narrow scope of the Turk- and Expenditures ish local administrations. The general public In comparison to other European countries, administration expenses represent the larg- local administrations in Turkey have fewer est share of local expenditures (30 percent responsibilities. The core municipality respon- in 2013); the second is housing and commu- sibilities in Turkey are: a) transport, including nity services, while municipalities spend very urban road construction and maintenance; moderate amounts on other core munici- and public transportation, which is substan- pal services. However, the expenditures on tially private; b) water and wastewater servic- “economic affairs” represent the third largest es; c) solid waste management, and d) housing share (22 percent), including market services services. The municipalities are also respon- and other economic activities. Municipali- sible for land use planning and development ties own commercial enterprises that are and management of the environment. Among not directly connected to the core services, these responsibilities, environment and hous- but rather aim in most cases to enhance rev- ing and communal services are heavily domi- enue generation, or have been maintained in nated by local administrations: 95 percent of place for historic reasons. Such practices are total public expenditures in these two service common among cities globally, but economic areas were carried out by local administrations activities of this kind should not undermine in 2013. establishing a sound local tax and fee system, nor should it unduly crowd out private sector providers. 54 Local entities within the metropolitan municipalities are accounted as “Town & Borough Municipalities” in the MoF database; while they are also known as metropolitan “Districts” or “District Municipalities”. This report uses the MoF terminology for the sake of consistency. 95 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 54: Municipality Expenditures Breakdown 2013 Source: Turkey Ministry of Finance (https://portal.muhasebat.gov.tr/mgmportal/) Local services are provided either by munici- boost between 2009 and 2013. This is largely palities or through municipal enterprises or attributed to dynamic growth of the economy affiliated entities. Outsourcing is also substan- and the national taxes shared with the local tial; purchasing of services represented about administrations. The consolidated revenue 20 percent of local expenditures in 2013. budget indicates that the Turkish municipali- There are some overlapping responsibilities ties collect a fair amount of own revenues by of special provincial administrations and the international comparison, which represents municipalities and between the metropolitan over a third of total income; however, they and district (T&B) municipalities in business strongly rely on state transfers and grants for development, administration, road building, over half of total income; and incur debt in and special services such as disaster manage- ment. varying degrees – about 43.6 percent, 44.5 percent and 11.9 percent of total financ- Municipal Revenues - Scope ing correspondingly in 2009. The situation and Composition changed after 2011 because of a robust in- crease of both transfers and own revenues Municipal Revenues and debt maturity structure; these changes Municipal revenues observed steady growth resulted in a net reduction of debt for local ad- over the last decade with a substantial ministrations in aggregate (Figure 49 and 56). Figure 55: LG Sector Revenues 2009, 2011, 2013 (TRL bn. and in percent) 2009 2011 2013 OSR 21.029 43.6% 29.015 47.6% 37.471 42.8% Transfers 21.447 44.5% 34.401 56.4% 45.905 52.4% Debt financing 5.751 11.9% (2.404) -3.9% 4.213 4.8% Total 48.227 100.0% 61.011 100.0% 87.590 100.0% Source: MoF (https://portal.muhasebat.gov.tr/mgmportal/) ref Annex 3 table 96 Chapter 5: Financing Cities in Turkey Figure 56: Subnational Revenue Breakdown by Institution in 2006-2013 (TRL bn.) a) Municipalities b) SPAs Source: Authors based on MoF (https://portal.muhasebat.gov.tr/mgmportal/) The dominant revenue sources for Special ing development directly or by debt repay- Purpose Administrations (SPAs) are classi- ment. The low current balances suggest low fied as donations and aid. These budgetary fiscal capacity and likely constrain the capital resources do not appear to follow allocation investment capacity of the secondary cities rules as systematically as fiscal transfers to in Turkey. These shortcomings could be ad- municipalities, as they are less regulated and dressed in three ways: a) expanding local rev- accounted outside the divisible revenue pool. enue bases and improving collection at these SPAs do receive some shared taxes based on municipalities with incentives; b) providing the revenue sharing formula, but aid and do- specific targeted development grants to nations for both current and capital develop- these entities; c) slightly modifying the inter- ment purposes a r e by far much larger for governmental transfer formula (e.g. changing the allocation shares, or improving equal- them. ization, or introducing a revenue incentive The very low current balance of the non- factor). However, an in-depth analysis of the metropolitan municipalities and towns is a accounting, bookkeeping and budgeting prac- matter of concern. This situation essentially tices would be advisable before designing and provides very limited fiscal space for financ- introducing any such changes. Figure 57: Current Balance in percent of Budget Revenues 2006-2013 Source: Authors based on MoF (https://portal.muhasebat.gov.tr/mgmportal/) 97 Rise of the Anatolian Tigers - Turkey Urbanization Review Own-source Revenues in 2013), largely proceeds from sale of land and buildings, are relatively low by international Own-source revenues (OSR) can be grouped comparison, because of underutilized sources into six main categories: taxes and fees, of land-related revenues (discussed later). s a l e o f goods and services, enterprise rev- enues, rents, property proceeds, interest OSR has witnessed a declining or stagnating and penalties, and capital revenues. Tax and share of total municipal revenues in recent fee revenues are the largest with a 24 percent years. The level of OSR is high by international share, which includes mostly small adminis- comparison, particularly in the non-metropol- tration fees. Enterprise and property revenues itan provincial and T&B municipalities. How- are accounted together and provide for ever, in the context of improving overall mu- the bulk of OSR, including sales of goods, nicipal revenues over the past five years, the services, permits (23%), and municipal enter- share of own- source revenues did not keep prise revenues and profits (20%). However, pace and were actually declining as a share of the enterprise revenues include a substan- total revenues particularly in non-metropolitan tial amount of fees collected through mu- provincial municipalities. This is a negative nicipal-affiliated entities. This is illustrated trend and signals shortcomings in revenue in part by the fact that taxes and fees of management and/or low motivation for own- Turkish municipalities without the enterprises revenue collection. This may be due to the appear to be low in share of local tax revenues increasing volume of central transfers during when weighed against European comparators. the same period, which, if not properly moni- tored, could become a disincentive for local revenue mobilization. Figure 58: Local Administration Sector Own-source Revenues 2013 Property tax collection is primarily assigned to Towns and Boroughs, and, as such, account for about 50percent of their own source rev- enue. The graphs below illustrate how reliant Towns and Boroughs are on property tax and fee collec- tion. This is due to current munici- pal tax assignment, as they collect property taxes within the jurisdic- tion of the metropolitan municipal- Source: Authors based on MoF (https://portal.muhasebat.gov.tr/mgmportal/) ities. The graphs below reflect the declining share of taxes and fees and even more so of property taxes The level and composition of OSR is com- in own-source revenues that raises the ques- parable to countries with similar levels of tion of shortage in capacity and motivation. development. Taxes and fees are the largest Gap in incentives and coordination: This rais- revenue sources (22 percent in 2013), if the es major issues in the Turkish subnational rev- cluster of “property and enterprise” revenues enue assignment system, including: are disaggregated to sale of goods and servic- es, enterprise proceeds, and rents. Municipal • Metropolitan Municipalities, as the largest enterprises and other entities are commonly local entities do not have buoyant OSR tax provided services and collect fees especially revenues (e.g. property tax)and thus have in metropolitan municipalities. Some of these effectively no power over what is typically are accounted on-budget, others off-budget, the most important source of local rev- and thus provide revenues or profit shares to enues. Consequently, they must rely on the municipal budget. Capital revenues (15% collecting own revenues from enterprises, 98 Chapter 5: Financing Cities in Turkey Figure 59: OSR in Percent of Budget Revenues Total 2006- 2013 Source: Turkey Ministry of Finance Local Administration Budget Data economic activities and land and building • Metropolitan planning and zoning, a main leases and sales that should be a comple- function of the metropolitan municipali- ment to but not a main source of revenue; ties, can play a key role in expanding the property tax base. But there is a dis- • This systemic issue suggests there may connect between the master and land use be a gap in incentives for local revenue plans and the property-related revenues, mobilization, namely municipalities within because the metropolitan government metropolitan districts (towns and bor- manages metropolitan planning in the oughs) have property tax collection as- jurisdictions, while the lower tier district signed to them within the metropolitan municipalities are entitled to collect prop- jurisdictions, but they may lack motiva- erty taxes, as a type of windfall revenue. tion to boost these revenues, because of the narrow scope in their service respon- Turkey’s property tax revenues are low in sibilities. Solid waste collection and some comparison to OECD country and some EU interior road resurfacing are their exclu- comparators. Recurrent (annual) property tax- sive service responsibilities, though they es amounted to 0.2 percent of GDP, less than have the option but not the mandated one-fifth the OECD countries average (1.1 per- responsibility for other services; cent) in 2012. This is in part due to national leg- Figure 60: Taxes and Fees in percent of Figure 61: Property Tax in percent of OSR OSR 2006-2013 2006-2013 Source: Authors based on MoF (https://portal.muhasebat.gov.tr/mgmportal/) 99 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 62: Taxes on property in Percent of GDP, 2012 3.5 3.0 2.5 2.0 1.5 1.1 1.0 0.5 0.2 0.0 Greece Canada Chile Czech Republic Denmark Germany Hungary Ireland Israel Italy Estonia Finland Iceland Japan Korea Luxembourg Mexico Norway Portugal Netherlands Poland Slovak Republic Slovenia Spain New Zealand Sweeden Switzerland Turkey United Kingdom United States OECD-Total France Source: OECD Country Taxation Statistical Data, 2014 islation that sets the property tax rates in Tur- yield among local fees. There are several pre- key at one-tenth of one percent for land and requisites for establishing a good local user residential buildings, and two-tenths of one charge system. First, local administrations, as percent for other buildings, and three-tenths the price setting authority, should have proper of one percent for empty lots. Metropolitan information on the direct and indirect costs of districts (towns) can levy 100 percent higher specific services and aim for full cost recovery (double rate) taxes. But both rates are very low gradually (at least for most services). Current by international comparison; the OECD and cost accounting seems to be inadequate for as- EU countries levy property taxes on average at sessing full cost recovery, since the Chart of Ac- around 1 percent of the assessed property val- counts reflects economic classifications (labor, ue, which is ten-times larger than the Turkish material, administrative costs) rather than cost base rate. The base property tax rates of Tur- centers. There is an apparent lack of consistent key are at the lower end even of the developing cost accounts established for main local ser- countries’ average (0.3 percent), with only the vices, and investment accounts are delinked double rates for empty lots being higher than from the specific operation. Second, metering the tax rates in other developing countries. consumption is critical, or alternatively some Thus, further increase of property tax revenues proxies should be used (like electricity con- are among the promising options for the Turk- sumption, property value, size of connection ish local governments. Figure 63: Municipality Fee Revenues 2013 Taxes, Fees and Charges Increasing municipal revenue collection of fees and charges fairly and effectively is an impor- tant objective. Fees and charges represent less than 3 percent of the municipal revenues. Building construction fees (32 percent), occupation fees (14 percent), and building user permit fees (10 percent) are the three ma- jor categories with the highest Source: MoF (https://portal.muhasebat.gov.tr/mgmportal/) 100 Chapter 5: Financing Cities in Turkey capacity etc.). Third, pricing should be based Cairo sold periphery desert land for new towns on the volume of services consumed, but the and gained the equivalent of 117 years of actual charge setting policies and techniques property tax revenue in 2007 (Peterson 2009). matter a lot in creating incentives for users. Selling land may appear simple, yet there are many challenges: (i) cities often fail to have up- The affordability of user charges is critical, dated and reliable public land inventories and because with the introduction of full- cost- thus knowledge if the given parcel is surplus pricing mechanisms they became significant land or possibly a strategic reserve for future items in the household budgets. On average, development; (ii) lack of experience in valua- all housing related costs might reach one- third, one-half or more of household expenses tion and pricing land or property (what price of low income families. Thus, full cost pricing should be used: market value, social value, or may require targeted subsidies for low-income price before or after development?); (iii) lack families. Targeted demand side subsidies (di- of expertise in managing the sales or lease rect to eligible households) are more effective transactions; (iv) transparency in managing than supply side subsidies (deficit grants to transactions; and (v) limitations on available municipal enterprises)55, which often discour- surplus in-city land. age efficiency. Some cities internationally have Proper valuation of municipal land or calcula- developed new methods of managing arrears tion of the longer term gains and future val- on user fees, introducing early warning and ues can also be a risky endeavor. Cities that prevention techniques to avoid unmanageable successfully employ this strategy generally accumulation of collectibles. benefit from having a well-prepared city stra- tegic development plan, property valuation at Capital Revenues and Land-based or close to real market value, a land-use plan, Financing and zoning in order to optimize benefits from One option available for local administrations the land sale and avoid selling land that would to boost own source revenues is land- based be vital for public infrastructure as the city de- financing. Land-based financing denotes a set velops. of instruments used to convert land or land- Urban transformation or redevelopment is related regulatory powers into funds for infra- another strategy that cities use to improve structure or service delivery. The three main the efficiency in land use, particularly as a city strategies include: economy evolves. This strategy, commonly ap- • Land sales or long-term leasing of land, plied in some cities in Turkey, usually involves buildings or other infrastructure assets; transforming industrial or commercial land or • Development impact levies or taxes, informally-settled areas into housing and com- which comprises taxing direct benefi- mercial development associated with a shift ciaries of infrastructure development in in the city economy from manufacturing ac- specific locations by extracting from the tivity to higher value-added services. The hol- gains in land values as a result of public lowing out of a city’s manufacturing base that infrastructure development that impacts often occurs over a 20-30 year timeframe can their properties; be transformed to much more valuable urban development. The main challenges include: • Regulating and using regulatory power often complicated legal issues because of to generate revenues for infrastructure. mixed ownership; the need for environmen- Selling in-city land can generate exception- tal cleaning and rehabilitation of the area ally high one-time revenue for a municipality. with excessive costs in the case of brown- 55 The concept of triple bottom line captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, ecological, and social. With the ratification of the United Nations and ICLEI TBL standard for urban and community accounting in early 2007, this became the dominant approach to public sector full cost accounting. Similar UN standards apply to natural capital and human capital measurement to assist in measurements required by TBL 101 Rise of the Anatolian Tigers - Turkey Urbanization Review facilities to be located nearby. Important plan- ning and tax regulatory instruments should be used in such cases to avoid creation of or re- duce negative consequences of sprawl. Land-pooling is an effective instrument to support harmonious city development in ar- eas of largely private ownership. A well- de- veloped city needs substantially different land parcels and subdivisions than the land-owner- ship structure on an original rural or agricultur- al land area. More importantly, well-managed cities often need to provision for substantial field redevelopment; transactions and reha- land-uses for public purposes (green areas, bilitation can take a long time; temporary or set-backs, public infrastructure and rights of permanent displacement of existing tenants way, etc.). While the practice of land pooling is or residents and the need for interim financ- generally applied in Istanbul and other major ing; difficulties in generating accurate valua- cities in Turkey in accordance with Article 18 of tion of the land before and after rehabilitation. the Land Development and Planning Law, No. Istanbul provides a good example of how this 3194, some of Turkey’s second-tier cities may process works in practice when it generated be less familiar with this tool and how to use USD1.5 billion equivalent revenue in 2007 for the sale of a derelict bus station for redevelop- it. In such cases, land pooling could be a useful ment. Second-tier metropolitan municipalities strategy and is a program in which the city con- may be less experienced in these practices and tributes by providing planning inputs, zoning, could benefit from Istanbul’s and other global and infrastructure development in exchange experience. for a share of land that the private owners give up. The entire area is then consolidated Careful planning of urban land expansion into one single area for development based on through conversion of rural land is an option. planning regulations, an urban design concept, This should be done through prior ex ante plan- local cultural characteristics, and other consid- ning and should be reflected in a city’s long- erations. The initial land owners could receive term strategic plan. Coordination with national in exchange one or two plots in the designed and regional plans, such as Turkey’s Strategic town for own use, the surplus parcels are sold Spatial Plans, would be essential. If the expan- and the revenues are distributed in accordance sion is on general public land without encum- with the initial land contribution. Many cities brances or restrictions, the costs can be free or apply this technique effectively, and Ahmed- at nominal “row-land” value (Pakistan). How- abad, India offers just one very successful case ever, this is often not the case, as the land may to learn from. be in the hands of small private landowners and private developers from whom it must be In Turkey, revenues from the sale and lease of purchased in parcels and transformed to land assets and development contributions by citi- suitable for development projects. The chal- zens or enterprises can be considered as own- lenge and responsibility for the city in this case source capital revenues. Revenues from the is to ensure: the development is consistent sales of land represent a small share (6.7 per- with the city’s master plan, development plan cent in 2013) of the total revenues of the local and avoid creating urban sprawl, including administration sector. In reality Metropolitan new privately-developed housing areas that and T&B Municipalities are able to raise the li- soon demand connection to the city’s road, on’s share (about 90 percent) of revenues from water and sanitation systems and create pres- building site sales. Building site sales revenue sures for social services, health, and education represents 9.1 percent of the total revenues of 102 Chapter 5: Financing Cities in Turkey T&B Municipalities; however, this is a one-time of the paying citizens. The contribution shares opportunity since municipal land is a scarce re- for road construction represents 44 percent, source. Municipalities can also benefit from sewage investments 11 percent and drinking land development by increasing property tax water 5 percent of the revenues in this group. revenues from the more valuable developed Regulatory instruments to generate munici- land and newly constructed buildings, pro- pal revenue are based on zoning and spatial vided that the tax base is changed timely and planning regulations which are general and properly. broad. Private developers often initiate dif- Taxing the gains in land-based financing is vi- ferent plans and greater development in part tal for three main reasons: a) to ensure consis- because they have different views, but also to tency of private developments with the city’s boost their financial gains from the projects. master plan, zoning, and strategic plans; b) Turkey’s local administrations first need to be to generate public revenues for needed infra- cautious in assessing these private initiatives structure development corresponding to the from the perspective of the city territorial or land area of the tax base; and c) to ensure fair master- plan and development strategy. Sec- sharing of the development gains between the ondly, local administrations should use their public and the private stakeholders. The taxing regulatory power to generate revenue for the instruments include betterment tax or impact public and capture a fair share of the value gain fees charged for capturing gains attributed to from the private developers. The instruments developing external infrastructure. These are used include: (i) rezoning in exchange for a de- one-time payments to be combined with in- velopment fee, and (ii) sale of development creasing the property tax due to the long-term rights – the right to exceed the planned param- increase of property value as a result of the eters of land use (FAR, number of floors, land nearby public infrastructure development. De- coverage, etc.) in exchange for a fee or building velopers are aware of, calculate, and account of public infrastructure. Using this regulatory gains from major transport (metro-rail), water, power is very common in developed countries, or road development well ahead. Developers’ and sometimes over-used in developing coun- extraction or contribution is used to charge tries with no protocol in estimating the gains, developers for on-site infrastructure develop- room for corruption, or penalizing high charg- ment. es (such as in Iran, and the Balkan countries). Development impact levies or taxes have not Potential for Boosting Own-Source generated substantial revenues for Turkish municipalities. Local administrations have the Revenues authority to determine the share of property The background above suggests that Turkish owners in contributing to development impact municipalities have limited room for boost- improvements in a particular district. Such lev- ing OSR within the current local tax frame- ies or taxes are assessed when citizens in a dis- work. Incremental improvements in local rev- trict demand a type of municipal investment or enue mobilization, however, can be achieved service for which they make a contribution to- through more effective property tax revenue ward the capital investment. The revenues col- collection, and the use of various land devel- lected under this category were only 1.4 per- opment schemes and development fees. Be- cent of the total municipal revenues in 2009 yond this, international experience suggests (68 percent of which is collected in metropoli- a number of options for raising local revenues tan areas). Requesting citizens’ contribution through taxes typically collected locally in oth- for infrastructure development is a generally er countries, but which are not yet collected in accepted and a well-regulated practice in Tur- Turkey. The following revenue sources deserve key. The Council of Ministers determines, may attention and their suitability and modalities differentiate or reduce, the contribution that for implementation would require further in- cannot exceed 2 percent of the property value vestigation: 103 Rise of the Anatolian Tigers - Turkey Urbanization Review • Tourism tax. Tourism taxes are widely used well justified to distribute these taxes on a all over the world, because they have a derivation source collection basis. close link between local services, tourism • Land-based financing instruments: Charg- attractiveness, and the burden that tour- ing betterment tax, tax increment or ists may pose on local infrastructure, albeit development impact fee and using the usually only seasonally. Such taxes do not regulatory power to charge private devel- represent a high administrative burden opment has great potential. Infrastructure and thus are attractive to many cities, as development has a major impact on both they are relatively easy to collect and en- value of properties and business opportu- force via travel agencies and hotels. Finally, nities. A respective tax increment or devel- revenues can be used for visible improve- opment fee is justified to generate public ment of tourist sites and capacities. revenues from a share of private benefits. • Local business tax. Many European cities Estimating the impact and the fair share in use this extensively. Their advantages are benefits are among technical and political several: they provide a buoyant, stable challenges. revenue source even with a low tax rate; • Tapping into private equity: Private eq- are relatively easy to collect, enforce, and uity contributions could be a substantial gains can be used for improving local ar- indirect local revenue source in financing eas or services preferred by the business capital investments, but also in improving community. However, such business taxes management of local public services and need to be considered carefully, as they functions. Turkish municipalities have lim- may distort investment decisions, export ited track records in attracting and utilizing tax burden to citizens in other regions private equity in various forms of public- (buyers of the products), and undermine private partnerships. Nevertheless, PPPs business profitability. These are all valid and attracting private equity is worth test- concerns, but negative effects can be mini- ing, careful piloting, and gradual expan- mized by levying this tax on value added sion in large metropolitan municipalities. sales or net turnover at a low rate, rather Such transactions should always be pur- than assessing a flat tax on major inputs sued within an appropriate legal frame- like labor (head tax) or capital. work with seasoned advisory services to • Trade tax: The trade tax in form of a small avoid costly mistakes and risks. local surcharge is widely used in the US. • Donations and philanthropic aids: Munici- • Motor vehicle tax. Motor vehicle taxes are palities in developed countries are quite a very common local tax in many countries, successful in attracting private donations often shared evenly by the origin munici- from national or international foundations pality and higher government tier. The jus- or private persons, and this practice is ap- tification behind such taxes include mainly plied in limited ways in Turkey’s largest cit- local environmental impact, as motorized ies. Successful donations include funds for vehicles create environmental, traffic, and renovation of historic sites, building cul- noise burden primarily within the munici- tural or sport facilities, schools or school pal boundaries, thus owners should con- facilities, but also parks or even a bench in 55 tribute to respective expenditures (traffic a park local road or water facilities . management) and investments (roads, • Boosting EU funds: EU structural funds bridges). The administrative burden to may not be seen as own revenues; how- levy and collect such a tax is also limited ever, they should be treated like OSR in as it is attached to the vehicle licenses and the sense that they are not entitlements ownership transfer transactions. Motor nor central government transfers; rather vehicle taxes in Turkey are currently part specific and concerted local actions are re- of the divisible transfer pool. It would be quired for timely submission of proposals 104 Chapter 5: Financing Cities in Turkey and fulfillment of all technical, financial, can be achieved by robust capacity building, and fiduciary requirements. In this sense establishing joint tax/revenue administration EU funds should be approached like OSR, for neighboring municipalities, and using cost- rather than central government transfers. effective and customer-friendly payment in- Experiences in EU accession countries (re- struments like electronic transfers, cell phone cent new members) show manifold rev- and internet-based billing. enue differences between well performing and poor performer municipalities in ac- Intergovermental Fiscal cessing EU grants. TransferS A further option for enhancing own source Municipal transfer revenues are stable and revenues is enhancing local tax policy and predictable. The transfer system includes rev- administration. There is no comprehensive enue sharing, equalization grants, and discre- analysis on the quality, capacity, cost, and ef- tionary grants. The revenue sharing system is fectiveness of the municipal tax and broader transparent with well-regulated revenue divis- revenue administration in Turkey, but these is- ible pools filled with 11.5percent of the cen- sues deserve further investigation. Some sug- tral budget tax revenues (TRL32.0bn. in 2013) gest broadening the taxing power of Turkish largely from CIP, PIT, and VAT general tax rev- municipalities and enabling them to set their enues. Revenue sharing between the central tax base and rate, levying and collecting most government and the local administration sec- local taxes and fees alone. International ex- tor is clear, transparent, and predictable. The periences suggest that this move could boost central government also provides a very small 56 local tax revenues . For instance, half of the equalization grant (0.1 percent of the budget local taxes in Europe are devolved to the local tax revenues) for municipalities with popula- administrations, who set rates and fees and tion less than 10,000 inhabitants. grant tax exemptions. However, this power The current intergovernmental transfer sys- only works if there is a robust local tax admin- tem appears to benefit from overall good istration in place correspondingly. design and balance. It allocated 21percent of Local tax administration costs can be high and the transfers by source of origin, 40 percent should be evaluated prior to assuming new by population, 9percent by other criteria, like responsibilities. The cost of revenue collection development index, area, and rural popula- is intertwined with the level of revenues levied tion, and 30 percent in grants and aids. Since and the collection and enforcement capacity the population is widely considered as a main of local administrations and related entities in- proxy for expenditure needs, the system is de- volved in collection like banks. A recent study signed to moderately respond to expenditure found57 that cost of revenue collection is very needs. The development index and the share high compared to the collected tax revenues of rural population are considered as equaliza- in some Turkish regions. Tax revenues were in- tion factors. The allocation formulas may seem sufficient to cover the cost of required admin- to be overly complicated, yet they are clear istrative services in 35 provinces and property and manageable. The consolidated budget of tax revenues were less than the cost of one the local administration sector suggests that collection officer in 1,333 small municipalities. the transfer system together with own-source For them, the local tax authority is a burden revenues provides for a stable and sustainable rather than a revenue source. International financing of the current expenditures with a experience suggests that visible improvement steady robust current surplus. However, this 56 “Donate a Highway” (i.e. support cleaning and maintenance of a section) is a popular program in the US. 57 Amman Municipality in Jordan took over property tax collection form the central government tax agency and more than doubled property tax revenues in a 2-3 year span of time in the early 2000s. Two other large cities in Jordan following Amman by terminating their arrangement with the national collection agency and contracted the Amman tax administration to collect their property taxes 105 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 64: Revenues, Balances, Figure 65: Allocation of Transfers in 2013 Expenditures 2006-2013 (TRL bn.) (TRL bn. and %) Source: WB staff calculations based on Municipalities Act (N.o. 5393, 2005) and MoF (https://portal.muhasebat.gov.tr/mgmportal/) aggregate picture does not reflect the situa- port specific policy objectives, often linked to tion of the metropolitan municipalities beyond having an equalization effect or to support lo- the largest four. Horizontal imbalances across cal administrations with a low tax base or in local administrations mask critical challenges response to an emergency or crisis recovery. for municipalities located in less developed re- In Turkey, improvement of the collection and gions. sharing of data used in planning and estab- Discretionary grants should be avoided if at lishment of a monitoring mechanism for ur- all possible and alternative instruments such ban indicators is a paramount priority. The as a defined “Block Grant” system could be measures to be taken are set out in Turkey’s adopted to address specific deficiencies in the Urban Development Strategy (KENTGES) and system. In addition to the regular shared taxes, are ongoing. To date, MOEU has defined the the Ministry of Finance provides for grants/do- standards for the collection of basic geograph- nations in response to “urgent needs”. This dis- ic data within a common content and format, cretionary grant is the unregulated part of the as part of the Country’s GIS Infrastructure. Ur- transfer system that may soften the otherwise ban Information System Standards have been hard budget constraint. This is also a departure developed to ensure that geographical data from the rules of Law # 5779 which stipulates are developed with more detailed contents at that “No transfers can be made from the cen- tral government budget (ministries and other the city level. This system will eventually be central government institutions) other than tax rolled out across Turkey’s many cities to serve shares and the equalization appropriation.” as a more effective urban monitoring system. International experience suggests that first, Amendments also have been made to the discretionary grants should be avoided; and Land Development and Planning Law in order second, if they are used, tight conditions and to align the existing standards with the new clear selection and allocation criteria should standards. In addition, a system called “Plan be attached in order to reduce the demand for Transaction Number” has been established so these grants and to harden the budget con- that spatial planning may be effectively over- 58 straint . In that regard, and depending on the seen by MOEU, and a common set of stan- nature of the need, Block Grant programs have dards has been published in the Spatial Plans been developed in numerous countries to sup- Preparation Regulation. 58 In mid-1990, Hungary introduced a “deficit grant” for municipalities that were facing unsustainable structural deficits. The municipalities had to apply for this grant, but they received it with strict conditions; including no development expenses, and no salary increases for the municipal staff, officers, and bureaucrats as long as the structural deficit remained and grant was served. (Kopanyi at al 2004). 106 Chapter 5: Financing Cities in Turkey Figure 66: Share of local administrations TRL72.0 million in 2009 and 2010 respective- in transfers, grants, and donations ly). These grants have important equalization combined in 2013 (TRL bn.) effects. Infrastructure finance framework Debt financing is a main pillar of the Turkish local infrastructure finance system, which overall provides important access to finance for municipalities but faces key sustainably challenges. Aggregate municipality current surplus and capital revenues from sales of as- sets are the main sources of financing develop- ment. The surplus can be used as cash funds or Source: WB staff calculations based on MoF for securing and repaying debts. Indeed debt- (https://portal.muhasebat.gov.tr/mgmportal/) finance plays a substantial role in financing Turkey’s municipalities. Over 10 percent of to- Donations and aid have a major effect in re- tal municipal expenditures and over a third of ducing disparities between large metropoli- capital investment expenses were financed by tan and smaller municipalities. The MoF pro- debt instruments over the last 5 years. How- vides donations and aids largely to SPAs and ever, a substantial part of the debts are still Unions of Municipalities that represent a quite short-term, non-development liabilities that substantial share of local revenues (TRL14.6bn. may distort the debt financing figures. There or 34percent of local administration revenues is no development grant system in place for in 2013). However, donations represent a non- municipalities. There are substantial donations regulated part of the transfers, and have a and aid (a third of municipal revenues in 2013) major impact on development finances. The that include in large part earmarked or target- detailed impacts of donations on disparities ed “project grants” to SPAs. within SPAs and within the groups of unions are still to be explored. The combined volume Debt financing represents a burden for some of shared transfers, grants, donations suggests small municipalities, both institutionally and that the metropolitan municipalities and T&B financially. Evidence of this is the significant municipalities received more than half (59 per- share of problem projects that fail to service cent) of total central transfers, the non-met- interest and/or principal payments in a timely ropolitan provincial municipalities, affiliated manner. A routine correction factor has been institutions, and LG unions received the rest. applied, namely capitalizing overdue interest and rescheduling problem loans; this practice Two additional factors influence the volume raises legal, banking, financing, and budget- of transfer revenues of the local administra- ing issues, but also induces adverse incentives. tion sector. First, five percent of transfer reve- Furthermore, debt financing may revert back nue is deducted, and then accounted as invest- to grant financing in principle when overdue ments in the form of an equity contribution by debts are cancelled. This is a practice that the local administration sector to Iller Bank’s should be avoided, since it is non-equitable, paid-in capital (nearly TRL1.0bn. in 2009). This non-transparent, and induces perverse incen- will continue in the coming three years or so tives i.e. expectations of central government when the paid-in capital of the Iller Bank will bailouts is the likely consequence of recur- reach the statutory TRL9.0bn. limit; and it will ring patterns of overdue liabilities or non-pay- increase further because of the recent lifting of ments. Judgments are not easily made in de- the statutory limit. Second, Iller Bank provides termining which municipalities are in financial project grants for small municipalities from 30 distress due to circumstances beyond their percent of its net profit (TRL104 million and control or due to reckless spending. 107 Rise of the Anatolian Tigers - Turkey Urbanization Review Development grants are used in limited ways Figure 67: Stock of Infrastructure Debt in Turkey’s municipal finance system and TRL bn. and percent 2013 could be expanded. Debt finance is the basic principle of the Turkish municipal develop- ment finance system, but current practices are often in conflict with a basic banking principle, namely not to lend money to an entity that is unable to repay it. In light of similar chal- lenges, most developing and many developed countries use development grants or grant- loan combination for specific segments of the local administration sector (small and back- ward municipalities) and for specific priority Source: Turkey Ministry of Finance and Iller Bank sectors (like water and sanitation). The under- lying arguments include: a) the central govern- be reconciled from various reports. The stock ment provides grants to incentivize municipali- of long-term debt in 2013, reveals a relatively ties for developing priority infrastructure; b) to heavy reliance (more than half of total) on for- provide grant for municipalities with low fiscal eign funds either on-lent by the Treasury (9bn) capacity and low or no borrowing capacity to or direct borrowing from IFIs for large programs help gradual equalization without jeopardiz- (6.0bn.), likely due to Turkey’s overall low do- ing their solvency and basic service capacity; mestic savings levels. The domestic banking c) the grants are often mixed with loans, when sector, mainly Iller Bank, finances mostly me- the central government provides a grant to dium and small municipalities (11.4bn.). The finance a portion (30-50 percent or more) of small share of Iller Bank also serves as a finan- core infrastructure projects important for so- cial intermediary for IFI-financed projects. It cial or environmental reasons (water, drain- provided or 43 percent of total of long term age, social housing etc.). This grant works like total funding to the local administration sector, a letter of credit and is considered as cash by largely to non-metropolitan and T&B munici- the financing entities (public funds or private palities in 2013. banks alike). Such instruments have been put Authorizations for borrowing can come from in place at various central government agen- multiple sources. By law the municipalities cies, the most prominent of which are the SU- have full discretion to prioritize, plan, struc- KAP, BELDES, and GAP Programs of Ministry ture, finance, and implement capital invest- of Development. These programs are small by ment projects in Turkey. In practice, however, volume compared to the overall budget of the they have low capacity and much less discre- local administration system, but they provide tion. There are several agencies that authorize subsidies, usually about 50percent, to enable debt financing: The City council or municipal small, low tax base municipalities to develop council approves priority projects, the specific urgent and basic water and sanitation services. project plans, and the project and debt appli- Main financing sources and entities cation. However, the Ministry of Interior, the Ministry of Development, the Public Invest- Turkey’s municipalities have ample access to ment Program (PIP), the Treasury, and in some finance through relatively few sources, with cases even the Council of Ministers has a say in a largely untapped domestic debt market for debt financing to varying degrees. This multi- municipalities. Municipalities generally bor- layer decision making apparently reduces both row from IFIs with Treasury approval and guar- the autonomy and the accountability of the lo- antees, from Treasury on-lent IFI funds, from cal administrations. Iller Bank, and from domestic banks or the capital market; Iller Bank’s guarantee portfolio Long-term infrastructure financing is gener- suggests the latter. The structure of debt stock ally not available in the market and there is still needs to be clarified and verified, but can consequently heavy reliance on IFIs. Due to 108 Chapter 5: Financing Cities in Turkey various local market conditions, large- scale who also take the foreign exchange risks. This Turkish municipal infrastructure is mainly fi- is the only program that provides real long nanced by IFI funds, and investments on ad- term maturity in the Iller Bank portfolio. The vanced technology are often proposed by the experiences are rather positive, including a Ministry of Development and approved by the generally good disbursement ratio, while also Council of Ministers. (Public Financial Man- providing technical support on municipal- agement Law #5018, Article# 16.) The munici- ity feasibility studies, and environmental and palities, their affiliated entities and the public social safeguard procedures. Iller Bank sup- corporate entities, are jointly responsible for ports participating municipalities by providing the repayments of the foreign debt under the standard templates and guidance. Iller Bank’s guarantee of the Treasury. This project selec- risk management has been substantially im- tion and approval mechanism does not cre- proved by mandatory establishment of escrow ate strong commitment and accountability at accounts for securing repayment of interest the local level. It appears that these guaran- and principal. Measurable positive impacts in- tees are sometimes called and the Treasury clude: decreasing water losses, increased vol- pays either the due interest or the principals ume of purified water, increase of number of or both; these may be converted to loans to people with access to purified water and solid the Treasury and often accumulate as stock of waste services, and, importantly, decrease short- and/or long-term debt without true re- in financial operating ratios in municipal ac- payment. counts. These practices and procedures can be Various multi- and bilateral agencies support replicated in other IB projects, including own local development through a combination investments and IFI programs alike. of technical assistance and financing capital The Public Investment Program investment projects. The project selection, approval, and implementation criteria and Turkish municipalities basically consider MOD practices are different, but generally Treasury development grants, the PIP, and Treasury as processes and oversees these loans as manda- main entities for local investment projects, tory guarantor of the projects. But in most of since the vast majority (80 percent) of the the cases the IFIs preselect the “partner munici- long term municipal debt portfolio is under palities” and Iller Bank assists in processing the the direct control of the Treasury. The signifi- projects with or without incurring the IFI funds cant role that the central government plays in into its balance sheet. That means the IB takes municipal development finance raises long- neither commercial, nor foreign exchange risk term questions about municipal capacity to in IFI operations; while it covers the banking tap into commercial credit markets. The range risks by the revenue intercept. Such practices of government entities in charge of comment- do not necessarily reflect a commercial bank- ing or approving municipal projects constrain not only the municipal autonomy and account- ing relationship, and it would be important for ability, but may undermine the power of core Iller Bank and participating municipalities to banking finance functions in selecting and ap- enter into lending terms that more closely proving projects. Attempts to strengthen mu- reflect market circumstances, with the aim nicipal credit worthiness and the accountabil- that municipalities over time would improve ity rules and practices for debt service would their credit worthiness and be able to access help strengthen the long-term financial sus- other sources of market based finance. tainability of Turkey’s municipalities. The pub- The World Bank-financed Municipal Service lic investment programs reflected in the PIP in Project is possibly unique, because it is pro- the local administration sector are strongly fo- cessed through Iller Bank’s balance sheet. cused on social/urban service projects and the This project generally follows closely interna- large metro-rail development programs over tional investment bank practices, i.e. Iller Bank the past decade. This is the fact in part because is the Borrower (with Treasury guarantee) and projects that require Treasury approval and/or the municipal entities are the sub-borrowers guarantee are mandated to be approved in the 109 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 68: Local Administration PIP Program 2006-2011 Source: Turkey Ministry of Finance PIP program. It is a bit of surprise that neither are investing largely in the same services, like the municipalities nor the SPAs invest in health roads and water & sanitation, which may signal and education to noticeable scale. a lack of common strategy and poor coordina- tion. The large (60-70 percent) share of other The detailed sectoral breakdown of PIP proj- investments in SPAs is apparently a reporting ects by main local entities reveals that local issue that needs to be clarified and corrected, investments are mainly used for roads, and but other information suggests that SPAs focus water & sanitation, or reported in a general on transport and social infrastructure invest- “other” category. The charts also show that ments substantially. Establishing an effective the metropolitan municipalities and the T&B system for metropolitan and regional invest- municipalities (within the metro jurisdictions) ment strategy with harmonized investments in Figure 69: Sub-National Public Investment Programs 2006-11 (a) PIP Municipalities (b) PIP T&B Municipalities (c) PIP program for SPAs Source: Turkey Ministry of Finance 110 Chapter 5: Financing Cities in Turkey Figure 70: Iller Bank PIP Program 2006-2011 (TRL million) Source: Iller Bank 2012 Annual Report key local infrastructures is emerging as among nicipalities, b) loan financing for local invest- the most important actions going forward. ment projects, c) technical assistance for struc- Even Iller Bank’s investment projects financed turing, designing, and implementing municipal from IB’s equity must be approved by and ac- investment projects, often actively involved in counted in the Public Investment Program engineering design, procurement, contracting (PIP). Anecdotal evidences suggest that as a and project monitoring; d) providing training result of the PIP procedures, a large number and various forms of capacity building for mu- of projects are approved and started, but the nicipal staff; and, e) supporting strategic plan- completion period is extremely long (2-3 times ning by sponsoring development of city maps, longer than international examples found spatial plans. Law 6107, 2011 has transformed and cited in Peteri and Sevic 2011). It is also Iller Bank into an incorporated company and worth noting that many programs approved mandates to work as an investment bank and committed in PIP failed to start and some with substantially broader functions; actions dropped from the program without progress include transferring funds (some combined after a few years. with loan) under various special Government programs, including SUKAP, GAP, and BELDES The projects financed by Iller Bank should be aiming to support smaller and backward com- structured, approved, and processed under munities. The implications are still to be fully strict banking rules and procedures to the maximum extent possible. Strong emphasis explored and implemented. should be placed on financial feasibility, bor- Iller Bank was established in the 1930s and rowing capacity of the municipality, and capac- has been financing municipal investments for ity and ability to operate the project including over 80 years. The municipalities are its ma- budgeting sufficient funds for operation and jority shareholders with minority shareholding maintenance. The Iller Bank PIP project files by the Treasury. Its registered capital is TRL9.0 2006-2011 show a steady and steep diminish- bn. and the paid-in capital reached TRL8.5bn. ing role of IB in implementing and financing in 2013; municipalities will continue invest- PIP projects. The projects are accounted as ing in Iller Bank till the paid in capital reaches “social” infrastructure that supposedly covers TRL9.0bn. Iller Bank is running with low but basic urban services. stable profitability in harmony with its statute; The Role of Iller Bank in ROA was 2.2 percent, ROE 3.2 percent in 2013. Iller Bank pursues mainly equity lending, with Development Finance a small on-lending portfolio using IFI financing. Iller Bank is a focal point of the Turkish local As a result, its capital adequacy ratio is high development finance system. Iller Bank has (59.9 percent in 2013). Iller Bank is a cost ef- various roles and responsibilities, including: a) fective intermediary; operating expenses were transferring allotments from state funds to mu- 2 percent on assets, 3.4 percent on the loan 111 Rise of the Anatolian Tigers - Turkey Urbanization Review portfolio; but also the operating costs are less Figure 71: Maturity Structure of Iller than half of the interest margin without taking Bank Loans to Municipalities 2013 the cost of equity. It lends with revenue inter- cepting provisions, thus deducts overdue re- ceivables from the municipal allotments. This is a high security that gives good comfort to Iller Bank; however, this leaves the efficiency of risk management and debt recovery unclear and unmotivated. Using regular risk mitigation instruments has just started with mandatory escrow accounts under the IBRD on-lending. Iller Bank provides preferential loan terms Source: Iller Bank Annual Report 2013 to municipalities. Iller Bank offers longer ma- turity and lower rates than the market and strongly constraints IB’s capacity in supporting became the largest contributor to the debt infrastructure development of the municipal financing of the local administrations in 2013 sector. The stock of loans have exceeded the (Figure 67). The long-term interest rate was paid-in capital and there is little room left in lowered from 9 percent to 6 percent in 2010 shareholders’ equity to continue equity-based and further down to 5.3 percent in 2012. It lending; thus the Council of Ministers Decision provides short term (1-12 month) loans from no. 2014/6045 (March 14, 2014) increased domestic financial markets and charges munic- the IB nominal capital from TRL9.0bn. to ipalities a small markup; its short term lend- TRL18.0bn. (IB Annual report 2013). Besides ing rates were offered at competitive rates in lending and instead of short liquidity loans, 2013. Iller Bank used to be burdened with a IB has started to provide letters of guarantee huge non-performing loan portfolio that was for municipal borrowing from domestic banks. accounted as due immediately, thus short This could be an entry point for Iller Bank in term (up to 1 year) loans were 56.7% of the supporting municipal access to domestic fi- portfolio in 2009. By 2013, its loan portfolio nancial markets; however, it needs to build ca- became much healthier (Figure 71) as a result pacities for mitigating the risk of guarantees. of repeated restructuring, mostly by rolling Finally, on-lending that has started to take off over unmanageable debt in agreement with could expand IB’s financing capacity as IFIs debtors. Short term loans dropped to 20 per- plan a number of new programs. cent, in line with the average 5 year maturity Some of Iller Bank’s business lines imply and lending. It should be noted, that the 5 year may induce conflicting roles. For instance, its term is still a short maturity, unsuitable for loan financing is very secure because of its financing infrastructure with 20-30 years use- ability to use the fiscal intercept, which is con- ful asset-life, like water and sanitation, roads, venient, but may discourage Iller Bank from and sanitary landfills. Extending loan maturity applying traditional banking risk mitigation in- for municipal infrastructure should be among struments. The other side of this coin is that the highest priorities, making municipal invest- Iller Bank may avoid the intercept; instead it ment financing more affordable. may roll over loans, capitalize overdue interest Equity-based lending constrains Iller Bank’s if the full deduction is not possible for financial development finance capacity. IB is facing or political reasons (about half of the total loans double constraints in lending by following eq- was rolled over in 2010). Project structuring, uity and asset-based/collateral lending. It pro- appraisal and implementation are other areas vides loans mainly from its equity and provides of conflicting roles. Projects structured by the loans against the liquid assets of the munici- Iller Bank may be appraised without deep due palities, namely the projected flow of central diligence on credit risk, which may undermine government transfers that can be intercept- project feasibility and eventually debt service ed. This practice provides good security, but over time. International experience suggests 112 Chapter 5: Financing Cities in Turkey that development banks indeed have similar of borrowing limit violations. Thus, the above multiple functions under one roof, but they es- rules seem to have remained as basic princi- tablish very independent functional units and ples without complete enforcement. segregate them with fire walls in order to re- Central government oversight and involve- duce the negative consequences of conflicting ment in reviewing municipal development functions. projects is quite significant. Such practices Central Government Oversight tend to constrain municipal sovereignty, re- sponsibility, and accountability, and eventually A very positive attribute of the central transfer transfer project risks to the central government system is that the central government trans- entities, largely to the Treasury. The role of the fers are unconditional. This leaves spending central government agencies would be better decisions entirely to the discretion of the local focused on setting clear national infrastructure administrations. The central government agen- development and infrastructure finance policy, cies apply other forms of control over Turkey’s and enabling the local administrations to take municipalities mainly through the Ministry of full responsibility, as well as the risks for their Interior and the provincial and district gover- decisions, but also to ensure adherence to the nors. The central government oversight relies laws and regulations for maintaining discipline largely on ex-ante controls and emphasizes the and strong financial control in investment fi- center’s obligation to ensure legal compliance. nance. Generally, several municipal budget control Municipal Borrowing and measures have help stabilize the finances of the sector. The control measures fall under Indebtedness three categories: administrative, budgetary, Municipal borrowing and debt financing is and financial. The local administrations are substantial in the Turkish local administra- supposed to submit their detailed quarterly tion system. Municipalities are well aware of financial statements to Ministry of Finance, and most of them are actively practicing debt Ministry of Interior, State Planning Organiza- financing. Yet, the Turkish subnational debt to tion and the Treasury to make sure that the GDP ratio is among the lowest in Europe com- debt limitations are implemented properly. parison. Underlying reason behind include the Those local administrations that do not com- small share of local administration sector in ply with the debt raising rules will be subject both public revenues and expenditures. As a to the rules of the Criminal Code; but there is result, the municipal debt is low to GDP, but at no precedent in which such actions have been the mean time the debt stock is very high to taken regardless of whether there is evidence the municipal revenues. Figure 72: Sub-national government debt, 2010 Source: Peteri and Sevinc 2011 113 Rise of the Anatolian Tigers - Turkey Urbanization Review The Framework for Borrowing and jeopardize the financial stability of the local administration sector. Furthermore, the Legal framework: Municipalities, SPAs, and af- majority of the municipalities seem to have filiated municipal institutions are authorized reached the said high debt limits. to raise debt, borrow or issue bonds to cover the investment and costs of municipal servic- The debt stock and composition es under their responsibility (Laws #5302 and The stock of municipal debt signals major fi- #5393, respectively). Local administrations nancing, accounting, and budgeting challeng- may raise domestic debt from the Iller Bank, es. These include: a) growing debt stock that from private banks, for both current and capi- has reached 121 percent of the municipal rev- tal expenditures. Foreign financing from inter- enues, which is above the statutory limits and national financial institutions (IFIs) is permit- way above in a number of municipalities; b) ted only for the projects that take place in the what is more worrying is that the stock of short investment program, and requires approval term debt is larger than the long term and it and often guaranteed by the Treasury. Some is growing; this places a question mark on the further conditionality applies to financing reality and accuracy of planned budgets; c) the through bonds, which is a non-existent instru- stock of immediate payables to suppliers and ment in Turkish municipalities. tax and social security dues were in the tune of Debt limitations: There are specific debt limi- 20 percent of the annual municipal revenues, tations, including: a) the consolidated debt that again questions the budget reality. The stock of SPA + Municipality + Affiliated enti- 2010 debt reconciliation has somewhat re- ties in over 50percent municipal ownership duced the short term debt largely by workout should be less than 100percent of Revenues of overdue immediate liabilities (TRL6.0bn.) (150 percent for metropolitan municipalities); largely by cancelling or rolling over dues vis-à- b) new consolidated debt of SPA + Municipality vis the treasury and intercepting allotments. d) Finally, municipalities tend to borrow heavily + Affiliated entities cannot exceed 10percent through their affiliated institutions; the debt of Revenues – over 10percent debt requires stock to revenue ratio of the municipal af- approval by the local council (parliament); c) filiated entities reached 259 percent in 2010. These limitations do not apply for large invest- This is not a problem in itself; however, mu- ment programs proposed by the State Plan- nicipalities by law are guarantors as dominant ning organization and approved by the Council shareholders of Iller Bank and should account of Ministers; d) The Debt Law 2002 regulates for these as contingent liabilities, and by law that to apply for a Treasury guarantee, munici- must consolidate the debt stock of their affili- palities must clear outstanding obligations to ated entities. the central government and justification for the investments must be provided through The composition of fiscal debts and liabilities feasibility studies. The steady accumulation of by various local administrations would need short term debt and overdue liabilities suggest to be a policy area of greater focus in the years that the Debt Law is poorly enforced. ahead. Metropolitan municipalities hold by far the largest share of fiscal debt, due to large The above debt rules and limits are quite lib- infrastructure developments funded from for- eral by international comparison on two ac- eign funds via the Treasury. Very substantial counts. First, debt financing is not limited to fiscal liabilities are on the books of municipal development; as opposed to many countries entities mostly affiliated with the metropoli- where short term debt is prohibited or strictly tan municipalities, thus this debt is subject to forced to be repaid within the same fiscal year. consolidation for measuring debt limits. Final- Second, the 100percent and particularly the ly T&B municipalities are steadily expanding 150percent debt limit are very high by inter- their fiscal liabilities. The SPAs and non-metro national comparison. Both of these rules are provincial municipalities have negligible fiscal apparently softening the budget constraints liabilities. The small but substantial foreign 114 Chapter 5: Financing Cities in Turkey Figure 73: Subnational Debt Stock 2006-2013 (a) Stock of Fiscal Liabilities total TRL bn. (b) Stock of Long Term Foreign Debt TRL bn. (c) Stock of Postponed or Restructured Long-term Debt to Public Sector Source: MOF Treasury debts incurred by affiliated municipal entities and switching long-term debts to short term, are presumably also burdens of the metropoli- which might challenge cash-flow and liquidity. tan municipalities directly (via guarantees) or The bank debt portfolio of the metropolitan indirectly as contingent liabilities of the ma- municipalities is also aging and now the major- jority owner municipality. Finally, the medium ity of the portfolio is short term, which might and small T&B and non-metro provincial mu- challenge cash-flow and liquidity. The stock of nicipalities steadily expand a portfolio of post- overdue short term taxes and other liabilities is poned and restructured debts. The above facts generally low for the LG sector, but growing in and tendencies suggest a need for enhancing the T&B municipalities. This in combination of the debt management capacity, effectiveness, the growing restructured (overdue) long term and strategic focus at all local administration liabilities for the same group of T&B munici- levels and entities. palities is an area of concern. Metropolitan municipalities, Towns and Bor- The size and composition of short term debts oughs (T&B), and the municipal affiliated en- makes reconciliation (silent bail-out) unavoid- tities hold the vast majority of the LG sector able. These reconciliations have happened re- bank credit portfolio. The T&B municipalities peatedly nearly every 5-10 years in the last few have expanded both their short and long term decades. The most recent debt reconciliation bank credit portfolio steadily and dynamically was carried out via the Iller Bank in 2010. Of since 2006, starting from a negligible level. the total TRL8.7bn. overdue debt TRL5.6bn. The municipal affiliated entities hold a steady was worked out and TRL3.6bn. carried for- and large bank credit portfolio that is aging ward to 2011. The majority of the workout 115 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 74: Stock of Long term Bank Figure 75: Stock of Short term Bank Credits 2006-13 (TRL bn.) Credits 2006-13 (TRL bn.) Source: MOF Treasury was debt owed to the Treasury and MoF (near- appears to be manageable and offers room for ly TRL5.0bn.) which was cancelled. The rest further development, provided that the short was due to be deducted from municipalities’ term debts can be restructured and reduced. transfer allotments (IB Annual report 2010 pg The relatively weak credit record of some mu- 35), but most of this stock has remained un- nicipalities remains a fundamental problem for collected still in 2013 (IB Annual report 2013, the development of the sector and creates a pg.36). Clear municipal insolvency regulations particular impediment in moving towards pri- are needed in order to limit the potential con- vate sector financing. solidation burden on the national budget. Policy Priorities Changing policy in order to get short term borrowing under control is an urgent action With the aim of ensuring adequate financing the government needs to consider. The above of Turkish cities to promote sustainability and experiences suggest the urgent need for as- continued economic growth, this report sug- sessing, exploring the underlying causes, pro- gests several policy options, as follows: cedures, and incentives for generating short • Reduce municipal dependence on fiscal term debt or nonpayment of dues; and then transfers by maintaining the current share reregulating the short term borrowing and re- between central and local administration spective budgeting, accounting, and financial sectors, while providing incentives and reporting principles and rules. taking policy measures to encourage im- The stock of long-term debt is around 50-55 provements in own-source revenue collec- percent of annual municipal revenues. This tion. One of the most practical measures Figure 76: Stock of Short Term Overdue or Postponed Taxes and Liabilities 2006-2013 TRL bn. Source: MOF Treasury 116 Chapter 5: Financing Cities in Turkey would be to revisit the property tax base cial sustainability in the sector will require and rates, which are currently one-tenth the use of training and credit enhance- of what most OECD countries assess, and ment tools and exercises where the World provide flexibility to local administrations Bank and other international development in setting their own. Consideration of a agencies can help. new property valuation system – moving from quantitative to qualitative (market • Promote improved harmonization of capi- values) would be highly recommended. tal investment planning and programming across multiple tiers of administration. • Review the equalization transfer mecha- Anecdotal evidence suggests that there nism and improve equalization effects. One option would be to consider a Block Grant may be some overlaps and possibly dupli- or Performance Grant System (conditional cation of investment planning and imple- and unconditional can be explored) to lo- mentation across different sub-national calities with a low economic base. Many administrations. A more detailed review of them, such as Van, have fully exploited could bear this out and potentially point their property tax, recording the highest to methods to better rationalize capital yields among Turkish administrations, but investment planning. At the metropolitan still appear to have inadequate resources municipality level, in particular, multi-year to deliver their mandated services. capital investment planning could be im- • Further review and study in more depth the proved by linking it to land-use planning financial distress and sustainability risks within city master plans, helping to bet- that small municipalities as a segment of ter mobilize domestic and international local administrations are facing. Inability finance for bankable investment projects. to access disaggregated data prevented further coverage in this report. But as a market segment, this cluster of municipali- ties appears in need of further detailed re- view. • Updating risk models and creditworthi- ness assessment procedures. Provide sup- port to Iller Bank and Treasury in updating their municipal credit analysis/risk models and tools to promote optimal credit deci- sions, combined with support to cities to enhance their credit worthiness. While Turkey appears to have put in place a re- liable budgetary system with a hard bud- get constraint on municipal expenditures, some aspects of the loan portfolio and debt stock suggests a soft constraint on borrowing. Building up long term finan- 117 Rise of the Anatolian Tigers - Turkey Urbanization Review ANNEX 1: THE tion system and increasing the equalization ef- fects. First, one reform option to consider is to INTERGOVERNMENTAL TRANSFER reduce the share of metropolitan districts by FRAMEWORK the 30 percent amount currently channeled to The divisible pools: Central government tax the metropolitan municipalities, and use the revenues are the basis from which the vari- funds for additional grants to under developed ous subnational entities receive allotments municipalities, maybe in a form of specific in established shares. The source of the five development grant. Second, incentives for in- divisible pools incudes four major budget tax creasing OSRs are the missing element of the revenues: PIT, CIT, VAT, and excise tax (on pe- Turkish transfer system; thus another reform troleum products, motor-vehicles purchases option to consider would be to segregate a and sprites and other sodas) and some other portion of the transfer allotments and distrib- minor taxes. The divisible pools are: Metro- ute it by fiscal performance. This could be par- politan Municipalities receive 6 percent59 of ticularly effective for the large municipalities. budget taxes by collection origin; from the Metropolitan Municipalities: The metropoli- rest of the budget tax revenues the met- tan municipalities receive 6 percent of the tax ropolitan districts receive 2.5percent, other revenues collected within their jurisdictions; municipalities receive 2.85 percent, SPAs re- 70 percent of this is returned to source which ceive 1.15percent of budget tax revenues, and is true sense revenue sharing. The rest (30 there is a small 0.1percent pool for equaliza- percent) of this pool is distributed by share of tion grants assigned for the smallest munici- population, which responds to development palities. needs to some extent, since it is provided Shared taxes, grants, and equalization: The equally regardless of local economic condi- bulk of central transfers are said to be shared tions that influence tax generation. In addi- taxes that is true in allocation between the tion, metropolitan municipalities receive 30 central and local administration sector. How- percent share from the Metropolitan District ever, most of the municipal dues are distrib- pool, since they are part of the districts. This uted based on some formula not returned to 30 percent share is hard to justify. This alloca- source, thus better to be considered as central tion further increases the transfer revenues to grants according to the Council of Europe rev- the largest metropolitan municipalities, which enue definitions60. The Turkish tax sharing sys- should have capacity and adequate revenue tem is generally good by international compar- assignment responsibilities to collect more ison and particularly positive that it provides OSR. It should be noted that metropolitan for unconditional grants and leaves spending municipalities do not have a buoyant revenue discretion to the municipalities. Yet, there is source, since property tax revenues are col- room for further improvement, as discussed lected by their districts and towns, while many below. fees and charges by affiliated service entities. In this regard, further consideration should be This system includes several tax sharing formu- given to assigning metropolitan municipali- las; some of these can be associated with ex- ties with greater direct tax revenue respon- penditure needs, like population and area, oth- sibilities, thus linking significant expenditure ers aim reducing disparities in development, responsibilities with incentives to collect local like development index, rural population, and own-source revenue. number of villages in SPAs. The revenue dis- parities discussed above, however, suggest a Metropolitan Districts: The metropolitan dis- need for revising the current revenue alloca- tricts pool gets 2.5 percent of the general tax 59 This percentage was recently revised upward from 5 percent with the December 2012 amendment to the Metropolitan Municipality Law, which came into effect in March 2014. 60 Shared taxes are financial transfers; if they are not in direct relation to the amounts collected locally, they are also considered as grants. (Definition of Shared Taxes, Council of Europe, 2006). 118 Chapter 5: Financing Cities in Turkey revenues and 30 percent of the pool supports from the 5 percent shares to the metropoli- the metropolitan municipalities mentioned tan municipalities. Iller Bank receives the rest above, while 70 percent supports the other of the transfer funds from the Treasury and non-metropolitan district municipalities; all al- distributes allotments according to the said located by population. As said, the distribution formulas on a monthly basis. Iller Bank’s Law of shares by population has a minor equaliza- authorizes it to intercept transfers, thus it au- tion effect that might be sufficient for the met- tomatically deducts debt service dues from ropolitan and metropolitan district municipali- the due transfer shares of municipalities who ties. failed to providetimely repayment of interest Other Municipalities: The pool for other mu- and principal. This is a fundamental loan secu- nicipalities (towns and boroughs beyond the rity instrument for the Bank that is used exten- metropolitans) is filled with 2.85 percent of sively. Because transfers depend on monthly the budget tax revenues and provides for 80 tax collections and are subject to the intercept, percent of the transfers based on population, municipalities have only a vague understand- and 20percent is based on District Develop- ing about their monthly due shared revenues. ment Index. The districts are grouped into four Transfers are typically managed by MoF or development categories, and then the munici- Treasury in a vast majority of countries; albeit palities in the poorest districts groups receive a number of developing countries use special- 23 percent the next 21, 20, and municipalities ized entities for distributing transfers61. There in the “richest” districts receive 19 percent are three weaknesses of this Turkish admin- from this sub-pool with population based al- istrative arrangement: a) the allotments are location to municipalities. The justification of estimated on a monthly basis that provides this allocation metrics (23, to 19) might be sub- security for the central budget (i.e. only col- ject of further analysis. lected revenues are distributed), but weakens The Special provincial Authorities: The SPAs the predictability and cash management at pool is filled with 1.15percent of the general the municipal level, which might induce short- tax revenues and provides funding to the other term borrowing. A common practice in many municipalities by the following formula reflect- countries is to provide equal installments of ing the districts’ characteristics: 50 percent annual estimated transfers; b) IlBank transfers population, 20 percent area, 20 percent num- the allotments ten days after receiving them, ber of villages, 15percent rural population, and and gains interest on overnight bank deposits. 15 percent development index, later allocated This creates a substantial cash-flow challenge with the above procedure for the four “devel- in municipalities. This processing time seems opment groups” (in 23, 21, 20, and 19percent to be too long given the simplicity of the for- share). Beyond and above the regular trans- mulas and the possibilities offered by a mod- fers, national budget grants, in the form of do- ern electronic transfer system; c) management nations and aids, are the main budget sources of the transfer system seems to be mixed with for the Special Provincial Administration and banking activities in IlBank; this should be a the Unions. segregated function, and run as a fee-based service. Administration of transfers The Ministry of Finance (MoF), Treasury, and Iller Bank (IB) are involved in managing and ad- ministering the transfers system. The Treasury with the consent of MoF transfers allotments 61 Municipal Development Fund, Republic of Georgia; Cities Village Development Bank, Jordan.of Shared Taxes, Council of Europe, 2006). 119 Rise of the Anatolian Tigers - Turkey Urbanization Review ANNEX 1: LOCAL ADMINISTRATION SECTOR EXPENDITURES & REVENUES 2006-2013 (TRL billion)   2006 2007 2008 2009 2010 2011 2012 2013 EXPENDITURES 33.008 39.383 45.942 48.227 52.226 61.011 69.299 87.590 Current expenditures 19.968 22.767 27.707 30.509 34.367 39.008 44.203 51.768 Personnel 7.096 7.516 9.044 9.531 10.286 11.259 12.193 13.489 Social Security 0.995 1.147 1.257 1.483 1.818 1.904 1.968 2.173 Purchase of goods and services 9.915 11.785 14.343 15.468 17.984 22.105 26.196 31.736 o.w. Purchase of goods and services 3.182 3.402 4.286 4.373 5.162 6.303 7.133 8.301 o.w. Purchase of services 3.772 5.124 6.370 7.168 8.239 10.358 12.670 15.408 Interest paid 0.607 0.634 0.938 1.454 1.361 1.322 1.433 1.412 Current Transfers 1.355 1.685 2.125 2.573 2.919 2.417 2.413 2.957 o.w. Transfers to non-profit organizations 0.236 0.345 0.492 1.017 0.647 0.834 0.869 1.180 o.w. Transfers to households 0.421 0.519 0.739 0.637 0.987 0.688 0.759 0.917 o.w. Shares from the revenues 0.522 0.657 0.694 0.721 1.083 0.629 0.529 0.583 Capital Expenditures 13.036 16.617 18.235 17.718 17.859 22.004 25.096 35.822 Capital Expenditures 12.255 15.771 17.391 15.332 16.391 19.780 23.315 33.577 o.w. Real estate acquisition 1.135 1.438 1.211 0.998 1.686 2.046 3.187 4.166 o.w. Capital investment expenditure 8.113 10.832 12.325 11.200 11.601 13.666 15.172 22.767 o.w. Capital maintenance 1.785 2.050 2.211 1.612 1.621 2.234 2.603 3.568 Capital Transfers 0.425 0.313 0.241 0.733 0.385 1.167 0.740 0.524 Lending 0.356 0.533 0.603 1.653 1.082 1.056 1.040 1.720 REVENUES Total 31.724 35.474 38.842 42.477 53.582 63.416 69.263 83.376 Current revenues 29.363 33.286 36.991 40.079 50.875 59.884 66.177 77.759 Tax and Fees 3.377 3.691 4.190 3.776 5.904 6.901 7.250 8.213 o.w. Property Taxes 1.628 1.724 1.983 2.143 2.979 3.851 3.911 4.232 o.w. Charges 1.060 1.237 1.335 1.294 1.794 1.857 1.936 2.350 Enterprise and Property Revenues 8.060 8.993 9.188 10.558 11.922 13.869 16.050 17.917 o.w. Goods and Services 0.097 4.502 4.157 4.611 5.462 6.655 7.180 7.946 o.w. Enterprises 7.058 3.307 3.849 4.262 4.758 5.686 6.331 6.875 Donations and aids* 4.305 4.589 5.209 5.860 8.876 10.262 10.331 13.939 o.w. Central Government 0.329 2.796 3.179 3.519 4.462 5.857 5.754 8.742 o.w. Project aids 3.527 1.071 1.414 1.652 3.336 3.340 3.415 5.197 Interest Shares and Penalties 13.621 16.013 18.404 19.885 24.172 28.852 32.547 37.691 o.w. Shared Taxes 12.042 13.513 16.220 15.587 21.721 24.139 27.485 31.966 Current balance 9.395 10.519 9.284 9.570 16.508 20.877 15.732 20.805 Non-recurrent Revenues 2.361 2.188 1.851 2.397 2.707 3.532 3.086 5.617 Capital Own Revenues 2.003 1.949 1.732 1.333 2.690 3.484 3.049 5.607 o.w. Land and Building 1.651 1.875 1.689 1.280 2.544 2.062 2.996 5.509 Collections from Receivables 0.358 0.239 0.119 1.064 0.017 0.048 0.036 0.010 Capital balance (10.675) (14.429) (16.384) (15.321) (15.152) (18.472) (15.768) (25.018) Budget Balance/ Deficit wo Debt financing (1.284) (3.909) (7.099) (5.750) 1.356 2.404 (0.035) (4.213) Debt financing** n.a. 8.953 4.247 (6.887) 10.146 (0.901) 2.249 0.981 Short n.a. 3.504 5.235 (3.707) 3.176 0.393 2.274 0.769 o.w. Immediate payables n.a. 0.723 1.973 (1.171) 0.512 (0.005) 0.639 2.024 o.w. Tax arrears n.a. 0.364 0.737 (0.201) 0.795 (0.566) 0.021 0.286 Long n.a. 5.448 (0.988) (3.180) 6.970 (1.295) (0.025) 0.212 Arrears to public institutions n.a. 1.423 (0.136) (1.379) 0.354 0.031 1.325 (3.187) Budget balance total after debt variations n.a. 5.044 (2.852) (12.637) 11.502 1.503 2.214 (3.233) * Donations and aids include both current and development grants; latter mostly provided for SPAs ** MoF has recently revised debt financing statistics 2006-2013 Source: Ministry of Finance General Directorate of Public Accounts (MoF) (https://portal.muhasebat.gov.tr/mgmportal/) 120 Chapter 6: Inter-agency Coordination to Support Turkish Cities Chapter 6: Inter-agency coordınatıon to support turkısh cıtıes Over the course of the past two decades, in Vertical inter-agency coordination requires a keeping with the subsidiarity principle, Tur- clear delineation of responsibilities between key has increasingly decentralized and de- different tiers of government. It is important volved authorities from national to local ad- to know what agency is responsible for poli- ministrations. As this shift in responsibilities cy making in different policy spheres, which takes place over time, it is essential to main- agency is responsible for enforcement, which tain coherence and coordination in the institu- is mandated to deliver different services, and tional arrangements and policies of different how communication can be improved to en- tiers of government in planning, connecting sure timely and efficient responses to chal- settlements to infrastructure services, and in lenges that arise. Rodrigo et al. (2009) indicate the financing of cities. The most recent exam- that many OECD countries have created inter- ple in Turkey of this devolution of powers is the agency coordination systems that are not or- amendment to the Metropolitan Municipality ganized in a top-down, hierarchical order, but Law in December 2012, which expanded the are rather conceived as an integrated public number of metropolitan municipalities from support mechanism, which continually evolves 16 to 30 and delegated to them the responsi- in response to changing needs and challenges. bilities of preparing provincial territorial plans, As such, lower and upper levels of government which were previously carried out directly by are expected to work together to provide key the Ministry of Environment and Urbanization. public services, and they assign responsibilities Interagency coordination takes on increasing and tasks according to competency, capacity, prominence in countries transitioning through and effectiveness. The diagram below shows decentralization. Not only will changes in some of the public stakeholders in Turkey that functions take place with decentralization, but have a function on urban development issues. there are also important capacity issues that Horizontal inter-agency coordination ide- arise that may require transitional arrange- ally enables more coherent and streamlined ments to ensure a smooth transfer of respon- policies, more efficient service provision, and sibility. Understanding the different modes of better social outcomes. At the national level, interagency coordination therefore becomes horizontal coordination can involve joint-work essential, particularly during the transitional of two or more ministries on certain policies, period. Inter-agency coordination generally regulations, or standards; it can involve joint takes on three different forms: work and coordination between a policy mak- • Vertical coordination – between different ing agency (e.g. Ministry of Environment and administrative levels, usually in a hierar- Urbanization) and a development agency (e.g. chical ordering (e.g. a national ministry Housing Development Administration); or be- and a local authority); tween a policy making entity (e.g. Ministry of Development) and an investment entity (e.g. • Horizontal coordination – between insti- Iller Bank). At the local level, it can involve tutions/agencies/departments/units from coordination through a joint service council the same administrative level (e.g. be- among a number of individual municipalities tween two ministries; between two units in close proximity to achieve economies of within a ministry; between two municipal- scale in service provision; or, it could involve ities; or, between two departments within coordination in trying to mitigate negative ex- a municipality); ternalities of urban development (such as pol- • Diagonal coordination – with actors ex- lution, congestion, and poverty). For example, ternal to the public administration sector the Washington DC metro system is managed, (e.g. the private sector, NGOs, universities, financed and expanded with contributions and think tanks). inputs from different government tiers (the 121 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 77:Range of Agencies Influencing Urban Development in Turkey NATIONAL LEVEL Ministry of Environment Ministry of Ministry of Ministry of Energy and Ministry of Transportation, and Urbanism Development Interior Natural Resources Maritime Affairs and Communications Ministry of Culture Ministry of Food, Ministry of Science, Ministry of Forestry and and Tourism Agriculture and Livestock Industry and Technology Water Affairs İller Bank Housing Development Union of Municipalities Council of Ministers Administration High Council of Regional Development Regional Development Committee Chamber of Urban Universities and Planners Research Centers REGIONAL LEVEL 26 Regional Regional Development Development Agencies Committee Regional Development Administrations for Southeastern Anatolia Projects of East Anatolia, East Black Sea and Konya Plain Project Administration PROVINCIAL LEVEL 81 Provinces Special Provincial Administrations LOCAL LEVEL 30 Metropolitan Municipalities 51 Provincial Municipalities 519 District Municipalities 400 Provincial Districts (part of Metropolitan Municipalities) 18,247 Villages 396 Towns federal US government, the District of Colum- Horizontal coordination at the local level is bia and the states of Maryland and Virginia, most frequently observed when economies individual counties and municipalities that are of scale in service provision can be achieved, serviced by the metro, and the private sector). or when urban development externalities Policy makers in the Washington metropolitan (e.g. pollution and congestion) require re- area recognized the need for a metropolitan gional level interventions. Decentralization transit system that spanned several jurisdic- builds on the principle that certain public tions to promote the competitiveness of the goods and services are much better managed city-region. Recognizing the need for improved and coordinated at a local/regional level, be- mobility and access to job opportunities for cause there is more direct accountability and residents living across the metropolitan area a more intimate understanding of local/re- helped break down the collective action di- gional problems. In many local jurisdictions, lemma even with policy makers with quite dif- particularly in a rapidly urbanizing country ferent political views and affiliations. like Turkey with fast growing cities, service 122 Chapter 6: Inter-agency Coordination to Support Turkish Cities provision (e.g. water, sewage, waste, public tions are only partly subordinated to the met- transport) often needs to be extended across ropolitan government, like in master planning jurisdictional boundaries to take advantage and transport planning. Hereafter, local ad- of economies of scale (e.g. a water reservoir ministrations denote the entire sector and mu- or a landfill that can serve several jurisdic- nicipalities the sum of the three basic clusters tions). Polluting industries in one jurisdiction as the chart below depicts this relationship. can often have negative consequences for its Turkey has a metropolitan municipality law adjacent jurisdictions. What may benefit one that is an example of global best practice in locality (e.g. investment, taxes and jobs), may organizing service provision and management undermine development prospects in a nearby at a broad metropolitan scale. Most coun- jurisdiction. While competition between dif- tries, including many developed ones, have ferent jurisdictions can lead to better service not managed put in place such an administra- provision, it can also lead to a squandering of tive regime. In international practice, such a resources. Consequently, higher scale institu- system, where a second level of government is tional options at the metropolitan, provincial added to improve service provision at the local or even regional level may need to be con- level, is known as a two-tier system. The upper sidered to take advantage of economies of tier covers the region as a whole (e.g. metro- scale. Such solutions can range from voluntary politan area), to take advantage of economies agreements between individual jurisdictions, of scale and to properly mitigate negative to the creation of a new jurisdiction (e.g. amal- side-effects that affect the whole area (e.g. air gamating more jurisdictions into one), or the pollution). The lower tiers are responsible for creation of a second tier of government (e.g. services of a local nature, with limited econo- metropolitan government). mies of scale effects and regional side-effects The Turkish intergovernmental system has (e.g. street lighting and local parks). Enid Slack several tiers with complementary but also (2007) indicates that upper tier governments interlinking responsibilities. These tiers are should be responsible for “services that pro- depicted in the chart below and are comprised vide region-wide benefits, generate externali- of: Metropolitan, Non-metropolitan Provin- ties, entail some redistribution, and display cial, and Town & Borough (T&B) municipalities, economies of scale”, while lower tier govern- Special Provincial Administrations, and Munici- ments should be responsible for services that pal Affiliated Institutions like utility companies. “provide local benefits”. As the table below in- Districts or Towns or Boroughs in metropolitan dicates, metropolitan municipalities in Turkey areas are part of the metropolitan jurisdiction mirror international practices in terms of func- as independent affiliated entities; their func- tions for which they are responsible. SPAs Metro Municipalities Non-Metro Municipalities Municipalities Local Town and Administration Municipal Borough Sector Unions Municipalities Affiliated Institutions Development Agencies 123 Rise of the Anatolian Tigers - Turkey Urbanization Review Table 9: Assignment of Functions in Two-Tiered Governments International Experience* Turkey** Upper Tier Lower Tier Metro Muni District Muni Welfare assistance X X X Child care services X X X Social housing X Public health X X Land ambulance X X Roads and bridges X X X X Public transit X X Street lighting X Sidewalks X X X Water system X X Sewer system X X Solid waste collection X X Solid waste disposal X X Municipal police/Fair marketing X X X Fire suppression X X Fire prevention/training X X Local land use planning X X X Regional land use planning X X Economic development X X Parks and recreation X X X Libraries X X X *According to Slack, Enid. 2007. “Managing the Coordination of Service Delivery in Metropolitan Cities: The Role of Metropolitan Governance“, The World Bank Policy Research Paper. ** Turkey Metropolitan Municipalities Law Horizontal coordination between two units or, roads may be paved or resurfaced without that are part of the same institution is often prior coordination with other underground over-looked but critical for efficient service public service providers (e.g. water, sewage, delivery. The fact that two departments are electricity, telephone, cable). part of the same agency does not necessarily Diagonal coordination is an increasing prac- mean that they also communicate efficiently. tice of governments seeking to make the For example, the development arm of a nation- most effective use of public funds and to al level agency may make investment decisions leverage themselves through private par- without following policy guidelines provided ticipation and citizen engagement. Diagonal by the policy arm of the same institution. Simi- coordination (such as public-private partner- larly, the urban transport department within a ships, partnerships with NGOs, universities or municipality may plan transport investments think tanks) starts from the premise that the without linking those investments to the land public sector is not always best equipped or fi- use plans of the urban planning department; nanced to provide directly all of the services it 124 Chapter 6: Inter-agency Coordination to Support Turkish Cities is mandated to deliver. Among other features, lic service provision, and there is broad expe- diagonal coordination creates the opportunity rience of both successes and failure. Turkey’s to mobilize and attract private capital; it en- public sector institutions have extensive expe- hances fiscal space for local administrations, rience of working with the private sector, from shifting resources to public goods and social water and sewage provision, to operation of services that the market does not necessarily solid waste management systems, and provi- respond to; and it shifts commercial risk to a sion of public transport. A relevant example is private sector provider. Most market-based the rehabilitation of Mamak Landfill in Ankara economies engage the private sector in pub- (see Box 13). Box 13: Leveraging Private Sector Participation for Municipal Solid Waste Services ITC-Ankara was established in 2002 as a branch office of a Swiss originating company -- Invest Trading and Con- sulting AG – which specializes in construction of infrastructure and superstructure projects, including recycling plants. Its ability to bring financing, assume commercial risk, and apply innovative solutions to landfill manage- ment provided a perfect opportunity for Ankara Metropolitan Municipality to partner with this private sector firm in addressing its solid waste disposal needs with a growing urban population now exceeding 4.5 million. Structured as a 49 year concession, Ankara’s partnership with ITC was initiated through a competitive selection process. ITC was selected as the preferred bidder to redevelop the Mamak landfill starting in 2005 with a com- mitment to realize a total investment by the private operator of US$260 million in return for operating rights. A classic win-win initiative, the partnership features multiple benefits for Ankara’s residents, the municipality, the private sector concessionaire and the environment. For residents, sanitary conditions and land values in the vicinity of landfill have substantially improved in the years since the private sector operator took over. The pic- ture below shows the plant operating across the street from a high-end shopping mall with IKEA as the anchor tenant, and the landfill provides hot water and heating for the mall through the biogas operation. Through the project, the municipality was able to shift the initial US$29 million and all subsequent capital investment costs to ITC. It also saved on the landfill operating costs and tipping fees. For the operator, the project offered the opportunity to earn a profit while entering a market in which it now has operations in seven Turkish cities (see map below). The partnership also had substantial co-benefits for the environment. Methane gas, which is generated by the decomposition of solid waste, is 25 times more potent as a greenhouse gas than carbon dioxide. The facility design features a methane gas capture technology that dramatically reduces methane gas emissions. The facil- ity then harnesses this gas to produce electricity, generating revenue streams for the firm, while providing an alternative renewable energy source for Turkey, an energy dependent country. The anaerobic digestion system processes organic waste to compost in addition to generating methane gas. The energy plant linked to the operation generates 135 million kWh of renewable energy annually with total installed power of 25.4 MW. The facility also features a waste sorting plant to recycle plastic, glass and other materials. Mamak Landfill Site ITC Operations in 7 Turkish Cities 125 Rise of the Anatolian Tigers - Turkey Urbanization Review Coordination Mechanisms Coordination mechanisms are shaped by the institutional and administrative framework in Depending on the nature of the required coor- which they are created. In the US, which has dination, different mechanisms can be estab- a tradition of decentralized administration, of lished. Continuous interactions may require strong and autonomous local administrations, the establishment of coordinated work units one third of local administrations are orga- (joint agencies or commissions), staffed spe- nized as special purpose districts (e.g. school cifically to help coordinate and communicate districts, urban transport districts, water and across agencies where policy is dependent on waste management districts, economic devel- effective joint action. On the other hand, tem- opment districts, etc.) (Slack 2007). In France, porary interactions may be better served by which is made up of an astonishing 37,000 more informal arrangements, such as steering municipalities (80 percent of which have fewer committees or working groups, where policy than 1,000 people), nearly all urban areas are makers and/or technical staff from already es- administered through inter-municipal coop- tablished units convene to jointly solve com- eration agreements (Swift and Kervella 2003). mon problems. Globally, different coordination Germany, which has a federalist system that mechanisms have been created to help solve a diffuses power and authority, has put in place variety of policy and institutional challenges, a regional policy that enables separate munici- and Turkey already has experience in the field. palities to come together and form regional governments (Greenblat 2008). The Higher Committee on Regional Develop- ment is one example of a formal structure Coordination structures and mechanisms are intended to promote central government likely to vary over time, depending on chang- coordination in Turkey. The Committee is ing needs and context. For example, Toronto headed and formed by the Prime Minister, and went from a system of municipalities with in- includes the Minister of Development, as well dividual governments, to a two-tiered govern- as other ministers that may have a say in the ment system with metropolitan governance topics that are to be discussed. The Committee added on top of municipal governments, and is not a self-standing body and meets periodi- then again to a one-tier government, with ad- cally to discuss issues that cut across sectors. ministrative powers concentrated in the hands of the City of Toronto (which was established For example, to better coordinate policies and through the amalgamation of all the individu- public investments, representatives from agri- al municipalities). London was governed by a culture, industry, tourism, transportation, and two-tier system between 1964 and 1986, with spatial development may be brought together. the upper tier being abolished by Margaret Such a coordinated framework is necessary to Thatcher in 1986, and then reinstated through ensure the linkage between these two vital di- the Greater London Authority Act in 1999. mensions of regional development. Cape Town in South Africa, had a one-tier At the provincial and local level in Turkey, ver- government structure under Apartheid, then tical coordination is ensured along sectoral moved to a two-tier metropolitan structure in lines, with individual ministries represented the mid-1990s (to allow a larger representa- through provincial governors. The fact that tion and better service provision in the domi- the central government executive has rep- nantly black suburbs), and then again moved resentatives at the local level allows central to a one-tier city government in 2000. (Slack government decisions to more easily find their 2007) way at the local level. Such a mechanism is Given the broad, cross-sectoral dimensions also important because local administrations of local development, an overarching frame- are not responsible for key functions, such as work that can be a vehicle for formulating and education and health care, and, as such, these implementing policy is worth considering. coordination mechanisms serve an important For example, the Government of South Africa purpose. has put in place in 2005 an Intergovernmental 126 Chapter 6: Inter-agency Coordination to Support Turkish Cities Relations Framework, to ensure that “the ma- ing a shift, where cities are not seen solely as chinery of government works better, in a more the source of a country’s problems, but also integrated way, and more efficiently to deliver the source of many solutions (see for example services to communities and people” (Layman World Bank 2009a), in many countries there is 2003). The Framework established a Presi- not been a parallel shift in the way policy mak- dent’s Coordinating Council (which is meant ers in these countries think about cities. It is as a consultative forum between the central widely understood that decentralization and government and provincial and local admin- devolved powers to the local level help cities istrations), and laid out the conditions for the become more dynamic and resourceful, but establishment of national, provincial, and mu- there are usually few attempts to understand nicipal intergovernmental forums (Republic of cities as part of a system. South Africa Government Gazette 2005). Such In the developed world, with many cities a mechanism was needed in post-Apartheid undergoing de-industrialization and decline, South Africa where a major demographic shift there has been an increased interest in urban was taking place as urban areas were being re- systems and the type of policies that could vitalized. help revive their economic base and make Good inter-agency coordination mechanisms them more competitive. In the EU, programs are a product of good government, and good like URBAN and URBACT are tailored to gener- government requires qualified people and an ate solutions to urban challenges throughout efficient bureaucracy. In Extreme Government the Union. These programs foster knowledge Makeover, Ken Miller argues that good govern- exchanges, fund urban development and re- ment often tends to be slender government – development projects, and encourage policy i.e. a government where bureaucratic process- changes that benefit cities as a whole. In the es are simplified, and where people are given UK, following years of decline of its former in- more autonomy to work on the issues they are dustrial cities, the National Government has experts in, and more scope to work on issues made cities a priority and has devised poli- that give them a higher sense of purpose. The cies aimed at promoting regional economic best coordination mechanisms will not work if growth, addressing issues of social disadvan- the people that are charged to lead them are tage, and provided support for regenerating not motivated to improve performance, and the physical environment. As a consequence, coordination may ensue spontaneously if mo- in the past decade, UK cities have experienced tivated people recognize this as the best av- a renaissance, with population and employ- enue for improving performance. ment numbers beginning to rise again. What is more remarkable is that former manufacturing In Turkey, as in all other countries, inter-agen- cities (such as Birmingham, Manchester, Shef- cy coordination should be primarily motivat- field, Liverpool, or Newcastle), which have ex- ed by past inefficiencies, present needs, and perienced population decline since the 1960s, future objectives. In other words, coordina- now appear to be going through a revival. This tion should only be sought when something can be contrasted with former manufacturing is not working well and/or when it could help centers in the US, which also started declin- improve present and future performance. Co- ing in the 1960s, but in several cases have not ordination mechanisms should be tailored to been able to avert this downward trend (see the problems that arise and adjusted as often figure below). The difference between the US as new realities demand it. and the UK, is that the US continues to be a National Policy Focus on highly decentralized system, where cities are generally left to devise their own solutions Cities to the urban decline. There are national pro- Many developing countries have yet to de- grams, such as the US Environmental Protec- vise policies that aim to reap the benefits of tion Agency program on brownfields redevel- urbanization. Although the world is undergo- opment, which aim to tackle some of the key 127 Rise of the Anatolian Tigers - Turkey Urbanization Review Figure 78: Population Trends in Selected UK and US Cities, 2000-2005 Source: Webber and Berube, 2008 challenges cities encounter, but there is no dis- adopted has quickly borne fruit, generating a tinct national policy that focuses on city devel- positive upward spiral, with more pedestrian opment and redevelopment. traffic in downtown areas attracting more busi- National governments need to work with lo- nesses, and with more businesses attracting cal administrations to provide policy tools, even more pedestrian traffic and even more regulations, incentives, and, at times invest- businesses. People and businesses tend to re- ment financing required for sustainable ur- spond positively to vibrant and dynamic urban ban development. A limited but growing num- cores. These give the impression of city health, ber of national policy makers are recognizing and act as a catalyst for further investments the importance of their cities and how their (public and private) and redevelopment. nation’s development trajectory may very well hinge on how well their cities are doing. In the National policies on urban development UK, several successive governments have is- should aim to help local initiatives rather than sued planning statements in the 1990s and the taking away the initiative from local authori- 2000s, pushing “smarter growth” in cities. For ties. Decentralization and devolved local pow- example, in 1996, the Central Government is- ers are a sound principle to follow, but local and sued a “town center first” development prin- national policy makers should be keenly aware ciple, which aimed to limit the development of the negative side-effects that increased de- of retail centers (e.g. malls) on the outskirts centralization brings with it, and should try to of cities. Retailers and developers have to first address these side-effects with well-targeted prove that an in-town development is not pos- and coordinated policy measures. sible or viable, before they allowed to develop land at the city periphery. In effect, out-of- Recognizing the importance of cities and the town sites are seen as a last resort, whereas in challenges of urbanization, KENTGES, Turkey’s the US they continue to be the norm for most Urban Development Strategy, lists as the first new retail developments. The “town center of its 100 actions, the need for the develop- first” principle is widely acknowledged as a ment of an Urbanization and Spatial Planning success, and it has not only played an impor- Framework Law. The law is still in the drafting tant part in limiting sprawl in UK cities, but it stages, and ideally it would include clear pro- has also prompted cities to develop compre- visions for sound urban development, based hensive masterplans that focus on city center revival. For example, the Sheffield One Mas- on identified issues and challenges. This law terplan, has targeted several key areas in the should be periodically amended and changed, city for new development and redevelopment in tandem with general urban changes in the projects. One of the main tenets of the Shef- country. Cities are living organisms and urban field masterplan was to bring life and econom- policies should be understood as a continuous ic activity back to the city center. The strategy work in progress. 128 Chapter 6: Inter-agency Coordination to Support Turkish Cities Sheffield One Masterplan Coordinating across Thus, for example, if the regional develop- Administrative Tiers ment plan indicates that the regional economy would benefit from having better connected Efficient and effective planning requires the cities, provincial administrations and the na- coordination of several administrative tiers. tional government could work on supplying As the table below highlights, there are differ- the necessary infrastructure. This means that ent administrative tiers preparing plans at dif- the strategies and plans prepared at different ferent levels. Thus, MOD prepares the Nation- al Development Plan and the Regional Plans, administrative levels should be prepared in a which focus primarily on socio-economic strat- coordinated way. Since according to the Law egies. The MOEU prepares the Spatial Strategy on Public Fiscal Administration and Control Plans at the National level, and provides the (5018/2003) public institution have to prepare framework for the drafting of provincial and Strategic Plans62, proper coordination would local level plans. Ideally, these plans should require that at a minimum, these plans are not be done in a coordinated, synergetic way. done in a vacuum. 62 Strategic plans include “medium and long term goals, basic principles and policies, objectives and priorities, performance criteria of public admin- istrations, as well as methods and the allocation of resources to achieve such goals.” 129 Rise of the Anatolian Tigers - Turkey Urbanization Review Table 10: Planning Tiers in Turkey Plan Type Responsible Institution(s) Level of the Plan (Socio-economic) Ministry of Development National Level Development Plans (Socio-economic) Ministry of Development via Development Agencies NUTS 2 Regions Regional Plans National and Regional Strategic Spatial Plans Ministry of Environment and Urbanization Level Regional Territorial Ministry of Environment and Urbanization Regional Level Plans By metropolitan municipalities within the boundaries Provincial Territorial of metropolitan municipalities, by the Ministry of Provincial Level – Plans Environment and Urbanization in non- metropolitan linked to water basins provinces Provincial Governorships (non-Metropolitan areas) Provincial level Development Plans Provincial Institutional Governorships, Metropolitan Municipalities Provincial level Strategy Plans Within the built- Development master Metropolitan municipalities and municipalities up urban area of plans subject to Code nr. 5393 municipalities Municipalities subject to Code nr. 5393 and first In general, the Implementation degree and district municipalities within the adjacent area of the master plans boundaries of metropolitan municipalities municipality The preparation of Strategic Plans for re- the Gaziantep Province is to achieve interna- gions, provinces, and local administrations tional standards by investing in infrastructure, in Turkey are not coordinated. Strategic Plans education, and health, and by collaborating prepared by Regional Development Agencies, with other public agencies. At the third tier, by Provincial Administrations, and by Metro- the Gaziantep Metropolitan Municipality has politan Municipalities are often prepared in- as its vision the need to enhance its organiza- dependently and at times lack cohesion and tional structure and become an efficient and “nesting” of hierarchical planning objectives. participatory municipality. While these can be Metropolitan municipalities and provincial complementary objectives, they lack cohesion governments tend to focus on physical invest- in inter-linking elements that could make them ments (e.g. roads, new tram lines, housing more mutually reinforcing. development, cultural heritage preservation), Coordinating across while regional development agencies draft comprehensive socio-economic strategies. For Sectors example, the vision stated by the Gaziantep- Several actors play a key role in spatial plan- Adiyaman-Kilis Regional Development Agency ning and they need to be actively engaged. is for the region to become a logistics center to MOEU and MOD are two critical players in the Middle-East, while diversifying agriculture development planning, but they are far from and enhancing competitiveness. The vision of being the only players. A number of stakehold- 130 Chapter 6: Inter-agency Coordination to Support Turkish Cities ers, both at the national and at the local level without the consent of the Ministry of Food, have influenced the way Turkish cities have de- Agriculture and Livestock (MOFAL). As such, veloped, and will play a critical role in the way city competitiveness is inherently linked to a they will develop. The Ministry of Transporta- Ministry that does not have a key role in ur- tion, Maritime and Communications (MTMC), ban development. In order to put together for instance, could and should play a more ac- development or implementation masterplans tive role in promoting sound urban transport for accommodating new city growth, local au- policy and investments at the local level. This thorities have to coordinate with this Minis- could take the form of developing more de- try. Several of the local authorities that were tailed guidelines and standards, as well as pro- interviewed during the drafting of this report viding a platform through which local adminis- indicated that their city growth was stunted trations can share experience and learn from because of a coordination failure with MOFAL. one another, as well as international good While having a growth boundary has a number practice. Currently, MTMC’s oversight role of positive side-effects (through the densifica- does not come into the picture until a metro- tion of the urban core), it can also negatively politan municipality contemplates investing in affect city competitiveness, by prohibiting ac- light rail or metro mass-transit systems. cess to land that might be essential to a city’s Infrastructure is one of the most powerful future development. tools for guiding city growth. As the figures Military bases within proximity of Turkish cit- from Mersin and Trabzon have highlighted, ies can fracture the urban fabric and affect city new city growth often follows existing infra- sustainability. Many cities in Turkey have mili- structure. Even if development master plans tary bases within their boundaries, which are and implementation master plans aim to set controlled by the Ministry of Defense. It is not the tone for peri-urban expansion, new devel- likely that the cities were planned that way, but opments will tend to follow the easiest point rather the result of uncontrolled urban expan- of entry. Thus, many new developments will sion and sprawl. These military bases are not sprout up along exiting roads, both due to subject to any national or local spatial planning easy access to the rest of the city, and because regulations, and they are in a sense not part of other vital service infrastructure (e.g. water, the urban fabric. Initially, those bases were de- sewage, electricity) is usually close by. Natu- veloped on the outskirts of cities, as strategic rally, new residents will want to settle not only army outposts. Over the years, as cities have where land is cheaper, but also where trans- expanded, many of those bases started to be port costs and service infrastructure costs can engulfed by new developments, and they de be lowered. Many cities throughout the world facto became urban voids. As the aerial picture strategically use infrastructure development below shows, the City of Eskisehir is basically, not only to improve transport and reduce con- cut in two pieces, with communities from the gestion and pollution, but also to guide city north of the city being separated from com- growth. For example, ring roads often serve as un-official growth boundaries which control munities in the south of the city. Ideally, local the outward expansion of the city. However, authorities should coordinate with the Minis- such investments are usually large in scale, try of Defense and discuss the opportunities they may be outside city administrative bound- of moving these military bases further outside aries, and they may cross several jurisdictions. the city, and turning the prime real estate they As such, there is often the need to involve a now occupy into developable land. central government agency (e.g. MTMC) to both coordinate and fund necessary works. In Turkey, peri-urban agricultural land acts as a de-facto growth boundary. No class 1 agri- cultural land can be converted to urban land 131 Rise of the Anatolian Tigers - Turkey Urbanization Review Military Base in Eskişehir Streamlining and Reliable data should lead to the develop- ment of monitorable performance indicators. Coordinating Data According to Law 5018/2003 on Public Fiscal Collection and Monitoring Administration and Control, public institutions “What doesn’t get measured doesn’t get have to prepare Strategic Plans which include done.” Peter Drucker, an international author- measurable objectives, and they have to mea- ity on effective management delivered this sure their own performance according to pre- telling statement. One of the biggest challeng- determined indicators. Moreover, the Ministry es to urban development in Turkey is the lack of Finance is authorized to determine “the of a well-designed system of data collection compatibility of administration’ budgets with and monitoring of urban indicators. Some ex- the performance indicators stated in the stra- amples include urban planning data (e.g. mon- tegic plans”. These measures are important be- itoring of green space area per city), energy cause they encourage the development of pro- efficiency data, and urban transport data (e.g. grammatic budgets, but in practice they can be monitoring of transport networks and modal a challenge to implement without proper in- share). Moreover, different agencies collect formation systems and common standards for data independently and often use their own monitoring. Many local authorities simply in- methodologies, and they prepare their strate- clude a list of indicators in their Strategic Plans, gies, policies, and plans based on those data. but more often than not these indicators come When different agencies measure the same without a baseline and specific targets that phenomenon in different ways, this may lead would allow their proper monitoring. to different outcomes, and policies can be for- mulated in contradictory ways. It is therefore critical to have an information platform for col- lecting, managing and analyzing urban data to provide an overview of the performance of the cities within the system. KENTGES, Turkey’s Ur- ban Development Strategy, provides a basis for systematically monitoring urban development indicators and the opportunity to analyze and formulate policy on this data while ultimately enhancing Turkey’s ability to make informed policy decisions. 132 Chapter 6: Inter-agency Coordination to Support Turkish Cities Note on the new Metropolitan Municipality Law (#6360) After the most recent local elections in Turkey, which took place in March 2014, an extended system of metropolitan governance was put into effect. The main objective of Act No. 6360 was to improve public service quality at the local level by expanding the number and geographical coverage of metropolitan municipality administrative area to the provincial boundaries. The Act was intended to take advantage of economies of scale and to increase efficiency of service provision. The Law increased the number of metropolitan municipalities from 16 to 30, expanding total population served by the 30 metropolitan mu- nicipalities from 34.8 million to 57.2 million citizens. In terms of spatial coverage, the Law increased the metropolitan municipality service coverage area to 395,000 square kilometers, approximately 51 percent of Turkey’s land area. The Law eliminated the need for Special Provincial Administrations in the 30 met- ropolitan municipalities, and eliminated 16,500 village administrations within the 30 provinces, as well as some 1,000 municipalities across the country that had populations of less than 2,000. The expansion of metropolitan municipality boundaries to the provincial limit was based on prior ob- served efficient delivery of services in Istanbul and Kocaeli, both of which feature built urban form that extends to the provincial boundaries. However, the new metropolitan municipality law extends this pro- vision to some provinces that have a very different built environment, such as Konya, Sanliurfa, Ankara and Erzurum, where extensive rural areas are now incorporated into the metropolitan municipality ad- ministrative area. Going forward, there will likely be risks associated with this new configuration that should be carefully monitored, such as the need to prepare differentiated service standards within the metropolitan municipality area in accordance with land use function, density, urban/rural character, etc., as the cost of applying a dense urban area service standard to a rural area within the new Metropolitan Municipality jurisdiction would be uneconomic and in appropriate. This definition of differentiated ser- vice standards should be addressed at the policy level in order to ensure that the policy framework is clear for city-specific planning. A further question that arises is whether procedures have or will be altered in converting rural to urban land as cities grow over time. Where such an issue might have involved mul- tiple agencies in reviewing and confirming the appropriateness of such conversion in the past, there is less clarity with both urban and rural lands now under a single metropolitan municipality regime. Here again, city-specific planning will take on greater importance so that master development plans can resolve land conversion issues a priori in a coordinated manner rather than incrementally, as has been the case in Turkey from many years. COnclusions and Policy coordination is presented – vertical, horizon- tal and diagonal. Comparisons are also made Recommendations with international norms in the assignment of In this chapter, a stock-taking of Turkey’s responsibilities, and Turkey generally follows inter-agency coordination challenges was re- international norms quite closely. viewed in the context of international experi- International experience provides an oppor- ence. Despite the fact that the main thrust of tunity to reflect on policy options for improv- urbanization is now behind Turkey, urbaniza- ing interagency coordination in Turkey going tion pressures persist in secondary cities and forward. As suggested at the outset of this re- the country continues to address the related port, Turkey now faces a second generation ur- policy implications of these dynamics by such ban development agenda. The policy agenda measures as the recent amendment to the for managing a system of cities needs to evolve metropolitan municipality law. While earlier and adjust to new realities, and, building on sections of this report highlight the enabling Turkey’s record of accomplishments to date, aspects of the metropolitan municipality re- these areas of focus can draw inspiration from gime, managing urbanization in an increas- the important milestones of progress already ingly decentralized environment brings new achieved. Inter-agency coordination is one challenges for inter-agency coordination. To such policy area for focus in the years ahead address these challenges, a framework for and it will include: First, improved coordination considering three dimensions of inter-agency in socio-economic/strategic and physical plan- 133 Rise of the Anatolian Tigers - Turkey Urbanization Review ning, possibly extending the regional develop- examples are cited as having important policy ment framework, which now benefits from a effects in revitalizing cities, promoting redevel- Higher Committee to promote coordination, opment and containing urban sprawl. Second, to the municipal level. Different institutional underpinning good urban policy is the need for arrangement options exist, including tempo- a well-developed urban data platform. Insti- rary structures or free-standing permanent tuting such a platform could help develop a set structures, e.g. an Urban Commission, that of indicators that will help establish baselines, bring relevant line ministries together to for- enable cities to adopt performance indica- mulate policies, institute incentive structures, tors for improvement, and benchmark against and harmonize linkages across sector bound- good performers both within country and in- aries. European Union and United Kingdom ternationally. 134 Annex 1: Improving Access to Affordable Housing in Turkish Cities Annex 1: Improving Access to Affordable Housing in Turkish Cities Table A1: Housing expenditure share by deciles of the expenditure distribution Year 1 2 3 4 5 6 7 8 9 10 2005 Imputed rent 24.86 24.75 22.93 23.13 22.31 21.59 20.91 18.53 17.89 16.33 Imp. Rent+utilities 34.08 35.07 33.31 33.68 33.30 32.85 31.33 29.23 28.14 26.82 2006 Imputed rent 28.14 24.82 24.42 24.03 22.96 22.19 20.72 20.06 19.02 15.98 Imp. Rent+utilities 38.53 34.64 34.54 34.88 32.69 33.00 31.83 31.21 29.42 27.17 2007 Imputed rent 27.73 27.54 26.14 24.86 24.94 23.33 23.37 22.82 20.62 18.28 Imp. Rent+utilities 36.55 37.15 36.20 35.29 35.56 33.00 33.94 33.11 31.43 29.19 2008 Imputed rent 30.59 27.12 26.60 26.50 25.38 24.50 22.59 22.02 21.09 19.65 Imp. Rent+utilities 39.79 37.84 37.23 37.24 35.63 35.10 32.79 32.19 30.77 28.53 2009 Imputed rent 33.89 28.94 26.92 25.06 23.69 22.55 21.73 21.19 18.49 17.28   Imp. Rent+utilities 43.20 38.80 38.44 35.70 34.49 34.02 32.40 31.61 28.35 26.44 Note: Based on authors’ calculation from Household Budget Surveys (2005-2009). Table A2. Growth Rates of Expenditures between 2005 and 2009   Deciles 1 2 3 4 5 6 7 8 9 10 Rent 28.0 30.1 25.6 22.7 19.3 19.6 18.9 18.6 17.6 14.5 Utilities 15.9 14.9 14.2 18.9 18.2 15.2 15.4 13.7 13.3 9.3 Consumption 15.1 14.6 14.8 15.3 15.5 15.3 14.7 14.4 14.2 10.8 Note: Based on authors’ calculation from Household Budget Surveys (2005-2009). 135 Rise of the Anatolian Tigers - Turkey Urbanization Review Box A1 Cluster Analysis using Population and Density of Cities Cluster analysis is one of the many multivariate techniques that is used to classify observations into natural underlying groups. The goal of the clustering is to have observations in the same cluster be more alike than observations in other clusters. Unlike other types of multivariate analysis, e.g., factor analysis that works on variables, cluster analysis works on observations, finding underlying factors that each subset of variables appear to have in common. We cluster more than 1500 cities across different countries including 13 Turkish cities. We used popula- tion size and density of each city as the selection criteria. Table C2 presents the clusters with Turkish cities and similar cities around the world. Between two iterative algorithms— Kmeans and Kmedian (based on mean and median), we used “Kmedians” for our clustering analysis. The algorithm is an itera- tive procedure that partitions the data into k groups or clusters. We used 10,000 iteration with initial seed as 999. One drawback of the k-means/median approach, however, is that the number of groups is specified in advance, rather than let the procedure find the optimal number of groups. Cluster-analysis stopping rules are used to determine the optimal number of clusters. A stopping-rule value (also called an index) is computed for each cluster solution. Larger values indicate more distinct clustering. Between two stopping rules, (i) the Calinski and Harabasz (C&H, 1974) pseudo-F index and (ii) the Duda and Hart (D&H, 1973) index, we used the former one because the latter one goes with hierarchical data. Given this rule, we find that going with 200 groups is optimal for our analysis. Table A3: Calinski / Harabasz pseudo-F test to find out optimal number of groups. Number of clusters Calinski / Harabasz pseudo-F values 150 319.43 200 444.58 300 275.64 350 343.11 Based on this algorithm the following table clusters Turkish cities with other similar cities across the globe. Table A4: Clustering of Turkish cities with other cities in the world Cities in Turkey Similar cities in the rest of the world Kiyev, (Ukraine),Lisbon, (Portugal),Pyongyang, (North Korea),Urumqi, XJ, (China),Changzhou, JS, Izmir (China),Algiers, (Algeria) Kolhapur, MAH, (India),,Hubli, KL, (India),Yangquan, SAX, (China),Tirana, (Albania),Zahedan, (Iran),Bokaro Diyarbakir Steel City, JHA, (India) Cagayan de Oro, (Philippines),Changzhi, SAA, (China),,Trujillo, (Peru),Huangshi, HUB, (China),Veracruz, Mersin (Mexico),Acapulco, (Mexico) Copenhagen, (Denmark),Qiqihar, HL, (China),Samara, (Russia),Sofia, (Bulgaria),Liuzhou, GX, (China),Durg- Gaziantep Bhilainagar, CH, (India),Maceio, (Brazil),,Joao, Pessoa, (Brazil),Omsk, (Russia) Padang, (Indonesia),La Plata, (Argentina),Kumamoto, (Japan),Nottingham, (United Kayseri Kingdom),,Allentown,PA, NJ, (United States),Liaoyang, LN, (China),Winnipeg, MB, (Canada),Cueurnavaca, (Mexico),Danyang (Zhenjiang), JS, (China) Porto Alegre, (Brazil),Suzhou, JS, (China),Barcelona, (Spain),Coast Abidjan, (Ivory),Salvador, Ankara (Brazil),,Monterey, (Mexico),Phoenix, AZ, (US),Rome, (Italy) Cairo, (Egypt),Kolkota, WB, (India),,Rio de janeiro, (Brazil),Buenos Aires, (Argentina),Shenzhen, GD, Istanbul (China),Lagos, (Nigeria),Los Angeles, CA, (United States) 136 Annex 1: Improving Access to Affordable Housing in Turkish Cities Cities in Turkey Similar cities in the rest of the world Lome, (Togo),Brisbane, QLD, (Australia),Vittoria, (Brazil),Montevideo, (Uruguay),Santos, (Brazil),Conakry, Bursa (Guinea),La Paz, (Bolivia),Thiruvanantha puram, KL, (India),Santa Cruz, (Bolivia),Luoyang, HEN, (China) Meerut, UP, (India),,Davao City, (Philippines),Rajkot, Guj, (India),Varanasi.UP, (India),Yangzhou, JS, Adana (China),Mogadishu, (Somalia),Mjubi Mayi (Bakwanga), (Congo (Dem. Rep.)), Kannur, KER, (India) Tarsus Suqian, JS, (China),Petropavlosk-Kamchatka, (Russia),Lanxi (Jinhua),ZJ, (China) Salt Lake City, Utah, (United States),Nay Pyi Taw, (Myanmar),Chandigarh, (India),Ufa, (Russia),Haifa, (Israel), Konya Nuremberg, (Germany),Merida, (Mexico),Adelaide, (Australia) States, (United),Machackala, (Russia),Jaroslavl, (Russia),Chabarovsk, (Russia),Liepzig, Mannheim, Eskisehir (Germany),Nagano, (Japan),Acron, OH, (US), Kanazawa, (Japan) Kingston, (Jamaica),Quetta, (Pakistan),Voronezh, (Russia),Upon Tyne, (UK),Palermo, (Italy), Guilin, GX, Antalya (China), Daqing,, (China),,Raleigh, NC, (US),Aba, (Nigeria) Box A2: Granger causality to test the lagged response of housing start to housing need in Turkey Granger causality tests are most useful in situations where one is willing to consider two-dimensional sys- tems. If the data are reasonably well described by a two-dimensional system then the Granger causality concept is most straightforward to think about and also to test. “Granger causality” tests are statistical tests of “causality” in the sense of determining whether lagged observations of one variable have incremental forecasting power when added to a univariate autoregres- sive representation of another variable. A variable, xt, is said to Granger cause another variable, say, yt in period t if the variance of the optimal linear predictor of yt+h , based on a certain information set, has smaller variance than the optimal linear predictor of yt+h for any h. The test itself is just an F-test (or, as above, a chi-squared test) of the joint significance of the other variable(s) in a regression that includes lags of the dependent variable. The first step for a Granger causality is to use a vector auto regressive (VAR)-model with stationary data. We used a series of unit-root test, such as the Dickey Fuller test and the Philips Perron test with second difference operator, to test unit root. With first difference operator we did not find stationerity in the data so we used second difference operator. Dickey Fuller performs the augmented Dickey-Fuller test that a variable follows a unit-root process. The null hypothesis is that the variable contains a unit root, and the alternative is that the variable was generated by a stationary process. The Phillips–Perron test (named after Peter C. B. Phillips and Pierre Perron) is also a unit root test. That is, it is used in time series analysis to test the null hypothesis that a time series is integrated of order 1. It builds on the Dickey–Fuller test of the null hypothesis in D1 (D2), where D1 (D2) is the first (second) difference operator. Like the augment- ed Dickey–Fuller test, the Phillips–Perron test addresses the issue that the process generating data that might have a higher order of autocorrelation than is admitted in the test equation - making endogenous and thus invalidating the Dickey–Fuller t-test. While the augmented Dickey–Fuller test addresses this issue by introducing lags of h as regressors in the test equation, the Phillips–Perron test makes a non- parametric correction to the t-test statistic. The test is robust with respect to unspecified autocorrelation and heteroscedasticity in the disturbance process of the test equation. We also used Schwert’s rule of thumb to start with 15 lags to find out proper lag length. A Wald test in VAR model is commonly used to test for Granger causality. The null hypothesis in a Wald test assumes that –“H0: the coefficients on the lags of the predetermined variable (in the “excluded” column) are zero’ in the equation for (variable in the “equation” column). 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