47525 DIRECTIONS in Urban Development IMPACTS OF FINANCIAL, FOOD, AND FUEL CRISIS ON THE URBAN POOR Judy L. Baker totalhouseholdconsumptionthatthepoorspendonfuelis Summary approximately10%overall,andtendstobehigherinurban · Theurbanpoorareparticularlyvulnerableintimes areas.Higherpricesmayalsocausehouseholdstomove ofcrisisduetotheirheavyrelianceonthecash downtheladderoffuelswhichcanhavenegativeconse- economy,joblossesandwagereductionsinurban quencessuchasindoorairpollutionwithincreaseduseof basedindustries,andnoagriculturalproductionto biomass,anddeforestationthroughcollectionoffood(e.g. fallbackon. inperi-urbanareas). · Prioritizinginvestmentsincitiescanhelptomiti- Thefinancialcrisiswillaffectdevelopingcountriesand gateimpactsintheshortrunandreducerisksinthe theurbanpoorthroughdirecteffectsfromaworsening future. · Welltargetedsafetynets,workfareprograms,and economyandjoblossesincities,aswellindirecteffects urbanagriculturecanplayanimportantrolein fromreducedremittances,andthepotentialforreduced cushioningtheimpactsfortheurbanpoorduring aidfromdonors.Countrieswillalsofacelowercommod- difficulttimes. ityprices,andmayfaceareductioninprivateinvestment flows,makingweakeconomiesevenlessabletocopewith internalvulnerabilitiesanddevelopmentneedssuchas Introduction infrastructureinvestments.ThefinancialcrisesinEastAsia Theeffectsoftherecentfinancialcrisisareonlybegin- andMexicoshowedthaturbanhouseholdsfelttheimpacts ningtobefeltinmanydevelopingcountries,buteconomic disproportionately.InMexico's1994/5"pesocrisis",urban activityisdecliningrapidlywithfarreachingimpacts. householdswithworkersinfinancialservicesandconstruc- Thiscrisiscomesatatimewhenmostcountriesarestill tionsufferedthegreatestincomedeclines(48%and35% strugglingwiththeimpactsofrisingfoodandfuelprices. respectively). Thoughglobalfoodandfuelpriceshavesoftenedsomewhat Thosecountriesthathavethusfarbeenhitthehard- inrecentmonthsfromthehighsearlierin2008,therehas estarethosewithlargecurrentaccountdeficits,andfor beenmuchvolatilityandtheyareanticipatedtoremain thosethatshowedsignsofoverheatingandunsustainable highoverthemediumterm.Itisestimatedthatthehigh rapidcreditgrowthpriortotheintensificationofthefinan- foodandfuelpricesalonehaveincreasedthenumberof cialcrisis.Ofthedevelopingcountrieswhoseeconomies extremelypoorintheworldbyatleast100million.1 havebeenhardhit,sevenareinEuropeandCentralAsia, Whileimpactsofthecrisesaffectbothurbanandrural andeightfromLatinAmerica.3Itisanticipatedthatall populations,theurbanpoorhavebeenhithardestinthis countrieswillsomehowbeaffected,thoughthosewhose recentfoodandfuelcrisis,andinpreviousfinancialcrises, economiesarelessintegratedintheglobaleconomywillbe giventheirheavyrelianceonthecasheconomy,noagri- somewhatlessaffected. culturalproductiontofallbackon,andwagereductions andemploymentlossesaturbanbasedindustries.Thishas Impacts on the Urban Poor resultedinsocialunrestinanumberofcitiesearlierin2008 alloverthedevelopingworld. Poverty Theimpactsontheurbanpoorarefeltthroughanum- Theexistingevidenceshowsthattheimpactsonpoverty berofchannels.Withregardtofoodprices,thehighcosts fromthefoodandfuelcriseshavebeensignificant.Therise directlyhitthehouseholdconsumptionbudgetsofthepoor infoodpricesbetween2007andearly2008wereestimated astheyarealmostallnetconsumers.Higherenergyprices tohaveincreasedtheshareofthepopulationinEastAsia, resultinhigherproductioncostsforarangeofgoodsand theMiddleEast,andSouthAsialivinginextremepoverty serviceswhichusefuelsuchasmanufacturedgoods,food, byatleast1percentagepoint.Theimpactontheurban andtransportationservicesthoughthisimpactisdifficult toquantify.2Thehighcostsalsodirectlyhittheurbanpoor Judy L. Baker is a Lead Economist in the Urban throughtheextracostofpurchasingfuel.Theproportionof DevelopmentUnitwiththeWorldBank. THE WORLD BANK URBAN DEVELOPMENT UNIT | DECEMBER 2008 DIRECTIONS IN URBAN DEVELOPMENT poorwasparticularlyacute,increasingtheincidenceof abouttheimplicationsforsocialstability.Theofficial urbanpovertybymorethan1.5percentagepointsinEast unemploymentrateisexpectedtorisefromaround4.0% Asia,theMiddleEast,SouthAsiaandSub-SaharanAfrica.4 nowto4.5%byyear-end,withtheoverallsituationwors- Manymorepeoplewhoarealreadypoorarefallingeven eningintothefirstquarter"(November,2008).9InUkraine, moredeeplyintopoverty.Recentback-of-the-envelope therearereportsofmajorlayoffsofsteelworkers,realestate analysisusingmicrodatafor72countriesestimatesthe agents,andthoseinthebankingindustry(October,2008).10 impactoftherisingfoodpricesonurbanpoverty,andto FromRussia,"Therearenohardnumbersforhowmany whatextentthisisattributedtonewpoor,andtothose havelostjobssincethecountry'sfinancesbeganshredding thatarealreadypoorandbecomepoorer.5Theseestimates thissummer....Russiannewsmediaarefilleddailywith considerthreealternativescenariosforfoodrelativeto reportsoflayoffs.OnepollreleasedMonday(October)by pricechangesof10%,20%,and30%duringthe2005-2008 theAll-RussiaOpinionResearchCenterfoundthat35per- period.Theanalysisindicatesthata20%increaseinfood centofRussianspersonallyknowpeoplewhohavelosttheir pricesresultsina5.8%averageincreaseintheurbanpov- jobs,with10percentsayingtheyknowofmany"(October, ertyrate,usingtheUS$2.50perdaypovertyline(whichis 2008).11InTurkey,theautomotiveindustry-oneofthe arguablymoreappropriateinurbanareasthanUS$1.25per country'slargestexports-hasbeenhithardasaresultof dayline),forthetwentymostaffectedcountriesinthedata areductioninEuropeandemandwithanumberofplants set.Thecost,estimatedasthechangeinthepovertydeficit, cuttingproduction(November,2008).InIndia,thereare isonaverage3.1percentofGDPwithcloseto95percentof projectionsofmajorjoblossesasaresultofthecrisispar- thiscomingfromincomelossesofthosethatwerealready ticularlyinconstruction,realestate,financialservices,and poorbeforethepriceshockratherthanthosethatare theautosector(November,2008). "newly"poor.Ofthosecountriesinthedatasetidentified asmostaffected,elevenwereinAfrica,alsoincludedwere Remittances and Migration thelargeSouthAsiancountriesandafewinEasternEurope andCentralAsia. Remittancesareamajorsourceofincomeformany countriesandplayanimportantroleinpovertyreduc- Vulnerable Groups tion.ForexampleinNicaragua,remittancesreducepoverty incidencebyfourpercentagepointsonaverage,andfive Thosewhoarealreadypoorwhofallintoextremepov- percentagepointsinurbanareas.Remittanceflowsfrom ertyareparticularlyvulnerablegiventhattheyhaveno hosttodevelopingcountriesbeganslowinginthesecond reservestofallbackoniffacedwithfurtherresourcedepri- halfof2008andareprojectedtodropsharplyin2009.All vation.Amongthisgroup,childrenareathighestriskof regionsareexpectedtobeaffected.LatinAmericaandthe sufferingirreversibledamagetotheirhealthandeducation Caribbeanarehighlydependentonremittancesfromthe duetomalnutrition,anddroppingoutofschooltolookfor U.S.andarelikelytobehithard.In2007,India,Mexico work.6Extensiveresearchonbothmalnutritionandlow andChinawerethetopthreerecipientsofremittances. educationalattainmentshowlastingimpacts.Poornutri- Andinsomecountries,suchasTajikistan,Moldova,Kyrgyz tionearlyinliferetardschildgrowth,cognitiveandlearn- RepublicandHonduras,remittancesaccountformorethan ingability,educationalattainmentandeventuallyearnings 25percentofthecountriesGDP.12 inadulthood.7 Reversemigrationistobeexpectedbothfromurbanto Thereisalsosubstantialevidencethatpoorwomen ruralareas,andfromdevelopedtodevelopingcountriesas andgirlsareparticularlyvulnerableduringdifficulttimes. workerscannotfindemployment.Reversalsofrural-urban Withinhouseholds,thereisgenderdisparityas,"mothers migrationpatternswereobservedinIndonesiaandThailand forgomealsandinmanycountriesboysgetpreferenceover duringtheEastAsianCrisisandforcountriesofthefor- girls."8Afinalvulnerablegroupinsomecountriesisthe merSovietUnionaftertheRussiaCrisis.Whilethiswill elderly,particularlythoselivingalone,asthefinancialcrisis reducesomeoftheexcesssupplyoflaborincities,itmay couldjeopardizethesecurityprovidedbytheirpensionsand thenbeoffsetbymigrantsreturninghomefromabroad. theymaynothaveasafetynettofallbackon. Thismeansnotonlyalossinremittances,butinsomecases additionalworkerslookingforjobsinasloweconomy. Job Losses and Reductions in Wages InMexicoCity,theMunicipalGovernmentpredictsthat Withthefinancialcrisis,growthisslowingandexports "between20,000and30,000moreimmigrantswillreturn fromdevelopingtodevelopedcountriesarereportedtobe forgoodfromtheUnitedStatesduringtheChristmasholi- declining.Thisislikelytoresultinareductioninwages daybecausetheycannotfindwork"(October,2008).13 andemployment,particularlyinurbanareas,somepushing intopoverty.InplacessuchasDhaka,Bangladesh,where Social Impacts manyofthegarmentworkersalreadyfallbelowthepoverty Urbanareastendtobemorepronetostarkinequalities line,joblossesorreductionsinwagescouldresultinhigher andproblemsofcrimeandviolence.Thehighfoodand levelsofextremepoverty. fuelpriceshaveresultedinwidespreadreportsofsocial Therecentreportsofjoblossesindevelopingcountries unrestincitiesearlierthisyearincountriesasdiverseas resultingfromthefinancialcrisisaremounting.InChina, Haiti,Mexico,Peru,Egypt,Morocco,Afghanistan,Yemen, reducedforeigndemandforChinesegoodshascausedsome Bangladesh,BurkinaFaso,Cameroon,Senegal,Mauritania, closureandjoblossesincities."Companieshaveclosed Mozambique,Guinea,andIndonesia.Reportsofriots, alongtheeasterncoastalbelt,withmorefailuresexpected propertydestructionandevendeathhavepromptedarange overcomingmonths,leavingBeijingincreasinglyconcerned ofGovernmentresponses. 2 DECEMBER 2008 havelongtermeconomicbenefitsandgeneratesemploy- Reports of Recent Social Unrest in Urban Areas Due ment.Investmentsinhealthandeducationbuildhuman to Rising Prices capital,andwillmitigatethepotentiallongtermnegative consequencesofmalnutritionandschooldropout.Well- Mexico City, Mexico designed,targetedsafetynetscancushiontheimpactson "InJanuary2007,the`tortillariots'brokeoutinMexicoCity. thepoor,enablehouseholdstomaintainabasicstandard 70,000peopleriotedagainstincreasedcornprices."14 ofliving,andcurtailsocialunrest.Finally,thereismuch evidencethaturbanagriculturecanalsohelptomitigate African Cities InFebruaryof2008riotsbrokeoutinthreemajortownsin theimpactsofcrisesthroughtheproductionofadditional BurkinaFaso­Bob,Ouhigouya,andBanfora­inresponse incomeandfoodforhouseholds.Implementingsuchstrate- torisingpricesoffood,clothes,andgasoline.Government giesinurbanareaswillrequireaconcertedeffortandgood buildingsweredestroyedandmanyinjured.Protesters collaborationbetweennationalandlocalGovernments. blamedgovernment'srecentcrack-downenforcingcollection ofcustomtaxesfrommerchantsimportingfoodandtheglobal risingwheatprices.15Governmentannounceditwouldlower Maintaining Investments in Cities taxesonbasicgoodsby30-35%.RiotsbrokeoutinCameroon Lessonsfrompreviouscriseshighlighttheimportanceof afewdayslaterinstigatedbytaxidriversoverfuelpricesthat safeguardinginvestmentsinlongtermdevelopment.21This escalatedintoaprotestoverfoodpricesfollowedbyriotsin SenegalandMauritania.16 includesinvestmentsininfrastructureasisoutlinedunder theWorldBankSustainableInfrastructureActionPlan Port-au-Prince, Haiti (SIAP)aswellasinhumancapital.Citiesrelyoninfra- InApril,2008,majorriotsoccurredinPort-au-Princein structureforeconomicgrowthandpovertyreduction,and responsetoincreasedfoodpriceslastingoveraweekand resultingintheresignationofthePrimeMinister.Theprice onawell-trained,healthyworkforce.Withinthiscontext, ofrice,beans,andfruit,amongotherstaples,increasedby targetinginvestmentsforthepoorduringtimesofcrisis, 50%inaoneyearperiod.17Foodshortagesandstarvationare andusinglaborintensiveapproachesasisdoneinworkfare becomingwidespreadasresidentseatclaymixedwithbut- programscanhelptomitigateimpactsintheshortrunas terandsalttofighthunger.Haitiimplementedatemporary wellasreducerisksinthefuture.Programssuchasslum responseusinginternationalaidmoneyandpricereductions byimporterstocutthepriceofasackofsugarby15%.18 upgradingwhichinvestinprovidingwaterandsanitation, electricityandroadstotheurbanpoor,andinvestmentsin Mahalla El-Kobra, Egypt basiceducation,healthandnutritioninlowincomeurban RiotsbrokeoutintheEgyptianindustrialcityintheNile- areas,havedemonstratedlongtermbenefitsforthepoor. Delta,MahallaEl-Kobra,fortwodaysinApril2008withriot- ersprotestedhighfoodpricesandlowwages.Asanimme- Social Safety Nets for the Urban Poor diateresponse,Governmentisgivingbonusesof30-daysof wagestoworkers.19Inresponsetoincreasedpricesinwhat, Thetypeofsafetynetsavailableinurbanareasvaries Egyptsubsidizesitsbread­howeverlinesforsubsidizedbread substantiallyfromcountrytocountryandevencitytocity, areincreasingandcorruptbakerstrytosellsubsidizedflour onblackmarketforhigherprices.Asaresponsetotheshort- withsomeoperatedthroughnationallevelprograms,and ageofsubsidizedbread,theEgyptianmilitaryisbeingputto othersoperatedmorelocally.Whileitisdifficulttoquan- worktobakebread. tifywhetherthereisanurbanorruralbiasinthesepro- grams,inmanyplacestheproportionofpoorisoftenhigher Dhaka, Bangladesh OnApril28,2008,20,000textileworkersprotestedrising inruralareasandthusprogramsareorientedaccordingly. foodpricesintheoutskirtsofDhaka.Bangladeshioffi- Itcanalsobedifficulttoreachtheurbanpoorastheyoften cialslaunchedaruralemploymentprogramforthepoorin liveininformalsettlementsandtendtobemoretransient response.20 thanruralpopulations.Amongthemorepopularsafetynet programsareConditionalCashTransfers(CCTs),workfare programs,feewaivers,andtargetedcashorin-kindtransfer schemes(e.g.fooddistribution,foodstamps,orvouchers) Responses to the Crises, an Urban Perspective allofwhichcouldbescaledupinurbanareasduringtimes TheapproachtothecrisesadoptedbytheWorldBank ofcrisis.22Itisnaturallyeasiertoscaleupanexistingsafety hasbeentosubstantiallyincreasefinancialsupportfor netprogramthantodesignanewone,butsomecountries developingcountriesthatwillprotectthepoorestandmost havebeenabletouseacrisisasanopportunitytoeliminate vulnerablefromharm,supportcountriesfacingbigbudget ineffectiveprogramsandreplacethemwithbetterdesigned short-falls,andhelpsustainlong-terminvestmentsupon programs. whichrecoveryandlong-termdevelopmentcanbebuilt. Conditionalcashtransfersareparticularrelevantintimes Theseincludeproductiveinvestmentsininfrastructure, offinancialcrisiswhenpoorfamiliesmaydeemitnecessary healthandeducation,andinsocialsafetynetsforthemost towithdrawchildrenfromschooltoseekemployment.By vulnerable.Manycountrieshaverespondedtohighfood providingsomeincentivetokeepchildreninschooland andfuelpricesthroughtaxreductionstooffsethigherprices provideatransfertohouseholds,thereissubstantialevi- andincreasedspendingonsubsidiesandincomesupport. dencethattheCCTapproachresultsinshorttermaswellas Theseprograms,however,areregressive,expensive,and longtermbenefitsfromtheadditionalschoolingandhealth verydifficulttoremoveonceinplace. care.CCTprogramdesigninurbanareasmustfacechal- Theprinciplesfordesigningpoliciesandprogramsfor lengesdifferentfromruralareasintargetingduetomore addressingshocksdonotdifferfortheruralandurban heterogeneousneighborhoods,informalityofjobsandhous- poor.Publicinvestmentininfrastructurehasshownto ing,andfeasibilityofusingbanksfortransfers. 3 DIRECTIONS IN URBAN DEVELOPMENT Workfareprogramsorlaborintensivepublicworks ensuringsafeproductiontomitigatehealthandsanita- projectscanalsobeparticularlyeffectiveinurbanareasto tionproblemscausedbywastewater,theuseofchemical provideincomesupportandemployment,providesome fertilizersandwastefromanimals.Italsorequiressome on-the-jobtrainingforunskilledworkers,andconstructor oversightthaturbanagricultureislocatedonappropriate rehabilitatepublicinfrastructure.Awellknownworkfare landsanddoesnotinterferewithlandandhousingmarkets. projectisTrabajarinArgentinawhichwassetupfollowing TheWorldBankanddonorscanhelpbyprovidingtechni- thepesocrisis(1999)andinvestedinsmallscalecommunity calassistance,andnecessaryinfrastructureinvestments projects.Theprogramtargetedpoorhouseholdsbyuseofa throughoururbanandotherrelevantprojects. lowwagerate,supplementedbyaprojectselectionprocess thatgeographicallytargetedpoorareastoreceiveprojects. Endnotes Thebasicprinciplesoftheworkfareprogramsdonotdiffer substantiallyfromsomeoftheurbanupgradingorcom- 1WorldBank,2008,GlobalFinancialCrisisandImplicationsfor munitydevelopmentprojects.TheUrbanPovertyProject DevelopingCountries,G-20FinanceMinister'sMeeting. 2Simler,K.,2008,"Assessingthepovertyanddistributionalimpactsof inIndonesiawasoriginallysetupfollowingthe1997finan- higherfuelprices",draft,mimeo. cialcrisisandwasdesignedtoimprovebasicinfrastructure 3 WorldBank,2008,GlobalFinancialCrisis:RespondingToday, inpoorurbanneighborhoodsandtopromotesustainable SecuringTomorrow,BackgroundPaperfortheG-20FinanceMinister's incomegenerationforpoorurbanresidentswhohadbeen Meeting. 4Ibid affectedbytheeconomiccrisis.Itwasnotexclusivelyset 5Dessus,S.,Herrera,S.andR.deHoyos,"TheImpactofFoodInflation upasaworkfareprogrambuttheinfrastructuregrantscom- onUrbanPovertyandItsMonetaryCost:SomeBack-of-the-Envelope ponenthadsimilarobjectivesandoutcomes.Theprogram Calculations",forthcoming,Ag.Ec.Themicrodataarepartofthe wasseentohaveachieveditsgoalsandhascontinuedwith GlobalIncomeDistributionDynamics(GIDD)model.Thewelfare indicatorisexpressedin2005PPPdollarsforconsistencywiththe anexpandedandlongertermapproachtoaddressingurban US$1.25and$2.5dollarsperdaypovertylinesdevelopedbyRavallion povertythroughcommunityinterventions.Similarly,cur- andChen(2008). rentandplannedslumupgradingprogramscanbedesigned 6WorldBank,"RisingFoodandFuelPrices:AddressingtheRisksto toachieveshorttermincometransfersthroughlaborinten- FutureGenerations"October,2008,HumanDevelopmentNetwork, PovertyReductionandEconomicManagementNetwork. siveworks,andlongerterminvestmentsincommunity 7FerreiraandSchady,2008,andAlderman,Hoddinott,Kinsey,2006. infrastructure. 8WorldBank,"RisingFoodandFuelPrices:AddressingtheRisksto FutureGenerations"October,2008,HumanDevelopmentNetwork, Scaling up Urban Agriculture PovertyReductionandEconomicManagementNetwork. 9AssociatedPress 10 UrbanAgriculturecanbeaveryimportantsourceof OxfordAnalytica,November,2008, 11ForbesMagazine,October,29,2008. additionalincomeandfoodforhouseholds.Itcanreduce 12WorldBank,2007RemittancesReport. consumptionofmoreexpensiveimportedfoodproducts, 13AssociatedPress reducetransportcosts,provideproductsthatarehighly 14Dawson,Ashley"ResistingtheGlobalizationofFood"December20, perishable,generateincomeandemployment,andhave 2007CounterPunch.Petrolia,CA. 15IRIN.(Feb22,2008)"BurkinaFaso:FoodRiotsShutDownMain importantimpactsonenvironmentalsustainability.Itis Towns"IRIN,HumanitarianNewsandAnalysis,Ouagadougou, estimatedthatsome15%oftheworld'sfoodisproducedin 16Walt,Vivenne.(February27,2008)"TheWorld'sGrowingFood- urbanareasandthiscouldbescaledupevenfurther,with PriceCrisis."TIMEMagazine.USA. 17 hugepotentialbenefitsforthepoor.Morerecentestimates BBC(April5,2008)"FoodRiotsturndeadlyinHaiti."BBCNews. London,UK forWestAfrica,forexample,suggestthatatleast20mil- 18Lacey,Marc(April17,2008)"HungerinHaitiincreasingrapidly" lionpeople--ofanurbanpopulationof100million--live InternationalHeraldTributePort-Au-Prince,Haiti. inurbanhouseholdsengagedindifferentformsofurban 19USAToday,"Egypttriestoeaseunrestoverfood"USATodayApril, agriculture.Inmanycitiestheyproduce60%to100%ofthe 8,2008,MahallaEl-Kobra,Egypt 20Watts,Jonathan,"Foodriotsofthe21stcentury"Mail&Guardian consumedperishablevegetables.Manyofthesubsistence Online.Johannesburg,SouthAfrica.January4,2008 farmersarewomen,operatinggardenplotsthatoftenarein 21G-20Paper. low-density,illegalorinformalsettlements.23 22SeeGuidanceforResponsesfromtheHumanDevelopmentSector Therearecurrentlyanumberofinitiativestoscale toRisingFoodandFuelPrices,2008,andGrosh,DelNinno,Tesliuc, andOuerghi,2008,ForProtectionandPromotion:TheDesignand upurbanagricultureincountriesasdiverseasSriLanka, ImplementationofEffectiveSafetyNets. Argentina,Brazil,Mexico,SierraLeone,SouthAfricaand 23Drechsel,P.,GraefeS.,SonouM.,andCofieO.O.2006.Informal China.Thisrequiresinvestmentsbymunicipalitiesin IrrigationinUrbanWestAfrica:AnOverview.ResearchReport102. Colombo:InternationalWaterManagementInstitute. Contact the World Bank Urban Development Unit in CopiesofthisNoteareavailableat: UrbanDevelopmentUnit,TheWorldBank Telephone:202-473-0409,Fax:202-522-3232 Development http://www.worldbank.org/urban urbanhelp@worldbank.org Ifyouareinterestedinsubmittinganarticleforconsideration,pleasecontactusattheemailaddressabove. DIRECTIONS Urban TheviewsexpressedinDIRECTIONSinUrbanDevelopmentarethoseoftheauthorsanddonotnecessarily reflectthoseoftheWorldBank. 4