"New approaches to managing Latin American cities would help them realize their economic potential and provide a good quality of life for citizens. Managers of cities can choose practical options to improve their performance on each of the four dimensions that together make them dynamic, safe, and prosperous.
While national policies—including regulation—significantly influence how cities are run, local policy choices are also very important to their economic performance. To underpin a stable environment conducive to strong local economic development, city policy makers should consider prioritizing these issues:
Transparent land ownership and zoning regulation. When businesses consider where to locate, critical factors include the regulatory framework governing land titles and ownership transfers. Uncertainty about these or zoning regulations can translate into high costs for “titled” land and discourage global businesses from investing.6 In many Mexican cities, for instance, ambiguous land ownership continues to inhibit long-term investment because untitled land or buildings cannot be used as collateral for mortgages.
Reliable urban infrastructure. Chronically underfunded public utilities in many of the region’s cities have led to unreliable and often costly public services. Every winter, for example, Argentina has severe electricity shortages, which many analysts blame on heavily regulated utility tariffs. Since the government froze them in 2001, private utility companies have limited maintenance and investment in unprofitable new capacity. Latin American cities need to step up investments significantly not only in energy supply but also in transport, housing, power, water, and waste management to avoid bottlenecks and capacity shortfalls.
Intercity transportation networks. In Asia, regional production locations are closely connected to one another within global value chains, but Latin American cities in different countries rarely have strong transport and trade links. In fact, many of these cities have better flight connections to the United States and even Europe than to one another. If they were better connected, they (like close-knit Asian production hubs) could benefit from collective economies of scale and opportunities for complementary specialization.7 This could help change the region’s economic dynamics.
An urban environment that attracts and retains skilled people and improves the well-being of its citizens will lure businesses looking to invest.
Public safety. In many Latin American cities, public safety is a serious issue. Cities looking for ways to improve theirs might examine New York’s experience. In the 1990s, the New York Police Department implemented a seven-pronged strategy to reduce crime rates. The result has been a decrease in the number of homicides each year, from 2,420 in 1993 to 1,550 in 1995 and 778 in 2009.
Accessible housing. Good planning that reduces commute times improves the quality of life for urbanites and increases productivity by cutting fuel consumption and time spent in cars. Reorganizing the distribution of living and working districts is a challenge in most of the region’s urban areas, however. Mexico City, for instance, will probably have to shift from horizontal to vertical construction to meet its housing needs.8 The city must relocate population from the periphery to the center and thus increase its urban density to use existing infrastructure, such as mass transit, more efficiently. Harmonizing municipal land laws and regional transport projects with housing policy is crucial.
Efficient public transportation. Improving the capacity, efficiency, and cost effectiveness of urban transportation is a major challenge, but again the region has examples of best practice. In Curitiba, 54 percent of all journeys are on public transport—that’s 1.3 million passengers a day. In addition, the city has a per capita GDP 1.4 times Brazil’s average, a lower unemployment rate than the country as a whole, and 55 square meters of green space per resident (compared with the World Health Organization’s recommended area of 16 square meters).9
High-quality education. For both economic and human-welfare reasons, cities should continue to make extending access to education a priority. Santiago, after significant efforts to improve its school system, boasts the highest OECD Programme for International Student Assessment (PISA) results among its regional peers in our Urban Performance Index (UPI). Santiago’s initiatives include an extended school day and an innovative certification program that encourages higher quality and constant improvement in the teaching profession. Chile’s teacher certification system varies pay according to performance.
Public–private partnerships to improve access to public services. When the management and financing of the public sector fall short, public–private partnerships are an attractive way to improve urban services. Latin America has innovative examples, including Colombia’s Vive Digital plan to quadruple broadband penetration, both fixed and mobile, in just four years.
Sustainable resource use
While densely populated urban centers are usually more environmentally efficient than dispersed ones or rural areas, most cities waste resources and generate unnecessary pollution because of poor management or misaligned incentives. Fortunately, cities have proven, cost-effective opportunities to incorporate environmental sustainability in their economic- and social-development plans.
Improve energy productivity. Cities should manage demand for resources rather than focus on building a (much more costly) new supply infrastructure to keep pace with unchecked demand. The key is to boost the level of output achieved from the energy consumed—that is, energy productivity.10 To reap its full benefits, cities need to impose energy use standards and to offer incentives, backed by rigorous monitoring and enforcement, for reducing wasted energy.
Cities can set energy efficiency standards through building regulations, including codes requiring improved insulation, or by requiring energy-efficient lighting in new buildings. They can use incentives to encourage investment in energy-efficient industrial appliances, equipment, and lighting, as well as improved fuel efficiency in car fleets. By boosting energy productivity, Latin America’s cities would generate positive returns from future energy savings and free up resources to invest elsewhere.
Set green standards for urban demand. Collaboration among the region’s cities is another untapped opportunity. As bulk buyers of a broad range of goods and services, they could use their collective buying power to foster green standards. Cities that pool purchases from a supplier could both reduce their costs and increase demand for new technologies and solutions, incubating the growth of local suppliers and promoting green standards. Latin America has many examples of such initiatives. The Plan Verde in Mexico City has already reduced the city’s carbon emissions by almost six million metric tons (10 percent) since 2008 through measures such as upgrading the city’s public transit and taxi fleet to newer, more fuel-efficient vehicles and reducing the sulfur content of gasoline.
Improve urban distribution. The inefficient distribution of goods around Latin America’s cities contributes significantly to air pollution. Their travel and distribution infrastructures have failed to keep pace with growth, a pattern not uncommon in large cities around the world. Our analysis finds that traffic congestion and the carbon dioxide emissions of trucks could fall as much as 30 percent—at very low cost—by making the distribution of goods more operationally efficient.11
Make waste management profitable. Most waste-management systems in Latin America are ineffective because they neither encourage the public to reduce waste (by charging for the weight or number of bags) nor treat it sustainably. Most of it ends up in landfill sites, some of which are approaching full capacity. Solving this issue is not a simple task, but local government can act to promote the reduction, reuse, and recycling of waste.
Sound urban governance
Cities are highly complex to run. Their day-to-day management depends on strong leadership, effective and systematic urban planning to make the most sensible use of scarce resources, and sound finances.
Long-term planning and coordination. Many Latin American cities don’t have a single governing body that is both responsible and accountable for results. Rather, they have a fragmented management structure that splits responsibilities among the various layers of governance (city, county, state, and federal) and among different authorities for specialized services, such as housing or transportation. Lack of coordination among all these components of urban governance exacerbates inefficiency and wastes resources. Integral planning that resembles its private-sector counterpart and includes rewards tied to achieving goals lies at the core of a new approach being adopted in Latin America. Rio de Janeiro, for example, has given the mayor’s staff a set of financial and nonfinancial incentives to achieve success in 50 initiatives in four categories—economic, political, social, and environmental.
Sustainable, responsible fiscal management.A low rate of overall investment has chronically impeded the region’s growth, particularly in cities, which should build infrastructure ahead of, rather than behind, the curve of demand. The main sources of revenue to finance it include higher property taxes, charges from users of publicly funded services, and public–private partnerships that mobilize capital from both sides and exploit the private sector’s experience in using resources efficiently and minimizing risks. When public funding is insufficient, such partnerships can be an attractive alternative for financing and running infrastructure projects. Santiago—and indeed Chile, more broadly—has a number of sophisticated public–private partnerships for investments in highways, airports, stadiums, and even emergency services.MGI has drawn on tried and tested success stories from Latin America and around the world to identify tangible actions the region’s urban leaders could take to address the most important issues they face. McKinsey’s experience shows that effective policies can turn around a city’s fortunes, sometimes in only ten years. If the number and productivity of urban jobs improves in cities of all sizes, Latin America’s young population can help to fuel growth in the long term."