3 COMPETITIVE CITIES FOR JOBS AND GROWTH 101713 COMPANION PAPER 3 SIX CASE STUDIES OF ECONOMICALLY SUCCESSFUL CITIES Z. Joe Kulenovic and Alexandra Cech December 2015 2 TABLE OF CONTENTS Background and Acknowledgments 5 Executive Summary 6 City competitiveness: General or specific? 6 Strategic planning 7 Implementation framework 7 1. Key Concepts: Framing the Analysis 8 Identifying and selecting “competitive” cities 8 City typologies 8 Case study cities 9 What do these cities exemplify? 11 2. Analysis: What Have Successful Cities Done—and How? 11 3. Strategies and Interventions 14 Strategic planning for economic development 14 Observed interventions and the reasons for their success 16 4. Insights for Other Cities 24 City competitiveness: General or specific? 24 Institutional framework 25 Strategic planning 25 Interventions 26 References 28 Appendix Hypothesis for Competitive Cities Case Studies 29 3 4 BACKGROUND AND ACKNOWLEDGEMENTS I nterest in studying city competitiveness has skyrocketed The objective of this paper is to synthesize the findings of in the past few years, although the topic itself is far from six individual case studies (Bucaramanga, Colombia; Coim- new. Mayors and city leaders have long worried about batore, India; Kigali, Rwanda; Gaziantep, Turkey; Changsha, the obstacles to job creation, competitiveness, and economic China; and Tangier, Morocco) by analyzing the similarities growth that plague their cities. and dissimilarities among them and identifying common, cross-cutting themes. The intent is to highlight what insti- This paper is part of a broader research initiative, the Com- tutions and strategies successful cities have relied on to spur petitive Cities Knowledge Base, which is managed jointly economic development, under what conditions such success by the Trade and Competitiveness Global Practice and the has occurred, and what lessons of this experience might be Social, Urban, Rural, and Resilience Global Practice of the applicable to decision makers in other cities. World Bank Group. Its objective is to create a knowledge base on competitive cities, to improve the understanding of job The individual case study reports, which appear in the ap- creation at city level and as a foundation for a community of pendixes, were based on primary and secondary research, in- practice on this topic for World Bank staff, academia, donor cluding approximately two to three weeks spent in each city partners, and practitioners. during 2014. For each case study, interviews were organized with national and local government officials, members of Our attempt in this initiative has been to focus our energies the city’s business community, academia, and various other on bringing to our clients a robust body of knowledge that stakeholder groups. The reports also incorporate World Bank will address their questions on benchmarking their perfor- staff feedback received at several review events in Washing- mance, on understanding what has worked elsewhere and ton, D.C. what has not, and on looking at ways to organize for delivery in different contexts. This report was prepared by Z. Joe Kulenovic and Alexandra Cech, with input and suggestions from Drilon Gashi, Luke Our approach has focused on using different methodologies Jordan, Austin Kilroy, Megha Mukim, and T. Juni Zhu, as to tackle these questions. These methodologies are based on well as World Bank staff members in country offices where best practices, data availability, replicability, and simplicity. these cities are located. The joint team task leaders of the In many cases, we leveraged new and existing data sources Competitive Cities Knowledge Base project are Austin Kilroy to shed new light on some unanswered questions; in others, and Megha Mukim. Stefano Negri, Sameh Wahba, Ceci Sager, we have conducted primary research because available data and Somik Lall have provided overall guidance on the project were inadequate. We looked at global and regional trends, as senior advisers. comparing different typologies of cities by income, sector, re- gion, and so on. And we have buttressed these findings with The team would like to acknowledge gratefully the European econometric deep dives and case studies in selected countries Commission; the African, Caribbean, and Pacific Group of and cities. We are able to inform the ongoing debates on what States Secretariat; and the governments of Austria, Norway, really matters for economic outcomes in cities with analysis and Switzerland for financing this study through the Com- of overarching trends and associations, supplemented with petitive Industries and Innovation Program. rigorous analyses to identify causal relationships. We also try to “stand on the shoulders of giants” where possible: that is, we use and reference existing resources (research, analysis, toolkits, and experts). The summary findings of the overall research are presented in the framework report Competitive Cities for Jobs and Growth (World Bank, 2015). 5 EXECUTIVE SUMMARY A lthough every city in the world is striving to create export promotion initiatives). These cities used extensive jobs for its citizens and improve economic growth, no dialogue and a solid fact base to anchor their priorities in real single path leads to economic success. Our in-depth comparative advantages, thus minimizing the ever-present study of six economically successful cities from different risk of capture and market distortion (such as subsidies or parts of the world (Bucaramanga, Colombia; Coimbatore, protectionist measures) and eventually showing the enviable India; Kigali, Rwanda; Gaziantep, Turkey; Changsha, China; ability to let the losers go when some sectors were recognized and Tangier, Morocco) uncovered how each of these cities has as not globally competitive. pursued its own path to prosperity, taking into account— consciously or unconsciously—its own particular competi- Several of these successful cities had a main theme—one tive advantages, existing constraints, national policies, local area where they particularly excelled and for which they administrative scope and capacity, overall market trends, and wanted to be recognized. For example, in Kigali, the focus even administrative and cultural traditions. These six cities was on improving city livability and postconflict reconstruc- are as different from each other as they are successful. Along tion; Coimbatore is almost synonymous with its mechanical their path to success, they tackled very different challenges engineering sector; and Gaziantep is all about export-driven that in their diversity may be comparable to those encoun- growth, especially for select products such as carpets or tered by the majority of other cities worldwide. pasta. Changsha is the only high-income city in this group, and it has developed a world-class construction machinery The case studies were carried out by relying on a set of industry. Tangier now has Africa’s largest port and provides standardized research hypotheses, thereby ensuring the an example of a city successfully leveraging its geography and comparability of findings among the six cities. This executive national government initiatives to become a player in logis- summary is therefore presented in a format that is based on tics, auto manufacturing, and aerospace. Finally, Bucaraman- those hypotheses; the report’s main body provides more de- ga exemplifies the transition from commoditized manufac- tail and explores individual themes that this summary does turing to the new knowledge-based service economy. not address. The proactive efforts of all six cities emphasized the produc- City competitiveness: General or specific? tion of tradable goods and services. This focus translated into dedicated initiatives for those sectors. Nonetheless, nontrad- No real-world trade-off seems to exist between cities striving ables remain the mainstay of many of these metropolitan to have a favorable overall business climate and those target- economies and their employment, and nontradable sectors ing individual sectors for proactive economic development were not ignored in identifying priority interventions to spur initiatives. Most cities successfully did both. Regardless of job creation—they were just treated differently. The evolution whether public or private sector entities led their economic from a closed, inward-looking economy to one mostly focused development efforts, all six cities prioritized the provision on global markets is a gradual one. of basic enabling infrastructure and municipal services as necessary to attract and retain investment. Wherever prac- These high-performing cities have nurtured not only in- tical and within the city’s scope to do so, bureaucracy was vestments but also new business starts and the growth streamlined, issuance of permits and licenses was simpli- of existing firms. Although the attraction of high-profile fied and expedited, and some services were enabled online. outside investors has garnered the most attention for these Offering an environment conducive to business formation cities, most jobs are actually created through the growth of and growth was seen as crucial in all six cities and benefited existing firms, sometimes in supplier relationships with the all industries. At the same time, most cities did target specific new investors. The formation of new businesses is said to be sectors for economic development with explicit support for supported by all six cities, yet limited evidence exists that their growth (for example, by providing dedicated training this third pillar has been a major component of their recent programs, marketing efforts, targeted infrastructure, or growth. 6 Strategic planning Implementation framework The six case studies paid particular attention to visible in- The level of autonomy (fiscal, institutional, and political) and flection points in the cities’ economic performance over time powers enjoyed by the government or local economic develop- and to whether they could be attributed to specific proactive ment authority of these cities—the “mayor’s wedge”—has been interventions. Although establishing causality is seldom somewhat of a factor in their ability to push through interven- a straightforward process, examples of strong temporal tions that improved economic outcomes, though not necessarily correlations have been found in several instances, suggesting a decisive one. Some cities did not have a dedicated economic that a more activist approach to economic growth, when well development agency or department with sufficient autonomy executed, may be part of the explanation. and funding. Most of the case study cities used some sort of strategic Internal management processes within city governments were planning for economic development, even if that strategy was very important in only a couple of case study cities (Kigali and not always formalized in a document or developed through a Changsha). Most cities did not rely heavily on such internal structured process. Strategy development was often based on structures and arrangements because their overall approach to robust analytics to assess competitive advantages and market economic development involved other groups of stakeholders opportunities, as well as on a consultative process involving (particularly private sector firms and their associations, or even businesses and other stakeholders in identifying key econom- broader citywide coalitions) to a much more substantial degree. ic development issues and constraints to growth and, some- times, in formulating a shared long-term vision for the city. Private for-profit firms, their associations, and other stakehold- er groups were highly involved in implementing city economic All of the case study cities used some form of public-private development strategies and interventions, though not to the dialogue, which had a visible bearing on their economic same extent in all cities. Their involvement included but was outcomes. Several cities assembled “growth coalitions” by not limited to providing financial and in-kind resources, acting bringing together government agencies and diverse external as the city’s public champions, collaborating with educational stakeholder groups from civil society and engaging these institutions to train workers and design adequate programs, and coalitions in providing input on key issues and in making in some cases (most dramatically in Coimbatore) actually leading suggestions for addressing those issues. local development efforts. Only limited evidence suggests that these cities used a struc- Path dependency is not destiny: some cities inherited advantages tured process for evaluating policy priorities and trade-offs (such as educational institutions, strong local identities, cultures between different public investment alternatives, such as conducive to business, and the like), whereas others did not. Still, cost-benefit analyses. Interventions were largely undertaken successful cities made the most of what little they may have had on the basis of available funding and in response to evolving to power ahead of competitors. A common theme across all six opportunities; they were not evaluated against the benefits cities is that they successfully worked with what they had going that could have accrued from alternative courses of action. for them as a competitive advantage (for example, skilled people, geography, language, cultural ties, technical know-how, existing Depending on their specific institutional frameworks for eco- industry base, or product and market knowledge). nomic development, not all cities had robust or sustainable funding mechanisms in place. In general, cities where public Successful cities seized on opportunities when they presented sector entities had primary responsibility for these activities themselves and created their own opportunities where none had a somewhat higher degree of funding stability; in some arose naturally. In general, they forged their own paths and cities, economic development received no public funding at pursued growth where it made sense, rather than jump on band- all, but because of their great importance, initiatives received wagons and follow the latest economic development fads (such 7 the support of private business membership organizations. as biotech, software, clean technology, and the like). 1. Key Concepts: Framing the Analysis set of macroeconomic conditions and national policies did not offered useful lessons regarding potential strategies and Identifying and selecting “competitive” cities effective levers that could be used at the metropolitan level to improve economic growth.2 What exactly is meant by competitiveness at the city level? We define a competitive city as a city which uses resources at City typologies its disposal to facilitate firms and industries to grow jobs, productivity, and incomes over time. For the purpose of these The six economically successful cities included in the case case studies, cities have been assumed to be competitive if studies are quite diverse. This diversity was purposefully they have enjoyed success in expanding metropolitan gross sought when the case studies were selected to increase the domestic product (GDP) and creating jobs. Emphasizing that applicability and replicability of these cities’ experiences for this competitiveness is observed through a rearview mir- the World Bank’s varied clients across all regions and income ror—that is, it reflects robust past performance and cannot levels. predict future economic performance—is important. Predict- ing future performance is not the objective of this analysis. The six cities have different economic structures, population sizes, roles in their respective national economies, levels of What constitutes success for a metropolitan economy? De- development and income, governance and institutional struc- pending on the specific focus, one can define a successful city tures, competitive advantages, and cultural contexts. Each as broadly or as narrowly as one likes.1 In this context, the lies in a different geographic region of the world, operating focus is very much on economic development, not broader under different kinds of political and legal systems. In other social indicators that are important but fall outside the im- words, these cities are as varied as the countries and regions mediate scope of this analysis. Cities were deemed successful in which they are located. These six cities are thus in a very if they outperformed their national economies as well as real sense a microcosm of the entire world, at least as far as outperforming other cities in that geographic region of the its urban dimension is concerned. world in terms of GDP and employment growth. But to pro- duce case studies yielding useful teachable moments, these In terms of population size, most of the case study cities are successful cities also needed to offer examples of specific midsize by global standards. They mostly have metropolitan challenges that were overcome or historic opportunities that area populations between 1 million and 2 million, except for were seized to jump-start economic growth and job creation. Coimbatore (2.2 million) and Changsha (6.6 million). With Understanding how these high-performing cities were able the sole exception of Changsha, which is substantially more to achieve high levels of growth while others facing the same populous than the others, the cities in this sample are large enough to be emerging economic hubs yet compact enough Map 1.1 City GDP per capita in 2012 Gaziantep Tangier US$5,902 US$2,661 Changsa US$15,340 Coimbatore Bucaramanga US$3,046 US$11,529 Kigali US$1,380 8 for most of their key decision makers (from both the public and private sectors3) to personally know each other and inter- Case study cities act directly on an almost daily basis. Perhaps unsurprising given their locations on various con- Except for the sole capital city in our sample (Kigali), all the tinents, the six case study cities operate in very divergent cities are secondary metropolitan areas. As secondary cities, environments in the area of institutions and governance. most of the metropolitan economies studied do not play The sample includes cities in highly centralized countries dominant roles in their respective national economies. Many (Morocco, Rwanda, and Turkey); highly decentralized ones of them are geographically remote or somewhat isolated from (Colombia); and very large countries where some functions the political capitals or major economic hubs of their coun- are concentrated at a subnational level higher than the city tries and so have had to be largely self-reliant for production (China and India). In practice, economic development func- and local development. All but one (Tangier) are landlocked tions are carried out by a range of institutional actors at vari- and so do not enjoy the transportation and logistics advan- ous government levels (national, state or provincial, regional tages associated with a maritime location. or departmental, local) or in the private sector. The six case study cities span a range of income levels, from The cities studied have very different economic structures, low to middle to high. For example, Changsha has roughly and a range of specific industry sectors driving their growth 11 times the per capita income of Kigali. According to the are documented in the case studies.4 Some cities’ economies classification used in the World Development Report 2009 are highly manufacturing intensive (Changsha, Gaziantep), (World Bank 2009), two case study cities would roughly fall whereas others are relatively diversified (Bucaramanga, into the category of market towns, with GDP per capita of ap- Coimbatore, Tangier); Kigali has a largely preindustrial proximately US$2,500 or less; the others would be considered economy dominated by nontradable services and some production centers, with GDP per capita between approx- tourism. None of the case study cities has an economy based imately US$2,500 and US$20,000 (see map 1.1). One city, primarily on extractive industries (natural resource wealth), Changsha, would be on the verge of becoming a creative and major military installations, or other nonreplicable economic financial service center, the last and most developed category. advantages. We avoided studying cities benefiting from path The differences between the cities in physical infrastructure, dependency in ways that are highly specialized and therefore industrial structure, research and financial resources, levels not likely to offer teachable moments for other cities around of human capital, and nature of developmental challenges the world. See table 1.1 for selected indicators. faced provide a highly representative sample of the situations World Bank clients typically encounter. 9 Table 1.1 Selected indicators by city Indicator Bucaramanga Changsha Coimbatore Gaziantep Kigali Tangier Country Colombia China India Turkey Rwanda Morocco National adminis- Decentralized Centralized Decentralized Decentralized Centralized Centralized trative system unitary republic unitary republic federal republic unitary republic unitary republic unitary mon- archy Subnational ad- Departments Provinces States, districts Provinces None Regions, prov- ministrative units inces/ prefec- tures Local administra- Bucaramanga Changsha City Coimbatore Gaziantep Unknown Urban Commu- tive units Metropolitan Municipal Cor- Metropolitan nity of Tangier Area, four mu- poration Municipality, nicipalities three munici- palities Population, 2012 1.1 6.6 2.2 1.2 1.1 0.83 (millions) GDP, 2012 12.8 101.1 6.7 7.0 1.5 2.2 (US$ billions) Income status Upper middle High Lower middle Lower middle Low Lower middle Per capita GDP, 11,529 15,340 3,046 5,903 1,380 2,661 2012 (US$) Per capita GDP, 149 256 222 56 218 89 2012 (% of nation- al average) Absolute GDP 14.9 96.4 82.1 34 64.6 11.3 growth, 2007–12 (%) Average annual 5.8 14.5 11.5 6.3 11.7 4.9 GDP growth, 2002–12a (%) Job growth, 2007– 26.3 38.8 7.3 39.0 33.7 4.0 12 (%) Average annu- 2.9 6.3 3.2 3.6 8.0 2.9 al job growth, 2002–12 (%) City Gini coeffi- 0.62 0.53 0.52 0.38 0.70 0.48 cient City employment 0.24 0.26 0.27 0.25 0.22 0.26 diversification (HHI),b 2012 Main existing and Food, health Manufacturing, Business pro- Carpets, light Tourism, non- Logistics, auto, emerging econom- care, apparel, heavy engineer- cess outsourc- manufacturing, traded services, aerospace, ic sectors footwear, edu- ing, tradable ing, precision apparel, agroin- construction medical sup- cation, tourism, services manufacturing, dustry, chemi- plies, tourism, construction, especially in machinery cals, construc- textiles business pro- creative cul- engineering, tion materials, cess outsourc- tural industry textiles, educa- trade ing, energy (film and TV tion, services production) a. To ensure a common deflator is used to calculate real growth for all cities and countries, we extract numbers from the Oxford Economics database. However, for Gaziantep and Tangier, the average annual GDP growth rate and annual job growth rate are available only since 2005; therefore, the numbers reported are an annual average for 2005–12. For Changsha, the average annual job growth number is for 2003–12. b. HHI is the Herfindahl–Hirschman Index, commonly used in economics and other social sciences as a measure of diversity. 10 What do these cities exemplify? 2. Analysis: What Have Successful Cities Done—and How? Despite their apparent differences, these six cities have some broad commonalities. Their circumstances—the sets of chal- Operating under very different institutional and legal frame- lenges they faced and overcome—can be grouped into the works, our six case study cities have undertaken a range of following broad categories, which are precisely what makes successful interventions to improve economic outcomes. This them interesting examples to study. An individual city can, of analysis examines some of the commonalities and differenc- course, be an example of more than one kind of phenomenon. es among them to extract teachable moments for city-level decision makers around the world. Perhaps more important, • Transformation economies. Faced with the erosion of their we seek to understand why these cities have enjoyed success traditional economic structures because of changing cir- in their initiatives where so many others have failed. cumstances (for example, global competition or altered patterns of commerce), cities such as Bucaramanga, Our six case study cities have in place differing institutional Changsha, and Coimbatore have successfully reinvented arrangements for local economic development. Interestingly, their metropolitan economies. we found in our case studies that precisely who performed a particular role in economic development did not matter as • Recovery economies. Recovering from economic and demo- long as someone did. Depending on the nature of their legal graphic disruptions brought about by disasters (natural and political systems, the degree of centralization in the or manmade), cities such as Bucaramanga and Kigali are country, and the relative strength of the local private sectors, rebuilding and reconstructing themselves. cities have approached the organization of economic develop- ment efforts in a variety of ways: • Globalizing city economies. The majority of the case study cities are located in countries that are today more open • A predominantly public model. A dedicated city economic to the outside world than they were a decade or two ago. development agency or local government department Closer integration into global value chains, along with a (Changsha, Kigali, Tangier) is responsible for performing deliberate internationalization strategy as an economic key functions such as investment attraction, entre- development tool, has been observed in some of them. preneurial assistance, or capacity building. This model This group includes Changsha, Coimbatore, Gaziantep, seems to be prevalent where (a) the state traditionally and Tangier. has a strong role, (b) the local private sector is underde- veloped, or (c) both conditions exist.5 • Catch-up economies. In all of our case study cities, eco- nomic growth has been robust in recent years, yet indi- • A mixed public-private model. Local government and cations are that in several of them at least some of that the private sector share responsibilities for carrying expansion was catch-up growth; that is, they made ef- out economic development functions (Bucaramanga, forts to close the gap with more developed cities in their Gaziantep). In general, local government plays a broadly countries or regions. As factor prices converge within supportive role, participates in (and perhaps initiates) their countries, such growth can be expected to gradual- public-private dialogue, and is attentive to the needs of ly taper off. Related to this situation is the phenomenon business. But mayors do not play a dominant role in eco- of spillover growth, in which economic activity branches nomic development: they see creation of jobs, increases out from existing dominant economic hubs into tier 2 in production and exports, and the like as private sector or tier 3 cities as their countries’ emerging centers, in functions. This model works in circumstances where the process shifting economic geography within those strong capacity and engagement exist within the local countries. Examples include Changsha, Coimbatore, private sector, often in the form of established (some- Gaziantep, and Tangier. times family-owned) indigenous firms, whose leaders act as the city’s champions and contribute more than just This list is by no means exhaustive: through fieldwork many time and financial resources to economic development. other kinds of phenomena are observed, which have been documented in the individual case study reports, but these are some of the more common. 11 • A wholly private sector–driven model. Local government fo- government, industry, and academia who were able to work cuses mostly on providing public goods, such as enabling together for the advancement of their city. Of course, by vir- trunk infrastructure and physical security, but otherwise tue of their high political and social profiles, mayors and oth- does not directly intervene in investment attraction or er senior government officials have often been able to play an company formation and growth (Coimbatore). Local effective role in convening different groups of stakeholders, government may lack the legal scope for interventions as well as to act as boosters and global salespersons for their or just not have the institutional capacity to exercise the cities, especially on foreign trade and investment promotion legal prerogatives that it does have. In this model, private missions. But the effects of mayoral actions were greatly am- sector leadership may in part or in whole result from the plified in cities with a highly engaged, capable private sector. absence of government involvement or government’s inability to perform certain economic development In every city studied, its national or state government had functions. As in the mixed model, a capable and highly some role in economic development and enterprise support, engaged local private sector is essential, and it may draw especially programs for upgrading of skills and technologies, on national or state-level support tools and programs. capital access, and export facilitation. One commonality among practically all the case study cities has been their su- The schematic in figure 2.1 reveals the relative roles of the perior ability to tap into national or state-level support tools public and private sectors in the economic development of through encouragement and guidance by either the local each case study city. They range from cities whose success government (Changsha, Kigali, Tangier) or the local private largely depended on direct central government interventions sector (Bucaramanga, Coimbatore, Gaziantep). Although (Tangier, Kigali) or local government ones (Changsha), to some examples exist of local offices of national or state success stories driven mainly by the private sector where agencies being responsible for implementing national support government played a supportive or supporting role (Bucara- programs (Bucaramanga, Coimbatore, Gaziantep, Tangier), manga, Gaziantep). This group also has a lone example where more often local government agencies or private sector or- typical economic development functions were largely per- ganizations such as chambers of commerce enabled firms to formed by private, for-profit firms or industry associations benefit from this support. (Coimbatore). However, perhaps more important than which actors (local The role of the private sector in urban economic development or national, public or private) had primary responsibility for has generally been more substantial than we had originally metropolitan economic development is the question of how anticipated before we carried out our research for the case effective cities and entities in them have been at carrying studies. Most of these cities’ success stories were not in fact out key economic development functions. These functions tales of visionary mayors or other senior public sector offi- include the following sets of specific activities: cials single-handedly transforming metropolitan economies, but rather accounts of diverse groups of representatives from • Analytics and promotion. These activities consist of com- petitiveness analysis, planning, market research, lead generation, branding and marketing, and firm targeting. Figure 2.1 Who led local economic development effort in each city? National Government Tangier Kigali Bucaramanga Gaziantep Public Sector Private Sector Changsha Coimbatore Local Government 12 • Investment facilitation. This set of activities comprises business recruitment; expansion and retention; incen- tives; site selection services (zoning and permitting, Box 2.1 Changsha: Economic success without business facilities, other infrastructure); customized a dedicated Economic Development workforce training; and investor aftercare. Organization • Entrepreneurial assistance. Such activities include capital No single institution is responsible for economic access programs, technology commercialization and development in Changsha. Instead, the entire upgrading, incubators, provision of market information, municipal government (chiefly the mayor) is and export facilitation. responsible for delivering economic growth, and the municipal government has a clear mandate • Convening function. This function involves engaging and funding mechanisms. The city relies less on stakeholders, fostering industry-academia links, devel- formal structures to centralize authority because oping partnerships and networks, and establishing or authority is already centralized and prioritized leading growth coalitions. within the mayor’s office. Instead, the city uses temporary agencies called leading groups. These Most of the cities studied had dedicated entities or govern- leading groups manage cross-departmental ment departments responsible for local economic develop- initiatives, such as investment attraction, and ment or its individual aspects. (Changsha is an exception have unambiguous authority (reporting to the here; see box 2.1 for details.) Regardless of whether they were mayor or department heads, depending on the in the public or private sector, or what their precise geograph- purposes of the leading groups), a clear structure, ical remit was (municipal, metropolitan, departmental or and funding (e.g. the leading group for an open regional), these intermediaries performed a highly beneficial economy falls under the Bureau of Commerce’s role in attracting outside investment, helping existing com- umbrella). Most important, leading groups im- panies to scale up, and facilitating the formation of new local prove the organizational capacity and effective- businesses. The institutional arrangements showed some ness of economic development efforts by prevent- diversity in the nature, number, and specific responsibilities ing departments from working in silos and by of economic development organizations found in each city fast-tracking prioritized initiatives. (table 2.1). Table 2.1 Case study cities’ local economic development institutional arrangements City Institutions Type Functions Bucaramanga Regional Competitiveness Com- Private sector enti- Strategic planning, public-private dialogue, invest- mission, Invest in Santander, and ties with minimal ment promotion, entrepreneurial support, and other chamber of commerce units public funding assistance in accessing national programs Changsha Local government (mayor’s office) Local government, Public investment, investment promotion, and with steady funding liaison with national and provincial government agencies Coimbatore Industry associations, chambers Private membership Entrepreneurial assistance (technology, skills, of commerce and Confederation organizations with market analysis); investor targeting; place branding of Indian Industry, and individual no public funding and promotion; site selection services; and man- for-profit firms agement Gaziantep Chambers of industry and Private sector enti- Establishment and governance of private Orga- commerce, supportive mayor and ties with supportive nized Industrial Zones, market analysis, global provincial governor, city council government infra- ties, and administration of national incentives as convening or deliberative body, structure invest- and Organized Industrial Zones ments Kigali Rwanda Development Board, City National investment Investment promotion and targeting, improve- of Kigali Municipal Government promotion agencies ments to city’s livability, and business climate (mayor’s office), and Construction and local govern- improvements One-Stop Shop ment Tangier Tangier Mediterranean Special Port authorities Port and free trade zone construction and oper- Agency, SAPT, mayor’s office, and investment ation, investment promotion, incentives, entre- wilaya (administrative region), promotion agencies, preneurial assistance, skills development, and Agency for Promotion and Devel- local and regional infrastructure upgrades opment of the North, and local governments, and offices of national agencies national agencies 13 Note: SAPT is the French acronym for the corporation for redevelopment of the Port of Tangier. The specific reasons that these six cities’ economic devel- 3. Strategies and Interventions opment organizations (EDOs)—or equivalent government departments or private sector entities fulfilling those As a general lesson, the cities studied did not undertake functions—have been successful whereas others in similar random interventions: they proactively targeted initiatives circumstances have failed vary from one city to another. to foster economic development in their metropolitan areas. However, regardless of the specifics, some commonalities can Their actions were based on formal or informal strategies, be observed across these successful cities: in most cases developed through a structured process of analysis, discussion, and stakeholder consultation. Strategic • Successful cities had a realistic understanding of their economic development plans aimed to build on the cities’ competitive advantage, whether identified through a competitive advantages while addressing key constraints to formal assessment process or just constituting conven- economic growth. Following are some highlights of how such tional wisdom among key local decision makers. They did strategic plans were developed and implemented and why not chase the latest economic development fad but rather these particular cities have succeeded where so many others focused their limited resources on where they thought have failed. they stood the best chance of being successful. • Such cities embraced globalization as an opportuni- Strategic planning for economic development ty, rather than fearing its disruptive potential. EDOs Just as the characteristics of each successful city differed, so worked with companies to help them identify export did their strategies; no cookie-cutter recipe for success was opportunities, for example, and strongly emphasized discovered through this case study research. Operating under helping workers adapt their skills to the demands of the a variety of national policy frameworks and local conditions, global marketplace (often in collaboration with work- these cities devised strategies appropriate to their own needs force agencies). (and cultural context), using a variety of approaches and • The cities had the ability to productively engage diverse processes to do so. Likewise, responsibility for the strategic stakeholder groups and build growth coalitions around planning process rested with a range of entities (in the public the shared interest of seeing the city’s economy expand or private sector, or both). and create jobs. Many, but not all, of our case study cities used a structured • They overcame coordination failures and successfully process to identify their principal competitive assets, relate worked across silos (internal or interorganizational), an them to external market opportunities, and use these attribute that was particularly important in cities where insights as a basis to formulate an economic development more than one entity had responsibility for economic strategy. Regardless of whether a government or private development. Different entities’ functions were not sector entity carried out this process, case study research always clearly spelled out, so one way problems were revealed that the majority of successful cities used some kind avoided was by holding key people morally responsible of structured process to develop a long-term plan (although (before their fellow decision makers) for delivering on specific processes varied). Among other elements, this commitments. process entailed benchmarking the city against competitor locations, identifying the city’s competitive advantages, as- • The cities had a professional, capable staff (in either the sessing external market opportunities, identifying potential public or the private sector) with knowledge of products, investors, and identifying constraints to growth needing to markets, and global business trends and an understand- be addressed. Some cities used such information to formulate ing of how the economic development process should a long-term strategy for the city, whereas others had a more work in practice. Many EDO professionals interviewed immediate, operational focus. were truly world class. Distinguishing between cities’ economic development • The cities were willing to disrupt existing ways of doing strategies and general geospatial development plans, which things and try innovative approaches. When necessary, many cities are required by law to periodically prepare, is they took on vested interests and prevented capture and also important. Every city studied engaged in some kind of rent-seeking behavior. Most of these cities were located medium- to longer-term urban planning for vital municipal in countries that have dismantled monopolies, deregu- services and infrastructure such as roads, water and sewer lated various sectors, and opened up to global trade and lines, solid waste management, public safety, and land use investment. planning. However, such metropolitan plans did not always contain a chapter on topics such as creating jobs, addressing • The cities displayed a generally high degree of shared constraints to company formation and growth, attracting commitment to their own prosperity. This commitment outside investors, or developing tourism. And where they has been observed across government, academia, and did, these plans remained very broad (with statements such private for-profit entities in many of the case study cities. as “support prosperity and job growth by enhancing trans- It appeared to be even stronger in cities with strong port mobility and ensuring housing affordability”), without regional identities and cultures that likely have a higher delving into specifics such as what kind of outside investors degree of social capital and trust. 14 to target, how to attract them to the city, or how to prioritize in mind. Across the cities studied, several used noteworthy urban planning investments with economic development practices in this process (see box 3.1). Box 3.1 E xamples of techniques cities used in formulating economic development strategies Formally engaging stakeholders in the strategic Making plans flexible and adaptable planning process Some cities knowingly (or unknowingly) used flexible Some cities used structured processes for stakeholder engage- planning, which enabled then to adapt to changing ment, ensuring that economic development strategies reflect- conditions and opportunities. For example, in Chang- ed the collaboration and input of local residents. In Kigali, sha, the city did not formally prioritize the construction participatory planning was done at every tier of government, engineering sector, but after witnessing the growth thus giving citizens greater say in identifying priorities. In and success of several local firms, adjusted policies to Bucaramanga, government and nongovernmental stakehold- support and promote the competitiveness of local firms. ers interacted through roundtables and regional committees, Gaziantep did not have a formal economic development collectively developing a regional strategy. In Gaziantep, strategy, but through regular meetings of committees public-private dialogue took place through a forum (the city and working groups within its business chambers and council) that brought together business leaders, academics, consultative bodies such as the city council, plans were representatives from civil society groups, and government flexibly made in response to external developments (for officials. example, the situation in the neighboring countries of Iraq and the Syrian Arab Republic). Using rigorous analytics to inform strategy develop- Using established economic development best ment practices and benchmarking tools From aggregating and analyzing data to conducting analyses Many cities used formal tools and established best prac- identifying cross-cutting constraints, some cities demon- tices to guide interventions. For example, Kigali adapted strated advanced analytical capabilities. In Bucaramanga, the the World Bank’s Doing Business Index to evaluate and chamber of commerce’s analytical capabilities were focused improve the business environment in the city. Bucara- on identifying the needs, constraints, and opportunities of manga used Michael Porter’s cluster theory as a guide local firms, thereby helping inform interventions to support in developing strategies and interventions to support firms and industry clusters with the greatest development the growth of existing and emerging industries within potential. In Coimbatore, a private real estate developer the city and especially in determining how to prioritize (part of a larger conglomerate) identified the potential to among them. Gaziantep’s Silk Road Development Agency capture spillover growth from India’s tier 1 cities, resulting in used world-class processes (consultative as well as ana- tremendous opportunities to attract investment and create lytical) to identify industry trends and strategic priori- jobs in the city. And in Tangier, the Tangier Mediterranean ties. Morocco’s national government used a structured Special Agency carries out analyses of global business trends process to identify and support the growth of its targeted to identify potential investors in the city and its free trade industry sectors, whereas Tangier successfully operation- zones. alized them at the local and regional level. Establishing long-term, measurable goals Enlisting nongovernmental stakeholders in Some cities not only set long-term strategic priorities in strategy development and implementation terms of industry sectors, but also set quantifiable targets Most cities involved stakeholder groups in strategy de- such as growth in GDP and jobs. Such metrics helped track velopment, but in some cities (Bucaramanga, Gaziantep), progress, reach individual milestones, and enable midterm stakeholders also played a crucial role in implementing course corrections, if needed. In Bucaramanga, the Regional economic development plans, not just formulating them. Competitiveness Commission (RCC) (led by the chamber of Mobilizing their financial resources, business know-how, commerce) set a goal to double the city’s per capita GDP in 10 relationship capital, and logistical capabilities, universi- years. Two years in, the chamber was already on target, and ties, chambers of commerce, industry associations, and activities and short-term strategies continued to be devel- even individual firms contributed to advancing cities’ oped, adapted, and implemented in accordance with this economic development agendas. Although such activity longer-term goal. Similarly, Tangier’s economic development was not as prominent in Kigali and Changsha, Coim- agencies set numeric milestones for operational phases for batore provides an example of implementation almost the new seaport, as well as for the old seaport’s redevelop- entirely carried out by nongovernmental actors. ment and conversion. 15 The degree of stakeholder involvement (and especially that Successful interventions in our six case study cities could be of private, for-profit firms and their membership organiza- grouped into the following broad categories: tions) was higher than originally anticipated in the research hypotheses. Nongovernmental stakeholders were not just • Business climate improvements “consulted”; they were often also drivers of the entire process, • Industry sector targeting implementers or coimplementers of strategies, and some- • Investment attraction times vital sources of funding for city economic development • Entrepreneurial assistance initiatives. Successful cities have also proven quite adept at • Export facilitation tapping into national support tools and resources. Finally, • Place making and branding the role of academic institutions was important in several • Strengthening of human capital cities, but perhaps less than expected before the research was carried out. Within each of those categories, we can identify interven- tions on the traditional levers affecting firm-level perfor- Observed interventions and the reasons for mance, as summarized in the framework paper Competitive their success Cities for Jobs and Growth (World Bank, 2015): (a) institu- tions and regulations, (b) infrastructure, (c) skills and inno- The case study cities undertook various kinds of specific vation, and (d) enterprise support and finance. interventions to jump-start their economic growth, but none attempted to mimic an existing successful city. No single Examples of these interventions in our case study cities, formula for city success has been observed, but rather a com- along with some discussion of why they have been effective, bination of well-thought-out responses to specific local cir- follow. cumstances. Although some cities demonstrated a profound familiarity with global best practices, none mechanistically Business climate improvements adhered to conventional wisdom or particular approaches Successful cities prioritized creating and maintaining a local just because other successful places had used them. No city business climate conducive to investment and job growth. Re- blindly followed the “Singapore Model,” “Barcelona Model,” gardless of whether the cities also targeted specific industry “Pittsburgh Model,” or any other economic development fad sectors for additional support, most of the mayors and other or fashion. Perhaps tellingly, all of these cities stayed away senior local officials interviewed as part of these case studies from economic development clichés: none claimed or aspired understood the importance of offering a favorable general to be the Silicon Valley, Rotterdam, or London of its country businesses environment for all firms—often in countries or region, although they did, in practice, often nurture the with a long tradition of red tape, business-stifling regula- emergence of centers of excellence in sectors targeted for tions, and indifference from local officials. To the extent that proactive economic development efforts. their administrative scope allowed, many of these mayors strove to improve the local business climate on an ongoing basis, often in consultation with local business leaders. Spe- cific measures these cities used include expedited permitting Box 3.2 Kigali: Meeting private sector demand such as one-stop shops or single-window systems (see box for business climate reform 3.2), more business-friendly zoning regulations and land use policies, streamlined business licensing, online e-government Businesses in Kigali once needed 125 days to services, greater transparency and accountability for public receive a construction permit. Today, businesses agencies (including staffing decisions and public procure- receive a construction permit within 30 days and ment), and special governance regimes for organized indus- meet their approval needs in a single, stream- trial zones or similar jurisdictional enclaves. In cities where lined location. The reform process began with the basic infrastructure such as power or waste treatment was creation of the Kigali Investors’ Forum, a platform not universally available, the public sector made a concerted designed to take stock of the private sector’s con- effort to ensure that these essential services be provided as cerns. Through the forum and a World Bank Doing a necessary enabler for business activity and therefore job Business assessment, the city identified inefficien- creation. cies and a lack of interagency coordination in its construction permitting regime. The city respond- Why were these interventions successful? Some key reasons ed by bringing all relevant agencies under one roof include the following: (a one-stop shop) and implementing an electronic platform that significantly reduced red tape. The • Consulting with local business. Local business leaders were city based the project on a similar one that was consulted about their needs and the constraints they successful in Nairobi and paid for the project from encountered in their firms’ daily operations. In practice, its municipal budget (with support from the In- mayors talked not just to a few of the largest firms or ternational Finance Corporation and the African vested interests in their cities but also to industry associ- Development Bank). ations, sector guilds, and other entities that represented 16 various kinds of (often smaller) businesses and that also a motive for targeting, with cities seeking to dramati- proactively worked to address their members’ concerns. cally increase per capita income levels targeting higher-val- ue-added—and thus higher-wage—sectors as the mainstays • Focusing on realistic issues. Mayors and other local officials of tomorrow’s economy. Finally, some cities wanted to foster focused on things they could realistically and directly the development of centers of excellence in particular sectors, affect (for example, water supply or land use), rather than in the hope that they would become globally or regionally trying to address more macrolevel issues over which they competitive (that is, specialization).7 Interestingly, although had less control, such as taxation, incentives, or state- undertaken with very different (indeed, sometimes dia- owned enterprises. metrically opposed) motives, these interventions have been implemented in remarkably similar ways. As discussed in the • Creating stability. In postconflict societies (for example, prior section on strategic planning, the process of identifying Colombia or Rwanda), introducing more stability and sectors to target and prioritizing among them also varied predictability into the conduct of business, along with substantially from one city to another. making improvements to overall public safety, has paid disproportionately high dividends. Companies have The case study cities generally employed relatively conven- much stronger incentive to invest when they can be rea- tional (and widely used) support mechanisms to foster the sonably certain that their property will not be lost. expansion of targeted sectors. These approaches are well doc- umented in academic literature as well as in the World Bank’s • Improving public transparency and accountability. This experience with clients in many developing countries. They has been beneficial in all the cities studied. Cities that include providing free or highly subsidized land or space; made a commitment to advertising public sector jobs or giving sector-specific financial incentives; creating dedicat- procurement contracts online, for example, did not just ed infrastructure; offering tailored workforce development reduce the scope for graft but also enhanced public trust programs; providing market information and intelligence; and social capital, in turn leading to greater civic en- matchmaking of suppliers and producers using technology gagement and efficiency in the use of municipal funds.6 development schemes, including incubation or colocation, Accountability mechanisms varied across the six cities technology commercialization, and fostering of industry-ac- in both degree and direction (directly to citizenry or to ademia links; convening sector alliances and similar groups; higher tiers of government). and building a local brand as the destination for a particular industry (see the section on place making and marketing, • These case studies have found no correlation between ef- later in this chapter). fective business climate improvements and whether local government officials were elected or appointed. Why were these interventions successful? Some key reasons follow: Industry sector targeting • Successful cities targeted sectors where they already had some Most of the cities we studied have targeted individual competitive advantage. None of these successful cities industries with proactive economic development efforts. In attempted to build an industry cluster from scratch. addition to general improvements to their business climates, At least some preconditions were already in place, such which benefited all businesses, almost all of the case study as appropriate infrastructure; labor pools with related, cities focused their efforts and resources on individual indus- transferable skills; adequate research and educational tries as drivers of economic growth and job creation. And all facilities; or a critical mass of existing firms (or poten- of the cities that focused their proactive efforts on specific tial suppliers). These vital assets were identified before industries in fact targeted more than just one sector, though time and resources were poured into sector development links between the sectors often existed in terms of necessary initiatives. None of these cities jumped on economic skills or infrastructure (for example, automotive and aero- development fads or chased a specific industry because space, or logistics and tourism). it was fashionable or in vogue. Rather, they targeted a sector because analysis suggested that the city stood a The reasons for targeting specific industries, as well as the realistic chance of succeeding in growing that sector (see process by which they were selected, varied significantly from box 3.3). one city to another. Some cities simply wanted more jobs to be created for residents, so they focused on industries likely • Successful sector development initiatives usually had effective to yield significant employment gains, often in relatively brief mechanisms for engaging key stakeholders and enabling their time spans, such as tourism or construction. Others sought collective action. In fact, such initiatives were often driven to strengthen their local economies’ resilience by reducing by coalitions of business leaders from the industries in overreliance on a few (often cyclically vulnerable) industry question as well as other members of the broader busi- sectors by encouraging the emergence of new local industries ness community (financiers, chambers of commerce); (that is, diversification). Still others responded to current university rectors; government officials; and prominent market opportunities, seeking to attract firms in industries local figures (and sometimes also high-profile foreign in- related to existing ones, which might need many of the same vestors). The ability to work together for sector develop- transferable skill sets. The quality of economic growth was ment, particularly in an industry-academia-government 17 anchor investments often play a valuable role in helping put a city on the map of big-league international inves- Box 3.3 Gaziantep: Tailoring industrial zones to tors in a way that no amount of marketing effort can. meet the needs of light manufacturers Such high-profile investments can help make the city a serious contender for similar competitions in the future, Gaziantep developed its organized industrial giving it credibility with potential investors. Through zones (OIZs) with specific sectors and firm char- supply chain links (in this case, the development of acteristics in mind, with assistance ranging from local suppliers), such investments can also contribute to the type of infrastructure provided to the sizes of dramatic improvements in industry-specific know-how, plots. In particular, the city’s fourth OIZ (in 1998) technological capability, and export readiness, among responded to the impressive progress shown by other things. carpet-making firms, with land plots specially configured to host those carpet-making firms Investment attraction plus smaller firms producing related products and intermediate goods for carpet makers. Though The majority of cities included in these case studies have been the model for implementing OIZs is standardized very successful at attracting outside investment, which can nationally, Gaziantep aimed for greater interaction be foreign direct investment (FDI) or investment by domes- with target firms and greater collaboration from tic firms from elsewhere in the same country. In addition to public agencies to gauge the gap between industry injecting capital and know-how into the local economy and needs and public capacity. This effort may have set providing significant numbers of jobs, such investments can the city’s OIZs apart from less successful indus- (depending on the industry) spur the creation of local suppli- trial zones in Turkey and elsewhere, which often er networks, lead to the development of advanced skills and adopt a nontargeted, “build it and they will come” production capabilities, and help to more closely integrate the approach. city into global value chains. Of the six cities studied, only in Gaziantep was the attraction of outside investment not a major part of the city’s success story. trilateral relationship, has been observed to be a critical Many of the cities studied adhered to global best practices in factor of success for many metropolitan clusters, particu- investment promotion. Their EDOs or other investment pro- larly in higher-value-added industries.8 motion intermediaries tracked global business trends, identi- fied potential investors and reached out to them, worked with • Most cities showed a willingness to let go of local industries national investment promotion agencies (in the case of FDI) that may no longer be globally competitive (for example, to recruit them and put together attractive incentive packag- electronics in Changsha, footwear and apparel in Bucara- es, provided site selection services, and assisted outside firms manga, and safari tourism in Kigali). This factor is partic- in setting up operations in their communities. Some cities ularly relevant because those cities managed to tackle also offered investor aftercare services, either independently one of the key risks of industrial targeting at national or in collaboration with their national investment promotion or local level: the potential capture by industry groups, agencies. In Coimbatore, this entire process was handled leading to market distortion and subsidies and eventual by private sector entities, which collaborated with the state misallocation of public funds. Fact-based deliberations, a government in specific areas such as land acquisition and consultative process involving all relevant counterparts, incentive applications. and a manageable city scale all contributed to make this outcome possible. Why were these interventions successful? Some key reasons include the following: • These cities have generally been highly adept at tapping into national support tools, such as subsidies, research and devel- • Successful cities carried out systematic analyses of market opment funding, customized workforce training programs, trends and opportunities. They targeted firms (especially and export assistance. Although national programs are multinational corporations) whose probability of invest- usually available to firms throughout a country or its ing in the city was fairly high (see box 3.4). targeted regions, high capacity at local intermediaries (EDOs, chambers of commerce, industry associations, • Successful cities offered investors a compelling value proposi- and the like) in highly successful cities translates into tion. Such incentives included cost factors, relevant work- significantly higher utilization rates compared with force talent, access to markets, critical infrastructure, national averages for those countries.9 financial incentives, or any other combination of factors important to a particular firm. No evidence indicates, • In some cities, efforts to expand a particular targeted industry however, that any of our six cities managed to attract sector were greatly enhanced by the recruitment of a major an outside investor solely or primarily motivated by the anchor investment, which acted as a catalyst for private sector financial incentives that were put on the table. growth in the city.10 Besides the benefits usually associated with attracting outside investment (see the next section), 18 • Successful cities obtained local consensus on the importance of attracting outside investment, resulting in flexibility and adaptability to investor needs. Many business locations Box 3.4 Coimbatore: Private-led investor simply say to potential investors, “This is who we are and attraction through targeted analysis what we have to offer; take it or leave it.” These successful cities instead made an effort to understand potential In Coimbatore, a development firm, KGiSL Insti- investors’ specific needs and accommodated those needs tute of Technology, worked with city officials to to the extent that they were able.11 Mayors, chamber form a pipeline of clients during the construction of commerce presidents, and other senior local leaders of a private economic zone. KGiSL staff members personally reached out to corporate CEOs and assured undertook an extensive, systematic analysis of them they would be welcomed to the local business com- market trends and players in the offshoring world munity. More often than not, this kind of relationship and, in particular, the activities of multinational building paid off handsomely. corporations located in India. Observing that some companies had run out of room to grow • Successful cities recognized that attracting outside investors in places such as Bangalore or Chennai, KGiSL is only one part of the job. Making sure that investors pitched Coimbatore as a viable alternative, given have what they need to maintain and scale up their local that its highly educated, English-speaking work- production means that channels of communication with ers were available at significantly lower cost than local leaders must be kept open on an ongoing basis. in tier 1 cities. The zone has been able to attract Regardless of whether a city or its country has a formal Cognizant, Dell, and Bosch among its tenants and investment aftercare program, maintaining these rela- eventually amassed 20,000 jobs, thanks in part tionships is important for ensuring that investors do not to its ability to customize facilities and services to leave and in fact expand local operations as the demand incoming firms’ specific needs. for their products or services grows.12 Entrepreneurial assistance Successful cities do not just strive to attract outside invest- • Providing land, office space, and specialized infrastructure. ment; they also nurture the formation and scaling up of in- Business facilities were provided either on market or digenous enterprises. These six case studies have no examples concessionary terms and appear to have generally been where cities have posted exceptional economic results simply allocated in a transparent manner across the cities stud- by attracting external investment without significant num- ied. Colocation of similar firms (for example, shoemakers bers of jobs also being created at homegrown firms. or craftsmen) has resulted in geographic agglomerations or clustering within the cities, with certain areas acquir- To ensure that not all growth came just from attracting ing reputations for particular industries (motor pumps, external investors, the majority of successful cities studied carpets). Sometimes facilities were provided within provided some type of entrepreneurial assistance to local business incubators or technology parks, particularly for businesses.13 This assistance often included a combination firms in emerging sectors. Finally, the creation of orga- of national, state or provincial (where applicable), and local nized industrial zones or similar entities was enabled by tools and support mechanisms. All of the cities studied had national or state legislation, but municipal authorities in place or at their disposal at least national-level entrepre- often enhanced their viability and attractiveness to neurial assistance programs. Depending on the city and firms by providing the necessary investment in public the country, applications for national support programs are infrastructure. sometimes channeled through local entities (government or private sector), so even if a program is national in scope, • Upgrading technology and development. These support responsibility for its implementation may be local. programs were often designed and implemented in col- laboration with local universities, research institutes, na- Businesses of various sizes benefited from support programs. tional science and technology agencies, or private sector Contrary to popular perceptions that only small or micro membership organizations (such as the Southern India firms take advantage of entrepreneurial assistance, our case Engineering Manufacturers’ Association or Colciencias studies have revealed that even fairly large firms (in some in Colombia). They provided research and development cases employing hundreds or even thousands of workers) grants, focused on improving industry-academia links have used such support tools. Eligibility criteria varied wide- and technology transfer, and sometimes provided train- ly. ing for upgrading staff members’ technical skills. Entrepreneurial assistance was observed in multiple forms • Offering financial assistance. Such assistance included tax across the six cities. The main types of support tools deployed rebates; industry-specific subsidies and incentives; cash included the following: grants; capital access programs (that is, loans, credit lines, credit guarantees); and similar schemes. For many cities in developing countries, particularly those with 19 underdeveloped capital markets, access to credit is often • Assisting with entrepreneurial training and skills develop- a major obstacle to entrepreneurship and business ex- ment. Many of the cities had programs to assist recent pansion. By playing an active role in addressing market graduates in figuring out where to channel their en- failures of this kind, cities (often in collaboration with trepreneurial energy. These programs used a variety of higher tiers of government or private sector financial individualized tests and offered training sessions. Like- institutions) can enable a vital source of funding for wise, numerous gender-specific programs were aimed at business activity. aspiring women entrepreneurs, “economically backward areas” (in India), or other targeted segments of the local population. In some cases, this assistance entailed quite Box 3.5 Coimbatore: Private-led support for a bit of hand-holding of budding entrepreneurs and was often funded by national, or state or provincial govern- small-scale businesses ment agencies. Coimbatore enjoys a highly supportive ecosystem • Providing market information and business intelligence. This for entrepreneurs. The city’s mostly family-owned form of assistance is more applicable to smaller firms, small and medium enterprises compete with each which usually do not have a market research depart- other for business opportunities but also band ment. Such information helps them identify opportu- together and self-organize to build capacity, ensure nities in the domestic or international marketplace for common technical standards, facilitate exports, their products. and lobby the government for infrastructure upgrades, such as the recent upgrade of the city’s Why were these interventions successful? Some key reasons airport. Coimbatore District Small-Scale Indus- follow: tries Association (CODISSIA) played the key role in driving these initiatives. CODISSIA includes • Entrepreneurial assistance programs were generally directly more than 4,000 small and medium enterprises. It relevant to addressing the constraints to company forma- represents entrepreneurs at grievance panels and tion and growth encountered in the case study cities. These advises them on taxes, licensing, and exporting. programs helped address very real issues, such as lack of Other advice is provided through partnerships capital access, obsolete technologies, lack of management with local technology and engineering institutions know-how, or insufficient information about market and through a dedicated Small Industries Testing opportunities. and Research Centre, which was launched in 1986. CODISSIA also leads exhibitions and trade fairs for • Seasoned industry professionals with private sector experi- its members and has established a permanent trade ence in program design and implementation were involved. fair complex for the city. The programs did not rely solely on career bureaucrats or program managers (see box 3.5). • In implementing such assistance programs, successful cities Box 3.6 Bucaramanga: Multilateral approach to often display a superior ability to work across organizational supporting entrepreneurs silos. They also are able to overcome challenges associated with the sometimes hierarchical relationship between Given informality rates that exceeded the nation- different tiers of government14 (see box 3.6). al average, the Regional Competitiveness Plan for Santander (the region where Bucaramanga is located) • Well-designed national support programs and delivery featured formalization and entrepreneurial develop- structures were in place. For example, local offices were ment as one of its three strategic pillars. Plans were established in individual cities—not just a central office developed jointly with national agencies, municipal in the national capital. This analysis did not attempt to governments, and the private sector and resulted in systematically compare different countries’ approaches an overhaul of the procedures involved in register- to business support service delivery. However, the most ing a business: streamlined inspections, granting of effective programs appear to be the ones where national building permits, and the establishment of a Busi- agencies either (a) had a presence on the ground and ness Services Center in the municipality of Flor- worked directly with firms or (b) relied on a close part- idablanca. Beyond formalization, the Bucaramanga nership with a local entity (not necessarily a government Chamber of Commerce seeks to boost the produc- one, but perhaps a chamber of commerce or industry as- tivity of new firms by leveraging partnerships with sociation) to raise awareness of programs’ availability, as- universities and established companies to transfer sist firms in applying for support, and monitor progress know-how to new firms. The chamber also holds sub- being made as a result of participation in the programs. sidized entrepreneurship training programs, thereby empowering citizens to create the next generation of local businesses. 20 Export facilitation • Trade development missions (inbound and outbound), international trade shows, and matchmaking Principal actors in all of the cities studied understood that • Financial reimbursement for part or all of the cost of at- production of tradable goods and services was key to their tending trade events cities’ long-term economic development. All the case study • Construction of dedicated facilities, such as trade fairs, cities therefore prioritized the foreign market success of their convention centers, and other such physical facilities, exporting firms, sometimes as a stand-alone priority and bringing together buyers and sellers sometimes as part of a broader strategy of city “internation- alization” as a key pillar of planning for economic develop- • Establishment of representative offices abroad providing ment.15 assistance to firms • Hosting of intermediary or “multiplier” organizations enabling Significant variation existed among the cities in terms of trade, including foreign consulates, trade and investment which entity had primary responsibility for implementing representative offices, cultural centers, and banks this support to exporters, which included active, hands-on • Collaboration with local operations of multinational corpo- assistance as well as promotion. In most countries, there was rations to help integrate local suppliers into their global a dedicated national export promotion entity, which often supply chains worked in collaboration with local chambers of commerce, industry associations, and EDOs. Some national export Why were these interventions successful? Some key reasons promotion agencies, export-import banks, or both had an observed include the following: extensive field presence in their countries’ cities (for example, • Cities belonged to countries with generally supportive nation- ProExport Colombia, Export-Import Bank of China), whereas al trade policies, including multiple bilateral and multilat- others supported exporters from their head offices in the eral free trade agreements and open markets. national capital or main commercial center (for example, • Cities had in-depth knowledge of products and markets and, Maroc Export). Successful exporters in other countries (In- in some cases, long-standing trade ties. dia, Turkey) relied primarily on local chambers of commerce • Entrepreneurs could leverage personal and family connec- and industry groups to provide export assistance. Finally, by tion s in other countries to boost trade. becoming suppliers to the local operations of multinational corporations, companies in some cities (Coimbatore, Tangi- • A city’s geographic location could be capitalized on to increase er) became integrated into global supply chains through the foreign trade (see box 3.7). intermediation of multinational actors.16 • Senior officials showed sincere commitment to international- ization. Political support for trade matters, whether the Mayors played a prominent role in export facilitation in mayor serves as the salesman-in-chief for the city, or the several of the cities studied, even though this role is not a city builds and promotes a trade fair complex as a place core responsibility of their office. As the public face of their where business is done. respective cities, they often led delegations of businesspeople (including exporters) on trade or investment promotion mis- sions abroad, as well as hosting inbound missions of foreign Box 3.7 Tangier: National authority for regional officials and companies to their cities. Therefore, the primary export facilitation agencies form of support mayors personally provided to their cities’ exporters was building international relationships by open- Established in 2002, the Tangier Mediterranean ing doors and generating goodwill. Sister-city agreements in Special Agency (TMSA) represents the Moroccan some cases also provided a framework for bilateral trade rela- state in all interactions pertaining to the newly tions, though the broad scope of such relationships generally constructed Tangier-Med cargo port and industrial tends to include culture, education, sports, and so on. platform. The TMSA has sweeping powers in key areas such as land acquisition and allocation. The Successful cities also differed in the specific forms of support Tangier-Med Port Authority is a TMSA subsidi- provided to their exporting firms. The principal (though cer- ary (the only major port in the country not run tainly not the only) types of export facilitation programs and by the national ports agency). The Tangier-Med actions benefiting trade observed through these case studies Port Authority has helped Tangier-Med transition were the following: from focusing on the transshipment of containers • Adoption of formal internationalization strategies as part of through Morocco into a point of origin and destina- the economic development planning process tion for local imports and exports. Another TMSA • Prioritization among key export markets (neighboring, subsidiary is the Tangier Free Zone, which offers regional, overseas) a range of incentives and fiscal exemptions to its • Diversification of exports in terms of geography and prod- 500 resident companies. Its management actively uct mix, ideally reducing an overreliance on individual works to increase business opportunities, using a country export markets or export commodities range of market research and investment attraction • Provision of foreign market intelligence and identification of approaches. trade opportunities 21 • Policy and decision makers integrated export promotion as a and security with lower crime rates and fewer disruptions to vital pillar of targeted sector development strategies. citizens and businesses; providing more and better cultural amenities and sports facilities; developing local tourist attrac- Place making and city branding tions (with public or private funding), such as historic sites, faith-based attractions, amusement parks, or resorts; and If a physical location (metropolitan area) is thought of as a enhancing mobility within the metropolitan area (meaning product, this set of interventions could be summarized as lower congestion, shorter journey times, and improved air product development and product marketing. Improving a quality). city’s attractiveness, as well as its perceived attractiveness, is an important competitive tool for any modern city. Adequate- Improving a city’s livability to compete economically is only ly positioning the city in the global marketplace for discre- one part of the task; the other part is to change external per- tionary investment, visitors, and workforce talent is therefore ceptions of the city by improving its image as a business and an economic development necessity. tourist destination. The challenges encountered by the six cities differed quite a bit in this respect. Located in countries The livability of all six case study cites has improved since that had seen armed conflict, Bucaramanga and Kigali en- 2000, even as their populations have swelled and the pres- deavored to inform the outside world that they are safe places sure on municipal services has increased. Kigali and Tangier to visit and conduct business. Overshadowed by much better appear to have made the greatest strides in this respect, but known business and tourism destinations in their own large Bucaramanga, Gaziantep, and others have also made signif- countries, Changsha, Coimbatore, and Gaziantep strove to icant progress. Improvements to the livability of a city have simply get on the map (see box 3.8). Tangier has been trying been shown to play an important role in attracting investors to shed its image of a grimy port city and transit point for and talent alike, not to mention enhancing a city’s potential illegal migrants and narcotics to that of a modern business for tourism development. In fact, although all sectors benefit hub and attractive Mediterranean destination. from improvements to a city’s livability, the effect on tourism is perhaps the most direct. All of our case study cities have enjoyed some success in rebranding themselves, but this effort remains very much a Several of these cities have made a concerted effort to work in progress. They have often partnered with national improve overall livability as an important element of their tourism or investment promotion authorities to cobrand and economic development strategies. Specific activities include present themselves to the world, using the usual channels of providing better municipal services (water, sewerage, solid conventions, fairs, trade shows, and media campaigns with waste); improving cleanliness, in particular of public spaces; mixed results. developing tourism infrastructure (hotels, foreign-speaking hospitality staff, bilingual signage); clearing out and redevel- Why were these interventions successful? Some key reasons oping slums; increasing green surfaces and recreational areas include the following: (parks, swimming pools, and so on); improving public safety • Strong mayoral (or equivalent) commitment to improving city livability, in part because of more competitive local elec- tions (where applicable) and increased public account- ability Box 3.8 Gaziantep: Chamber of Industry’s Trademark City branding project • Favorable national developments (for example, postconflict reconstruction or devolution of some decision making to Gaziantep’s Chamber of Industry (Gaziantep Sanayi the local or regional level) Odası, or GSO) launched the Trademark City initia- tive to help catalyze Gaziantep’s shift from being an • Funding and technical assistance from international donors intermediate goods producer to a producer of final (including multilateral) to increase energy efficiency, products. It aimed at increasing the quality and profit reduce carbon emissions, halt deforestation and desicca- rates of products, defining “Made in Gaziantep” as a tion, better manage natural resources, preserve historic trademark and a sign of high value. The GSO secre- sites and monuments, and promote sustainable develop- tary general mentioned that the project’s goal was ment to ensure “that even the simplest consumer knows about Gaziantep, just as everyone knows about the • Supportive national initiatives, such as aggressive country Great Wall of China or the Eiffel Tower.” The GSO tourism promotion campaigns argued that every firm should produce at least one branded product as a means of increasing profitabil- • Increased numbers of foreign visitors (including for busi- ity while also leveraging export goods as ambassa- ness), providing firsthand testimonials, an effort in part dors for the city. The project ultimately won the Best enabled by relaxing visa requirements and introducing Unconventional Project Award in the 2005 World low-cost air travel Chambers Competition. 22 Strengthening of human capital -- Improving the livability of the city through improve- ments to safety, cleanliness, low costs of living, One of the most common success factors among the cities and low congestion (Kigali and others; see previous studied was their strategic focus on human capital. Practical- section) ly every city studied placed human capital among its top pri- orities, necessary for the realization of short- and long-term -- Attracting foreign universities to establish branch goals, as well as for the growth of key industries and attract- campuses and offer graduate-level programs to local ing investors. Every city did not focus on raising its overall students (Kigali, and soon possibly Tangier) levels of human capital, but rather on developing specialized skills and know-how, from automotive skills to medical sci- • Improvements to the overall educational system. Some cities ence, that would foster the growth of these industries. focused on improvements at the primary, secondary, and tertiary levels (Bucaramanga, Kigali). Although a The six cities inherited dramatically different levels of human longer-term strategy, initiatives were intended to develop capital. At one extreme was Bucaramanga, which had long and foster the next generation of human capital. been home to some of the country’s top universities and thus inherited high levels of human capital that boosted the city’s • Engagement with academia as an economic development capacity and that of its firms. On the opposite end, Kigali had partner. A few cities engaged their academic stakehold- suffered years of instability and violence (culminating in the ers as partners in formulating local economic develop- 1994 genocide), which resulted in loss of life, disruptions to ment strategies. Representatives from universities were education, and high levels of emigration. In between these encouraged to collaborate, both collectively as a cluster two extremes were cities such as Tangier and Changsha, and with local public and private sector actors, to help which suffered from both domestic and international brain shape local strategies and the prioritization of specific drains yet maintained high-quality educational institutions industries. and retained skilled workers. Some of the cities (Coimbatore, Gaziantep, Tangier) are also major destinations for the inter- The types of initiatives favored by each city reflected its nal migration of workers within their respective countries. existing capacity and resources. In general, cities with fewer resources, such as good-quality universities, existing levels Cities’ approaches to developing higher and more specialized of human capital, and specialized skills, focused on attrac- levels of human capital varied as well. The most common tion initiatives (Changsha, Kigali), whereas cities with more initiatives were centered on four pillars: resources (Bucaramanga, Coimbatore) focused on developing existing skill sets and tailoring their human capital to take • Worker training programs. Most cities promoted the devel- advantage of market opportunities.17 opment of specialized skill sets by -- Regulating and promoting vocational schools to improve the quality and applicability of training (see box 3.9 for an overview of skills initiatives in Changsha) Box 3.9 Changsha: Increasing human capital with -- Designing or funding customized worker training programs in response to industry needs (Bucara- better training and talent recruitment manga, Changsha, Tangier) Changsha stimulates competition between voca- tional schools by publicizing student national exam -- Fostering industry-academia partnerships, including scores and employment rates and by distributing links between private for-profit firms and vocational performance data among local firms. The city also schools (or universities) to improve curricula and offers tax credits and funding to firms for sending the applicability of developed skills, to address the participants to worker training programs and for needs of firms, and to boost employment rates with- training offices and fairs. The city also drew together in the city (Bucaramanga, Changsha, Coimbatore, civil servants from multiple municipal departments Gaziantep) to identify the talent needs of existing and emerging • Talent attraction programs. Some cities focused on attract- firms (a leading group); it leverages available national ing new talent and educational programs to the city by programs and funding schemes for talent attraction and engages in recruitment efforts domestically -- Creating programs that attracted new talent and abroad. In recent years, Changsha attracted through diaspora networks by offering resettlement 10,000 professionals through national and munici- allowances and attractive positions (Changsha, pal programs (including 102 high-level talents and Kigali) 17 start-ups). In general, the city’s firms have stated that skilled labor has been relatively easy to find. 23 Why were these interventions successful? Some key reasons 4. Insights for Other Cities follow: Our case studies show that economically successful cities • Talent attraction strategies combined market mechanisms can be found in all world regions and many different kinds of (financial incentives, quality employment opportunities) with countries—whether they are highly centralized or decentral- an enhanced overall quality of life. They relied on highly ef- ized; whether the income level is high, low, or in the middle; fective distribution channels such as diaspora networks. whether the city is perpetually at peace or still recovering from natural or manmade disasters. Successful cities can be • Vocational training initiatives were often designed in collab- landlocked or maritime, endowed or not with amenities and oration with private for-profit firms. Such collaboration natural resources, culturally diverse or homogeneous, and ensured that curricula addressed the needs of business administratively consolidated or fragmented. They can be and maintained a highly applied, practical focus. In Co- highly industrialized, postindustrial service economies or imbatore, for example, students spent part of each school postagrarian societies just beginning to urbanize. Successful day working on the shop floor, thus not just ensuring cities can also be examples of highly inclusive growth or stud- they had relevant, employable skills, but also all but ies in contrasts between the haves and have-nots. In other ensuring they would get a job offer on graduation. words, they reflect our contemporary planet of city dwellers, in all its complexity and contradictions. • Program funding was often linked to performance. Perfor- mance was assessed through periodic reviews, in which Taken together, these six case studies clearly demonstrate diverse stakeholder groups were consulted. that no single path leads to economic success. Each of these cities has pursued its own path to prosperity, accounting— • Some countries (Colombia, Morocco) involved representatives consciously or unconsciously—for its particular competitive of various stakeholder groups (business, academia, labor) in advantages, existing constraints, national policies, local scope the design of national as well as local educational training and capacity, overall market trends, and even administrative programs. The representatives of such groups worked and cultural traditions. These six cities are as different from together to assess local skills needs and develop curric- each other as they are successful. ula and delivery mechanisms relevant to those needs.18 Industry group input, in particular, proved to be an So what can other cities learn from these six success stories? essential ingredient. More than any specific answers they arrived at or solutions they implemented, our six successful cities provide exam- • Customized worker training programs were highly effective ples of how this process can work in practice, given partic- in several of the cities (Bucaramanga, Changsha, Tangier) be- ular scope conditions. The challenges these cities faced and cause of their high responsiveness to employer needs. If fund- overcame are not dissimilar to what the World Bank’s clients ed by the national or local government, such programs encounter on a daily basis. Following are some categories of are a form of economic development incentive, typically insights that apply beyond the specifics of geography, culture, designed for the benefit of major employers. They bridge political system, or individual personalities. They are, individ- the gap between general and transferable skills that the ually as well as collectively, among the global best practices in local workforce may have and the specific skills needed urban economic development. by an individual employer. The best programs actively in- volved universities and technical schools as well as work- force development agencies and EDOs in their design. City competitiveness: General or specific? Cities seeking to improve their economic performance should consider both pursuing sector-specific initiatives and developing a favorable overall business climate. Practically all of the cities studied prioritized providing a business envi- ronment conducive to investment, company formation, and growth. Although most of them targeted specific sectors for proactive economic development efforts, they did not neglect the “bread and butter” industries—including those producing nontradable goods and services—that still account for the lion’s share of employment and, in some cities, fiscal receipts. Evidence suggests that maintaining a welcoming, cost-com- petitive business environment was an important factor in these six cities’ ability to retain and attract investors, includ- ing those in targeted sectors. Successful cities do not rely only on attracting outside investment to spur economic growth. They balance business recruitment with assisting the growth of existing firms— 24 which typically account for the lion’s share of new jobs in pany formation and growth, as well as impediments to the most economies—as well as with helping the formation of business climate that need to be addressed, and they provide new businesses. Sustained long-term economic success in valuable input into designing economic development strate- most case study cities has been observed across all these gies and workforce or skills formation programs. Companies three main pillars of economic development: growth of may also be able to contribute financial or in-kind resources existing firms, attraction of outside investors, and creation and leverage their relationship capital and commercial ties of new businesses. However, the following broad trends were for the advancement of the city. For cities that have at least observed: a reasonably well-developed private sector, including it as an integral part of the economic development effort makes a lot • Cities with more formal, well-organized municipal eco- of sense. nomic development institutions (Bucaramanga, Chang- sha, Gaziantep) had a fairly balanced focus between the The private sector can lead local economic development attraction of new outside investment and the expansion efforts in circumstances where public sector scope or capacity of existing firms. is limited. In some cases, the private sector is simply better positioned to lead on specific kinds of initiatives. For-profit • Cities relying mainly on economic development institu- firms are involved in economic development not just as a tions at the national level (Kigali) or their local represen- form of corporate social responsibility or as a public relations tatives (Tangier) had a stronger focus on the attraction of exercise, but because an economically successful city can ben- new firms. efit their business and enhance their bottom-line profitability in the longer run. • Cities with less organized formal economic development institutions had a stronger focus on the needs and ex- A city can be successful even without a dedicated economic pansion of existing firms (Coimbatore). development agency or department, and some cities stud- ied have multiple entities responsible for different facets of • Most of the cities were broadly supportive of the estab- economic development. However, coordination and strategy lishment of new firms. However, new business starts development are facilitated by the existence of a single entity directly attributable to proactive economic development as a focal point for a city’s economic development endeav- efforts did not account for a sizable share of economic ors—whether it is a department of the city government, an activity in any of the six cities studied. independent EDO, or even the local chamber of commerce or other entity performing this function. Institutional framework More important than which entity leads a city’s economic No one preferred or optimal institutional arrangement exists development efforts are what specific functions it performs for city-level economic development as long as somebody is in and how effectively it does so. Here again, issues of scope charge of it and is accountable for it. Countries have diverse and capacity come into play. Successful cities tend to rely on approaches to local governance, including the administra- dedicated economic development professionals to lead these tive scope provided to their municipalities and metropolitan efforts. areas for a variety of functions. Likewise, the capacity to design and actually implement city-level economic develop- Strategic planning ment strategies and initiatives can lie with any institutional actor—public, private, national, or local. Cities can post exceptional economic outcomes with or with- out a formal economic development strategy or a structured Metropolitan economic development should be a shared re- planning process to develop one. However, the process of sponsibility of local government; higher tiers of government creating a formal strategy can be an effective tool to facilitate (regional, provincial, state, national); and local stakeholder coordination among different institutional actors involved in groups, including the productive sector. In all cases studied, economic development and may enable them to more easily individual city economic development functions were carried tap into national support mechanisms (for example, if a city out by some combination of these three sets of institutional has selected some sectors from a longer list of those targeted actors. The specifics of which entity is best positioned to per- for development by the national government). The six cities form which economic development function depend on local studied differed according to whether they had formal eco- circumstances as well as the broader national administrative nomic development strategies, implementation mechanisms and legal context. A city’s proactive economic development and lines of accountability, and measurement of results. But efforts may, but do not necessarily have to, be led by the local in all cases they showed a good degree of alignment in terms government to be effective. of broad vision and priorities. The local private sector can be an important partner, and Effective economic development strategies are based on sometimes a leader, in metropolitan economic development. sound analytics, including global industry trends, product Homegrown firms operate in the community and have an and market knowledge, competitive strengths and vulner- economic as well as social interest in its prosperity. They can abilities, and identification of areas of opportunity and the play a crucial role in helping to identify constraints to com- specific actions necessary to capitalize on them. Most cities 25 that did have educational development strategies used a • Business climate improvements structured and often quite sophisticated process to assess • Industry sector targeting the city’s competitive position as well as external trends and • Investment attraction opportunities and then formulated a long-term strategy to • Entrepreneurial assistance address those opportunities. • Export facilitation • Place making and branding Interventions • Strengthening of human capital Proactive interventions can significantly affect the quantity Successful cities not only seize on opportunities when they and quality of a city’s economic growth and are a valuable present themselves but also create opportunities where none tool for enhancing prosperity. A variety of specific interven- are apparent. Through systematic and painstaking analyses of tions were used in our six case study cities, generally with market trends, successful cities can identify areas where they fairly high success rates measured in terms of their economic stand the best chances of achieving results. Economically suc- influence. These interventions fall into the following broad cessful cities forge their own paths and pursue growth where categories: it made sense, rather than jump on bandwagons and follow the latest economic development fads (biotech, software, clean technology, and the like). 26 Notes 1 In various competitiveness rankings and city benchmarking exercises, also attracted high-caliber universities, such as Carnegie Mellon Universi- cities are usually compared across a combination of quantifiable criteria ty, to help develop talent at home. Changsha prioritized the attraction of (jobs, foreign direct investment, exports, business costs, and so on) and high-level talent by seeking individuals to contribute to research, local firm subjective criteria (livability, diversity, and so on). Sometimes, social competitiveness, and the start-up of new firms in targeted sectors (such as criteria such as crime rates and health outcomes are also included. In our 3D printing). Changsha successfully leveraged resources such as its low-cost analysis, we adhere to only two sets of quantitative criteria: growth in GDP labor pool and large consumer market (that is, market opportunities) and and in employment, both in absolute terms and relative to the national made efforts to improve its levels of human capital by addressing the qual- economies in which the cities are located. Competitive cities were consid- ity of vocational degree programs, promoting links between programs and ered to be those cities that outperformed their national economies in terms the private sector, and rewarding firms that introduced training programs of GDP and job growth over a sustained five-year period (2007–12). (with tax incentives if programs became government certified). Bucaraman- ga promoted collaboration between local universities and private sector 2 These cities are in no way without their own challenges, nor are they pre- firms. At the free trade zone, the city leveraged national resources and local dicted to have sustained growth in the future. We studied these particular capacity to offer firms customized training programs for their employees. cities to understand why they had such exceptional economic growth; we extracted transferable lessons in each case to offer suggestions for other 9 For example, within Colombia, Santander Department—of which Bucara- cities seeking similar outcomes. No city operates in a vacuum; some condi- manga is the capital—has a reputation for always submitting to Bogotá on tions and factors will be unique in every case. time its applications for programmatic support or funding, usually ahead of most other regions. The Bucaramanga Chamber of Commerce assists 3 In this report, the terms private sector, productive sector, and for-profit firms its members in identifying national sources of support (for technology are used interchangeably. They denote enterprises of any size engaged in the development, training, funding, export assistance, and the like) and in sub- production of goods or services, regardless of actual ownership or company mitting timely applications. Accordingly, although these support programs size, as well as their membership organizations, such as industry associa- are theoretically available to all Colombian firms, those in Santander tend tions or chambers of industry or commerce. Along with government and to make much more extensive use of them. academia, the private sector is one of the three key stakeholder groups with a role in local economic development. 10 The most dramatic example of such an effort is the recruitment French automaker Renault to Tangier. That investment, in turn, attracted dozens 4 Data on cities’ economic structures were obtained from their respective of that automaker’s tier 1 suppliers. The ripple effect through the local econ- national statistical sources, World Bank field research, or both. Sector defi- omy was measured in the tens of thousands of jobs, most of them paying nitions and industry classifications vary from one city to another, and reli- much more than the average local wage. able, consistent data for making statistically sound comparisons between the cities are not available. Nonetheless, the Competitive Cities Knowledge 11 For example, successful cities built new access roads or railroads to Base team has been able to observe general patterns among the cities and business facilities such as factories, designed and funded customized work- draw some broader conclusions about the similarities and dissimilarities of force training programs, sent potential employees to “finishing schools” to their economies and how those economies have evolved over time. acquire job-specific skills, and even researched and catered to the idiosyn- crasies of individual foreign corporate executives (such as hosting a dinner 5 Clearly, these generalizations are very broad, but examples from individual for them and making sure to serve their favorite brand of beverage). cities are quite revealing. For instance, Rwanda’s postconflict society does not yet have an indigenous private sector with sufficient capacity to assume 12 In Tangier, local leaders (from the regional governorate or wilaya, EDOs, any major role in economic development–related activities. In practice, and workforce agency) made sure that Renault had what it needed to government (especially at the national level) drives a lot of the initiatives, expand production locally. Renault is now in the process of doubling its although Kigali’s mayor has undertaken interventions to enhance the city’s annual vehicle output while gradually expanding its local supplier network appeal as a business and tourism destination. Circumstances differ in China and increasing vehicles’ local content. Land adjacent to the existing plant and Morocco, but there, too, government has driven a lot of the initiatives has already been allocated for the next expansion phase, when in addi- that have resulted in the creation of private sector jobs and growth. tion to Renault- and Dacia-branded vehicles, the Tangier plant will begin producing cars under the Nissan brand, some for the Moroccan market but 6 This process has been far from seamless, and corruption remains a serious especially for export. issue (a de facto “hidden tax”) the world over. For example, Bucaramanga’s former mayor is in jail for misuse of public funds, and business leaders in 13 In this context, entrepreneurial assistance means services designed to some other cities studied have reported being approached for “voluntary” facilitate the formation and growth of companies in the metropolitan area. contributions by public officials. Still, all six cities have undeniably made This assistance can be to long-established businesses, to recent start-ups, tremendous strides in improving transparency and public accountability, as and even to students and unemployed individuals who may have ideas well as lightening the burden that the tolerance for corruption imposes on about productive activities but lack the know-how and financial means to local businesses. make them happen. 7 This report does not delve into the specialization versus diversification 14 Changsha and Tangier both displayed highly effective mechanisms for debate often brought up in the context of local economic development. kicking problems upstairs—that is, alerting decision makers at higher tiers Given their fairly large but not yet megacity size, most of these successful of government about issues, obstacles, and constraints. Such mechanisms cities have relatively diversified economies with multiple growth engines; are particularly important for cities in more centralized countries, because none is a one-industry town. Conventional tools for assessing the degree lower tiers of government may lack the scope and capacity to address them. of specialization used in high-income countries of the Organisation for Even in much more decentralized countries (for example, Colombia), central Economic Co-operation and Development (Herfindahl-Hirschman Index, government assistance was sometimes sought to address specific issues. location quotients, shift-share, and so on) were not widely applied in these 15 Notwithstanding this effort, however, the export intensity (measured in cities, nor would they have been as insightful, given the substantial rates of terms of volume of exports relative to metropolitan GDP) remains relatively informality and general data reliability issues. By targeting a few (usual- low for most of these case study cities. The production of nontraded goods ly no more than a handful) individual sectors for growth, most of these and services, consumed entirely in the local market, remains the backbone cities have followed a strategy of diversified specialization. Whether these of many of these metropolitan economies, though this situation is gradually industries had higher rates of concentration than their national economies, changing. In addition, serious data limitations exist when attempting to for example, mattered less than the contribution they were making to local measure subnational exports. The measurement problem is even more acute know-how, employment, and tax receipts, as well as their potential to drive for service exports (including tourism). For some countries, addressing tomorrow’s economic growth. these data gaps is a greater priority than for others, but cities have relatively 8 For example, Rwanda strove to attract talent from its diaspora popula- little say. tion, encouraging people to return and work to help rebuild the country. It 27 In practice, few of these models were pure because they combined ele- REFERENCES 16 ments of different approaches. 17 For example, Rwanda strove to attract talent from its diaspora popula- tion, encouraging people to return and work to help rebuild the country. It World Bank. 2009. World Development Report 2009: Reshap- also attracted high-caliber universities, such as Carnegie Mellon Universi- ty, to help develop talent at home. Changsha prioritized the attraction of ing Economic Geography. Washington, DC: World high-level talent by seeking individuals to contribute to research, local firm Bank. competitiveness, and the start-up of new firms in targeted sectors (such as 3D printing). Changsha successfully leveraged resources such as its low-cost ———. Forthcoming. Competitive Cities for Jobs and Growth: labor pool and large consumer market (that is, market opportunities) and What, Who and How. Washington, DC: World Bank. made efforts to improve its levels of human capital by addressing the qual- ity of vocational degree programs, promoting links between programs and the private sector, and rewarding firms that introduced training programs (with tax incentives if programs became government certified). Bucaraman- ga promoted collaboration between local universities and private sector firms. At the free trade zone, the city leveraged national resources and local capacity to offer firms customized training programs for their employees. 18 For example, in Tangier stakeholders from both the public and private sectors interact through a dedicated body called CRAM (Comité Régional d’Amélioration de l’Employabilité), which brings together the region’s governor (wali); the Regional Investment Comission; the local office of the national workforce agency; professional associations (for example, the or- ganization representing the automotive industry); and the local university. CRAM has four specialized commissions for targeted sectors in the region (automotive and aeronautics, offshoring, transport and logistics, and tour- ism) that analyze the workforce studies prepared by the national workforce agency; assess local industry training needs; develop concrete action plans; and periodically assess, validate, or correct the plans as needed. 28 APPENDIX Hypotheses for Competitive Cities Case Studies As noted in the main body of the report, the CCKB team developed and applied a set of standardized research hypoth- eses to all six successful cities studied. The objective was to ensure the comparability of findings and to enable the drawing of salient lessons from the findings. The hypotheses are presented below in their entirety. 1. City Competitiveness: General or Specific? Cities posting exceptional economic performance have made strategic bets on specific industrial initiatives, rather than just improving their general investment climate. By specific industrial initia- tives, we mean public investments that are geared to the needs of particular growth industries (e.g. industry-spe- cific tax and regulations; vocational skills and customized worker training programs; sector-specific infrastruc- ture; club goods; investment promotion; etc.). By general investment climate, we mean tax and regulations more broadly, basic institutions such as land and housing markets, trunk infrastructure, primary and secondary education, and other investments that affect industries more equally. Indeed, some high-performing cities actual- ly operated with a rather poor quality overall investment climate. A closer look at the components of city economic outcomes reveals the following ingredients of success: a. Successful cities often have a main “theme” – one area where they particularly excel. Such themes can include the presence of a flagship university, an anchor company catalyzing private-sector investment, excellence in research/technology commercialization, a strong entrepreneurial ecosystem, or exceptionally high degrees of openness to the global economy. A focus on developing and/or producing tradable goods and services (rather than non-trad- ables). Tradable goods and services are the only way that a city can grow the size of its economic pie, while non-tradables such as construction or retail only recirculate existing income. b. High-performing cities have nurtured not only new investments but also new business starts and the growth of existing firms. Cities might enjoy short-term economic success based on just one or two of these pillars, but sustained growth over the longer term relies on all three pillars. 2. Strategic Planning Inflection points in a city’s economic performance over time have been attributable to the specific actions/interventions of its policymakers and public officials. Policy interventions have been a critical part of changing a city’s development trajectory. Specific characteristics of an impactful strategic planning process may include a. Analytics to inform strategy development: • benchmarking the city’s economic performance in relation to its competitors; and • a longitudinal analysis looking at the city’s own past performance b. A structured planning process to: 29 • identify key economic development issues the city is facing, such as factors adversely affecting company formation, growth, and attraction, with a particular emphasis on market and coordi- nation failures holding firms back from achieving faster growth; • identify the city’s main competitive strengths, such as research excellence, human capital, or infrastructure facilities; and • formulate a vision of progress the city as a whole can make in a certain timeframe, including specific measures to address its problems and capitalize on the city’s competitive strengths. The particular process utilized in each city will be documented. c. Assembling a “growth coalition” at the city level: Bringing together public sector agencies with di- verse external stakeholder groups from civil society, constructively engaging them in the strategic plan- ning process both to provide input on key economic development issues, and to come up with suggestions for addressing them. Stakeholders engaged in this iterative dialogue can include: relevant public sector departments and agencies; universities and other entities with a role in workforce development and tech- nology commercialization; private-sector participants elected by each sector (rather than just the “usual suspects” or largest incumbents); trade unions and organized labor; NGOs; the media; multipliers; and excluded or marginalized social groups (impoverished communities, castes, religious and ethnic commu- nities, women). d. Strategic decision-making and prioritization: A structured process for evaluating policy priorities and trade-offs between different public investment alternatives, including credible cost-benefit (or compa- rable) analyses. e. Viable funding mechanisms: Economically successful cities have in place robust mechanisms and instruments to finance city-level interventions, including revenue capture and public-private partnerships (PPPs). f. Flexibility and adaptability: The flexibility of the formal (or informal) plan to adapt to changing condi- tions is of greater importance than the plan’s original design. Particular attention will been devoted to the process by which problems, challenges, and unexpected events are resolved along the way 3. Implementation Framework The level of autonomy (fiscal/institutional/political) and powers enjoyed by a city government or local economic development authority – the “Mayor’s Wedge” – is a significant factor in being able to push through interventions resulting in improved economic outcomes. Critical actions include: a. Having a dedicated economic development agency or department: This entity, tasked specifically with achieving strategic economic objectives, is most effective when it has the following: • Sufficient autonomy (both financial and administrative) from public administration rules and procedures; • Adequate funding to meet its statutory responsibilities; and • A well-defined geographical remit (municipal, metropolitan, regional, state/provincial). 30 b. Efficient internal management: Successful cities are marked by the following three characteristics of internal management: • Competent teams with clear role designations, reporting structures, and incentives. This includes an ability to solve inter-departmental coordination failures and implementation problems; • An enabling environment that promotes operational efficiency. In particular, effective public management systems and structures (PFM, HRM, internal controls, IT Systems, etc.) that stand the test of time are essential for getting results; • A credible performance monitoring and evaluation function. Monitoring and evalua- tion, at the heart of well-functioning organizations, is an essential tool to assess implementation against objectives, and to continually inform visions, strategies, policies and implementation effectiveness, including the following kinds of behaviors and routines: setting goals; prioritization among goals; developing policies; evaluation and measurement of performance; and incentive structures. c. Private-sector and other stakeholder involvement in implementation: Depending on how devel- oped a country’s private sector is, for-profit firms (both indigenous and foreign-owned) can play a highly constructive role in implementing a city’s economic development strategy, including through the follow- ing: • Marshaling financial and in-kind resources; • Integrating local small and medium-sized businesses into multinationals’ global supply chains; • Enlisting senior corporate leaders to act as the city’s public champions (as a business location) and utilize their relationship capital; • Engaging private-sector firms in workforce development, filling the talent pipeline by collaborat- ing with educational institutions to transfer their know-how to younger/future workers, as well as to retrain existing labor that may lack the necessary skills; • Harnessing the efforts of trade unions; and • Involving other stakeholder groups from the “growth coalition”, as applicable. 31 Funding for the companion papers and the main report was provided by CIIP Competitive Industries and Innovation Program Financed by in partnership with www.theciip.org Find the companion papers and the main report at www.worldbank.org/competitivecities