Report No: AUS10133 Republic of Malawi Public Disclosure Authorized Malawi Urbanization Review Leveraging Urbanization for National Growth and Development April 15, 2016 Public Disclosure Authorized Public Disclosure Authorized GSU19 AFRICA Public Disclosure Authorized Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. 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Malawi Urbanization Review Leveraging Urbanization for National Growth and Development April 15, 2016 GSURR AFRICA Contents ACKNOWLEDGEMENT ..................................................................................................... IV ABBREVIATIONS ................................................................................................................ V EXECUTIVE SUMMARY .................................................................................................... VI The Contribution of Urbanization to National Growth and Development ............................................................. vi The Institutional and Financing Capacity of Urban Local Governments ............................................................... viii Policy recommendations ...................................................................................................................................... ix 1 URBANIZATION AND ECONOMIC TRANSFORMATION IN MALAWI ................... 1 1.1 Introduction .............................................................................................................................................. 1 1.2 Urbanization Trends in Malawi ................................................................................................................. 1 1.3 Opportunities and Challenges of Urbanization .......................................................................................... 6 2 RURAL-URBAN LINKAGES FOR NATIONAL GROWTH AND DEVELOPMENT .... 12 2.1. Introduction ............................................................................................................................................ 12 2.2. Growth, Employment and the Rural and the Urban Economies .............................................................. 12 2.2.1. National growth and structural change ................................................................................................. 12 2.2.2. Rural and urban employment ................................................................................................................ 16 2.3. Malawi’s Rural and Urban Economies ..................................................................................................... 18 2.4. Urbanization and Investment Scenarios .................................................................................................. 22 2.4.1. Baseline or “business-as-usual” scenario .............................................................................................. 23 2.4.2. Faster urbanization scenario ................................................................................................................. 26 2.4.3. Urban investment scenario .................................................................................................................... 29 2.4.4. Win-win investment scenario ................................................................................................................ 31 2.5. Conclusion ............................................................................................................................................... 31 3 LOCAL GOVERNMENT FUNCTIONS AND FINANCING ......................................... 33 3.1. Introduction ............................................................................................................................................ 33 3.2. Decentralization and Local Government System ..................................................................................... 33 3.2.1. Decentralization ..................................................................................................................................... 33 3.2.2. Local Government System ..................................................................................................................... 34 3.2.3. Urban Local Government ....................................................................................................................... 38 3.3. Functional Assignments, Performance and Expenditure Patterns ........................................................... 42 3.3.1. Local Government Functions ................................................................................................................. 42 3.3.2. City Councils and Urban Infrastructure and Service Delivery ................................................................ 44 3.3.3. Urban Local Government Expenditure Patterns .................................................................................... 51 3.4. Local Government Revenues ................................................................................................................... 53 3.4.1. Own-Source Revenue Assignments, Patterns and Performance ........................................................... 54 3.4.2. Inter-Governmental Fiscal Transfers ..................................................................................................... 59 3.5. Borrowing and Other Financing ............................................................................................................... 63 3.6. Conclusion ............................................................................................................................................... 64 REFERENCES ..................................................................................................................... 69 ANNEX I. ECONOMY-WIDE MODEL ............................................................................... 73 Consumer and producer behavior........................................................................................................................ 75 National product markets and international trade .............................................................................................. 75 Government and investment demand ................................................................................................................. 76 Factor and product market equilibrium ............................................................................................................... 77 Capital accumulation ........................................................................................................................................... 77 Internal labor migration....................................................................................................................................... 78 Agglomeration, congestion and technical change ................................................................................................ 78 ANNEX II. STRUCTURE OF THE MALAWI MODEL ........................................................ 79 ANNEX III. LOCAL GOVERNMENT AREAS AND POPULATION SIZE (2008) .............. 80 i Boxes Box 3.1 Centralized and deconcentrated sector spending ......................................................................... 44 Box 3.2 Solid waste management in Lilongwe and Blantyre: snapshots .................................................... 47 Box 3.3 Mzuzu City Council and property rates .......................................................................................... 58 Box 3.4 The Constituency Development Fund ............................................................................................ 61 Figures Figure 1.1 Urbanization Rates in Sub-Saharan Africa, 2014 ......................................................................... 2 Figure 1.2 Size Distribution of Urban Centers, 2008 ..................................................................................... 3 Figure 1.3. Urban Population Expansion, 1998-2008 ................................................................................... 5 Figure 1.4 Migrant Share of Urban