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Urban Transformation, Good Governance and Enhanced Service Delivery

December 19, 2016


The second Urban Local Government Development Project II (ULGDP II) has had a transformative effect on the 44 participating cities in Ethiopia. For the first time the cities have access to transparent, predictable funding, as long as they meet certain performance criteria. So far, nearly three million urban residents, 50% of them women, are benefiting from improved urban infrastructure services such as roads, drainage, new bridges, street lights, solid waste services and markets.


Ethiopia is going through a demographic transition. The WBG’s Urbanization Review (October 2015) indicates that with a 5.4% a year urbanization rate, the urban population is expected to triple by 2034. However, the urban local government institutional systems and infrastructure have not kept pace with the rapid urbanization. Despite progress over the last decade in building institutions, and providing infrastructure and services across all urban sectors, there is still much to do, even at today’s level of urbanization. In order for the opportunities presented by rapid urbanization to contribute to economic growth, service delivery needs to be improved significantly and urban infrastructure needs to be created and managed properly.


While the Banks’ approach in the past focused on pre-identifying cities and priority investment projects and then designing the project to finance those investments, ULDGP took an innovative step by moving from a project-approach to setting up a system to support cities.  The project has introduced a fiscal transfer instrument, whereby funds are transferred from the federal government treasury directly to the local government annually. Funds are for discretionary use by the cities (only for capital investments), and are allocated in time to fit with their annual planning and budgeting process. Another innovation involves the performance nature of this fiscal instrument.  In order to access funds, cities have to pass minimum conditions and have to attain certain scores on performance indicators. The score determines the level of funding they receive.  Performance is assessed annually by an independent assessment team. The performance nature of the fiscal transfer has introduced a healthy level of competition among cities.

" All these streets were previously dirt roads, dusty in the dry season and flooded in the wet season and extremely filthy, now look how clean and beautiful they are! "

Atsede Gebre Selassie

27 years old beneficiaries of the project in Adigrat


Results related to institutional performance:

  • Average score of all 44 cities on institutional performance (DLI2) and on urban infrastructure and service delivery targets (DLI 3) exceeded design targets in all three years of the program and end of program target (80%) achieved in third year of the program.
  • Financial accounting at the city level is improving, and all 44 cities have transitioned from manual to computerized systems. All 44 cities have timely closed statements of accounts and audits for EFY 15. Of which, eight cities have clean ( unqualified) audit opinions, and the rest were qualified. Since enrolling in the program all ULGs were found not to have audit backlog..
  • Revenue enhancement plans are in place in all cities, and many cities are increasing their revenues, with 34 of the 44 cities increasing revenues by more than 10% in FY 15;
  • Asset management plans are enabling the cities to plan for new investments and  budget for operations and maintenance (O&M) needs in a more systematic and comprehensive way.  Cities are now systematically implementing maintenance programs. Thirty-nine cities have executed at least 80% of their O&M budget in FY15.    
  • All 44 cities are routinely posting information on approved capital investment plans, budget execution, project physical progress, and contract awards on notice boards at the city and ward (kebele) levels. Councils are routinely discussing internal and external audit reports and the ULGDP quarterly progress reports. This is a practice started under the first phase of ULGDP and continued with ULGDP II.

Results related to local infrastructure, maintenance, and job creation activities:

  • Since the program became effective in July 2014, cities have created a total of 293,397 jobs of which 44% were female with 93,913 being permanent jobs and 199,484 temporary jobs through the ULGDP II
  • 719 kilometres of cobblestone roads were constructed in 44 cities over the last 2.5 years. These roads have led to improved access and mobility as well as  an improved business/trading environment. In addition, neighborhoods are more liveable. They have also created local jobs, particularly for youth and women. The roads have beautified the cities and are revitalizing neighborhoods, increasing property values and tax revenues.
  • Communities appreciate the cobblestone roads, bridges, and drainage systems so much that they are now contributing their own funds to construct more.

Bank Group Contribution

Since 2000, the World Bank and the international development community have been supporting the decentralized service delivery framework and urban policy of the government. The Bank has been supporting the government’s efforts to build institutional capacity across the country’s urban local governments (ULGs) to enable them to effectively meet their important responsibilities. This partnership has been ongoing through a series of projects, starting with the Capacity Building for Decentralized Service Delivery project (2002, the Public Sector Capacity Building Program Support Project (2004), and the Urban Local Government Development Program (2008) ( ULGDP). The respective IDA contribution was in the amount of $30 million for CBDSD, $100 million for PSCAP, and $300 million for the first phase of ULGDP, respectively.



The WBG has been working in partnership with German Society for International Cooperation (GIZ) to support urban development and decentralization in Ethiopia for over eight years.  GIZ was also involved in the design of ULGDP I. While GIZ's was providing  technical assistance (TA) focused on improving governance and building the capacity of cities to deliver services, however, the lack of funds to invest in infrastructure and service, meant that local governments had little incentive to efficiently use it. The partnership ensured that GIZ’s TA would focus on the ULGDP cities and is aligned with ULGDPI’s grant performance indicators. This laid the foundation for ULGDPII.  

Moving Forward

The program has established a system which encourages more contribution from the cities and regional governments for capital investments. It is laying the foundation for cities to fund more of their capital investments from own revenues and in the future  for them to look at other private sector financing options such as borrowing and public private partnerships (PPPs). A few cities have already started on some PPPs. The program is embedded in the very high sense of ownership of the processes and these will be sustained and continue without Bank support in the future. The urban local governments and regional governments are contributing more than the minimum required matching fund in many cases, which is a good indicator of ownership and sustainability. 


“All these streets were previously dirt roads, dusty in the dry season and flooded in the wet season and extremely filthy, now look how clean and beautiful they are!” said 27 year old Atsede Gebre Selassie one of the beneficiaries of the project in Adigrat.