The business case for smart city transformation
The research arm of economic consultancy Econsult Solutions, ESI ThoughtLab, has revealed that smart city investments trigger a cycle of economic growth by unlocking savings and attracting businesses, residents and talent — just as long as governments go about transforming their cities the right way.
As digitisation, globalisation and demographic change redefine the urban landscape, becoming a smart city is vital for fostering economic growth and prosperity, while addressing the expectations of citizens and businesses. But the path to a smart city future is often unclear to urban leaders.
To help them find their way, ESI teamed up with a coalition of leading organisations to explore the business case for urban transformation in a research program titled ‘Smarter Cities 2025: Building a sustainable business and financing plan’. Their research found that the catalytic impacts associated with becoming a smarter city have the potential to increase GDP per capita by as much as 21% and population growth by 13% over the next five years for cities beginning their smart city journey.
To drive optimal results, however, cities need a well-thought-out roadmap and business case for smart city transformation. As explained by Lou Celi, CEO of ESI ThoughtLab and the project’s director, “Smart cities provide major economic, social and productivity benefits to all stakeholders — but without the right vision, plans, talent and funding in place, smart city programs will not reach their full potential.”
In addition to a survey of the leaders of 136 cities, the research program included diagnostic surveys of 750 businesses and 2000 citizens in 11 representative cities, along with economic impact models for cities in different stages of smart city maturity. The 136 cities, covering 55 countries, ranged in size from 35,000 to over 37 million residents and represented approximately 10% of the world’s population.
ESI ThoughtLab categorised cities into beginner, transitioning and leader stages of smart city maturity by scoring their progress across 10 pillars of smart city development, including five ‘foundational’ pillars — smart governance, economy, infrastructure, talent and funding — as well as five ‘tech-enabled’ pillars — smart mobility, environment, public safety, public health and payment systems. The study found that many beginner cities often jump into digital solutions before they lay down the foundational pillars, which are vital to long-term smart city success.
Other key findings from the research cover the following:
- Data: By 2021, almost all cities will draw on IoT and real-time data, and the use of AI-generated data will grow fourfold. Predictive data, which is already employed by about 40% of cities, will rise in usage by 63%. Similarly, the use of both geospatial and behavioural data will rise by 54%.
- Digital innovation: While just 1 out of 10 cities currently use more advanced technologies, these will skyrocket over the next three years: blockchain usage will grow by 752%, AI by 526%, drones/robots by 298%, Vehicles to Everything (V2X) by 257% and VR/AR by 254%.
- Spending: As cities move up the smart city maturity curve, so does their spending on smart city projects as a proportion of their operating and capital budgets. For example, beginner cities allocate 15% of their capital budget to smart programs, while leaders apportion about 20%. For some pillars (mobility, environment, governance, economy, payments), the level of investment increases as cities become more mature, while for others the level of investment decreases (infrastructure, public safety, talent).
- Mobility: As cities move to a tech-enabled, multimodal mobility model, which includes ride and car sharing, smart traffic signals, mobile apps and smart public transit systems, there can be large returns in time and money. For example, in beginner cities, mobile apps can save riders 10.3 hours annually per capita in waiting time and increase transit ridership, while smart traffic signals can offer per capita annual personal time savings of 9.7 hours and fuel savings of 3.3 gallons per capita.
- Benefits: Investments in smart grid technology generate annual per capita savings of $229.86 and reduce CO2 emissions by 101 kg per person annually in beginner cities. Pollution reduction has positive effects on health, particularly for sufferers of chronic obstructive pulmonary disease (COPD), for whom treatment with smart public health technologies such as telemedicine can reduce annual healthcare costs per capita by $24.83. In public safety, technologies such as predictive policing reduce violent crimes by about 5% and property crimes by about 10%, leading to a potential savings of $420.33 per capita for beginner cities.
Funding: Urban leaders need to be creative and resourceful in finding ways to fund their future. In three years, public–private partnerships (65%) will be the dominant financing technique, followed by concession financing (60%), revenue share financing (60%) and department budgets (59%), which will all grow in use over current levels. Federal and state support will grow the most in use over the next three years, by 71% and 58% respectively.
For more information on the research program, visit https://econsultsolutions.com/esi-thoughtlab/smarter-cities-2025.
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