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How smart city investment can unlock economic growth

ESI ThoughtLab’s benchmarking study of 136 cities also predicts that cities’ use of technologies such as blockchain, robotics and drones will skyrocket

Smart cities can trigger a cycle of economic growth, says the report
Smart cities can trigger a cycle of economic growth, says the report

Smart city investments can trigger “a robust cycle” of economic growth by unlocking savings and attracting businesses, residents, and talent, according to a major new benchmarking report of 136 cities report from ESI ThoughtLab.


The “catalytic impacts” associated with becoming a smarter city have the potential to increase GDP per capita by as much as 21 per cent and population growth by 13 per cent over the next five years for cities beginning their smart city journey.


A clear roadmap and business case


ESI, the thought leadership arm of Econsult Solutions, an economic consultancy, teamed up with a coalition of leading organisations to explore the business case for urban transformation in a research programme entitled Smarter Cities 2025: Building a sustainable business and financing plan. The research found that to drive optimal results, cities need a well-thought-out roadmap and business case for smart city transformation.


“Smart cities provide major economic, social, and productivity benefits to all stakeholders. said Lou Celi, CEO of ESI ThoughtLab and the project’s director. “But without the right vision, plans, talent, and funding in place, smart city programmes will not reach their full potential.”


In addition to the city survey of government leaders, the research programme included diagnostic surveys of 750 businesses and 2,000 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 per cent of the world’s population.

“Without the right vision, plans, talent, and funding in place, smart city programmes will not reach their full potential”

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. These included five “foundational” pillars -- smart governance, economy, infrastructure, talent, and funding -- as well as the five “tech-enabled” pillars of 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


Data is the “rocket fuel” for smart city transformation. 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 per cent of cities, will rise in usage by 63 per cent. Similarly, the use of both geospatial and behavioural data will rise by 54 per cent.


Keeping up with digital innovation is essential for smart city success. Cloud-based technology, mobile apps, citywide data platforms, IoT/sensors, biometrics recognition, and geospatial technology are now used by more than half of the surveyed cities. By 2021, these technologies will be table stakes for urban centres. While just one out of 10 cities now use more advanced technologies, these will skyrocket over the next three years: blockchain usage will grow by 752 per cent; AI by 526 per cent drones/robots by 298 per cent; vehicles-to-Everything (V2X) by 257 per cent, and VR/AR by 254 per cent.


Spending on smart programmes rises with smart city maturity. 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 per cent of their capital budget to smart programmes, while leaders apportion about 20 per cent. 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).


The future of mobility will be multi-modal systems connected through smart technology. The study revealed that cities around the world are developing multiple modes of transportation to provide greater efficiencies for residents and businesses. 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.


City leaders see the environment as the top challenge to address through smart city programmes, and improved public safety and health as the main benefits. For example, environment investments in smart grid technology generate annual per capita savings of $229.86 and reduce C02 emissions 223 pounds 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 per cent and property crimes by about 10 per cent, leading to a potential savings of $420.33 per capita for beginner cities.


Funding smart city solutions remains a key challenge for most cities. Urban leaders need to be creative and resourceful in finding ways to fund their future. In three years, public-private partnerships (65 per cent) will be the dominant financing technique, followed by concession financing (60 per cent), revenue share financing (60 per cent), and department budgets (59 per cent), 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 per cent and 58 per cent, respectively.



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