The business case for investing in smart cities

From Da Nang in central Vietnam to Banyuwangi in eastern Indonesia a quiet transformation is underway across South-East Asia that could change the shape of some of the world’s fastest-growing cities.

The ASEAN Smart Cities Network (ASCN) is a year-old initiative that shows how regional economic integration is creating new opportunities for business investment and sales as fast-growing and potentially overburdened cities compete to modernise.

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The ASCN’s 26 flagship cities are all implementing their own unique action plans and then sharing the results with each other. This creates the potential for rapid adoption of innovation, from improving traffic management to more efficient water supply, to quickly flow across the region, as City Governments and businesses modify them to suit local circumstances. Singapore’s Chief Smart City Officer, Tan Chee Haw identifies the three pillars of the ASCN as creating business opportunities in the digital economy, shifting more control of urban services to citizens, and making sure the benefits of urban development are shared and spread.

HSBC Senior Adviser, Future Cities & New Industries, Professor Greg Clark says the new South-East Asian focus on cities is part of the biggest investment opportunity in the world. The demand for “good urbanisation”—well managed and effective urban solutions—in South-East Asia can boost cities’ productivity, reduce carbon footprints, improve living standards, and increase citizen satisfaction

This process, says Professor Clark, is occurring four-times faster in South-East Asia than was the case in the West. As such, it needs more proactive management and investment than has been seen elsewhere. “You have got a population that is fast-growing, with many more people joining the ‘consuming class’, and a clear link between social mobility and urbanisation. Across ASEAN there are diverse and distinct arrangements in governance, technology and investment platforms, so we need experiments and innovations, not just template solutions,” Professor Clark says.

New challenges require smart solutions

The ASCN agreement to share smart city ideas, but pursue them separately at the local level, emphasised bankable projects that can be taken to private investors and suppliers. As a result, the 26 flagship smart cities have now each nominated their priorities, from the cashless public transport system in Jakarta to integrated water management in Malaysia’s Johor Bahru.

Another integrated programme is Ho Chi Minh City’s plan to seek $53 billion in investment for 210 projects in transport infrastructure, education, healthcare, tourism and sport. This reflects the pressure Vietnam’s commercial capital is under as one of the region’s fastest-growing urban centres. Ho Chi Minh City’s priorities are an Intelligent Operations Centre and an Integrated Emergency Response Centre. The city is promising a radical initiative to make its data more transparent, which would enable businesses to pitch solutions to urban challenges such as traffic congestion.

Cities are doing it for themselves

Professor Clark says the challenge for business is to understand that cities are now often learning directly from one other—rather than following central government directions - and businesses are increasingly a major part of that innovation system. Businesses need to integrate with this process and realise that smaller cities, with relatively less-intensive IT infrastructure, still offer good investment and sales prospects.

He identifies an opportunity for South-East Asian businesses in improving the integration of urban services, such as aligning transport and real estate, tourism and education, health and housing or waste management and water services to reduce costs and improve amenity.

For example, Phuket, in Thailand, is pursuing an interesting integration project to deal with rising tourist numbers. One of the most-visited destinations in Asia, Phuket will collect data on tourist’s behaviour from Wi-Fi, the internet-of-things sensors, wristbands, GPS, and social media and then use this data to better collect waste, provide security and understand tourist consumption patterns. To achieve this, Phuket is looking for technical support in data analytics, business intelligence and facial recognition technology, as well as expertise in the fields of data management and blockchain.

Another important commercial entry point to the ASCN is the foreign development aid funding from countries including the US, Japan and Australia, which are involved in offering ideas from their own urban design experiences. This aid funding provides an entry channel for businesses which can align with the lender country priorities.

Professor Clark also says cities may have chosen flagship projects, but will need help from business in designing and budgeting the roll-out and scale-up. In April, HSBC presented ASEAN finance ministers with a series of recommendations for infrastructure development including a proposal for an Urban Infrastructure Network, which would provide training for city officials to develop bankable and sustainable smart city projects.

How businesses can make the most of this opportunity

The first step for businesses to break into this new regional opportunity is to look at the diverse projects being nominated by the ASCN cities and decide where their skillsets and solutions are most relevant and required. For example, Davao City has prioritised increasing public safety through intelligent surveillance and better data collection and assessment, and improving its urban transport through smart mobility. This creates an opportunity for mid-sized organisations with an ASEAN footprint that can offer information and communications technology expertise, security or transport services or solutions, or relevant consultancy and advisory services.

Having identified where their services are required, Professor Clark advises that businesses should then visit these cities to examine their funding plans and build contacts and networks. The smart city programme is now a fixture of the ASEAN meeting circuit with city officials meeting to benchmark their progress and look for business partners.