Smart Cities and the Global Digital Infrastructure Revolution

Writing for GRESB Insights Series, John Kavanagh, Head of Policy and Public Affairs & Max Worthington, Policy / Research Executive look at the move to smart cities and the digital infrastructure revolution. 

As the world begins to emerge from the global COVID-19 pandemic and lockdown measures are eased in the months ahead, the attention of decision-makers will begin to shift towards the need to stimulate the recovery and to get economies up and running again. The crisis has already taught us many things, but perhaps one of the most poignant lessons is on the importance of digital infrastructure in sustaining economic activity.

Millions around the world have been able to continue to work virtually, coordinating tasks using applications and software which are ultimately reliant on a robust physical digital infrastructure network. Microsoft Corporation recently announced that its Teams software had set a new daily record of 2.7 billion meeting minutes and the number of video calls on the platform increased 1000 percent in March 2020.¹

The crisis has also shone a light on those countries struggling to keep pace with the digital infrastructure revolution. According to the US Federal Communications Commission, more than 21 million US citizens remain without any broadband connection at all; this lack of connectivity exacerbates the challenges faced by ordinary US citizens when relying on remote communications in an era of strict social distancing.

The Opportunity

The opportunity to harness the shift to digitalization is colossal. The McKinsey Global Institute (MGI) estimates that an additional USD 13 trillion could be added to global GDP by 2030 through digitalization, automation, and Artificial Intelligence (AI) as these technologies create new ventures and productivity gains, which in turn lead to reinvestment. It is important to remember though, that technology-enabled infrastructure relies on a partnership between public decision-makers and private investors that have the capital to deploy and unrivaled expertise in project management and delivery to make this a success.

According to the United Nations Department of Economic and Social Affairs, an estimated 68% of the world’s population will live in urban areas by 2050.² By 2030 alone, the world is projected to have 43 megacities with more than 10 million inhabitants, making the transition to technology-enabled management of urban growth an increasingly pertinent policy issue for all levels of government administration around the world.

Smart Cities can form a part of the policy response to the challenges resulting of increasing urban population densities and the knock-on effect on housing, transportation, waste, water and energy network infrastructure. Most definitions of a smart city include the use of digital technology to improve efficiency of services, the integration of information and communication technologies and sensor-enabled Internet of Things (IoT) solutions to manage a city’s assets and processes.³  According to the European Commission, the Smart Cities project market is expected to exceed USD 2 trillion by 2025 – with Artificial Intelligence forming a key cornerstone of the growth.⁴

Smart Cities can also change the nature and economic models used in infrastructure, relying on technology to improve the quality of life for citizens. Connected mobile applications put an unprecedented volume of real-time data into the hands of users to optimize existing urban systems and allow users to make informed decisions. ⁵

Digital intelligence can reduce congestion on roads, minimize waste and energy usage, provide disaster early-warning systems, optimize emergency service responses and provide infectious disease surveillance – among many other benefits.⁶ In their research on the digital solutions for Smart City living in 2018, MGI found that the public sector would be the natural owner of 70 percent of the technology applications they surveyed; but 60 percent of the initial investment required to implement the full range of applications would come from private actors. ⁷

The Smart City Infrastructure Fund

To provide a tangible example of successful public-private cooperation on Smart Cities, we can look towards the Smart City Infrastructure Fund. The fund was established by APG, a Netherlands based pension investor and GIIA member, and Whitehelm Capital in November 2018 to provide long-term funding for Smart City infrastructure projects enabling cities and communities to become more inclusive, safe, resilient and sustainable and helping governments to provide more efficient urban services to communities whilst also meeting decarbonization targets. ⁸

They agreed to partner with SiFi Networks America Ltd (“SiFi”) to invest over USD 75 million in the deployment of Smart-City ready digital infrastructure in the City of Fullerton, California. This partnership will enable the rollout of the largest privately funded open-access fibre network in North America. Ron Boots, the Head of Infrastructure at APG, notes that “the ultimate objective of the fund is to improve quality of life and meet the needs of cities, allowing city officials to interact directly with the community, to improve physical infrastructure and how essential services are delivered”.

The roll-out of FiberCity™, SiFi Network’s next generation of telecommunications, in Fullerton will provide a significant upgrade to internet speeds and could equip more than 55,000 homes and 5,000 businesses with high-speed fibre connectivity. ⁹ It will also facilitate the proliferation of new Smart City solutions in key urban services, usually the domain of public actions, such as traffic control, street lighting and emergency services. Additionally, the fibre network will provide a platform for the future expansion of 5G mobile and Internet of Things networks into the area.

The Future

Smart Cities help to provide us with a case study in success for how the public and private sectors can work together to realize the benefits of the global digital infrastructure revolution. However, despite their successes, they only represent the tip of the iceberg for what could be achieved with closer working and understanding between the public and private sectors in this important policy area. As governments deal with the immediate aftereffects of the COVID-19 pandemic and seek to get economies up and running again, they would be well placed to proactively engage with their private sector partners to leverage the transformative potential of private capital and realize the opportunity of the global digital infrastructure revolution in the years ahead.

¹ NASDAQ website (April 2020) Microsoft’s (MSFT) Teams Sees Growth Amid Coronavirus Scare
² UN Department of Economic and Social Affairs (2018), 2018 Revision of World Urbanization Prospects
³  OECD, (2019) Enhancing the contribution of digitalisation to the Smart Cities of the future
⁴ European Commission (2018), Smart Cities
⁵ McKinsey Global Institute (2018), Smart Cities: Digital Solutions for a More Liveable Future
⁶ OECD (2018), Enhancing the Contribution of Digitalisation to the Smart Cities of the Future
⁷ McKinsey Global Institute (2018), Smart Cities: Digital Solutions for a More Liveable Future
⁸ White Helm Capital (2019), First Investment of Smart City Infrastructure Fund
⁹ APG (2019) APG and Whitehelm invest in California fibre network