The Middle East’s economic future depends on cities to drive diversification and sustainability
Middle East’s smart cities must now become even smarter or risk becoming unsustainable. According to Sahem Azzam, VP Middle East, Africa & Turkey, at Orange Business Services, a network native digital services company and smart cities master systems integrator, the pandemic drove the third wave of smart city evolution – but when every major city in the region is ‘smart’, how do you make your city stand out? Welcome to the intelligent (or cognitive) city…
What are smart cities and why are they so important to the Middle East?
The smart city is a complex ecosystem built using digital platforms and IoT providing an array of coordinated vertical activities and digital services and experiences to citizens, residents, visitors and businesses.
Cities drive innovation, create employment opportunities, support entrepreneurism, and play a vital role as social and cultural hubs. Global cities are branded destinations attracting talent and investment. However, as the global population continues to urbanise rapidly, cities also consume more resources.
We believe in the transformative impact of digital technologies and their capacity to help people build more efficient, agile, sustainable and ‘liveable’ cities, with better management of power, transport and waste, for example.
Smart cities are central to the economic ‘visions’ of countries across the region, as drivers of economic diversification, digital transformation and sustainable development. The scale of city developments in the Middle East is a challenge and makes them unique, with many of the world’s largest and most ambitious greenfield smart city projects.
The vision and leadership are in place, but these developments are complex and costly and demand new thinking – and standing out is a challenge.
Today, we are on the brink of dramatic evolution and new possibilities in the smart city thanks to an array of new technologies but also with innovations in business models and financing. Success requires a clear focus on people, placing them at the heart of all decisions. Embedding data analysis and AI to create intelligence from the massive amount of data generated across the city now allows it to ‘learn’ from existing services and experiences. So, smart is no longer clever enough – this new phase of development is what we call the intelligent or cognitive city.
What impact did the pandemic make and how are smart cities changing?
Every city is a unique network of integrated activities and services that may grow and develop organically over time as new use cases emerge and evolve, supported by new boosts to innovation such as that from the pandemic, which accelerated digital transformation and changed many fundamental end-user habits, from ‘work from anywhere’ to online education.
This latest acceleration marks the third wave of digital city evolution. Wave one focused on connectivity for visibility and control; wave two on infrastructure and operational efficiency.
The third wave builds on the previous experience and integrates this with cloud and layers of AI on top to create a more responsive and cognitive city.
This opens up options to add new use cases and better designed solutions delivered faster ‘as a service’ via the cloud to citizens, transforming business and finance models, driven by data and leading to the new possibilities of an intelligent city.
This is more than just a tech-based concept: it’s an intelligent and sustainable urban area that is connected, agile and innovative, making extensive use of ICT and digital technologies and driven by real-time data to support fast human decision-making.
Intelligent cities offer our best hope in meeting the next big societal challenge – climate change – and will play a vital role as incubators of human and digital innovation by harnessing and building on their experience.
What makes smart cities intelligent?
The difference is that the intelligent city makes use of most of its data in decision-making rather than just the small fraction often used by today’s smart city equivalent. It provides a continual process of user feedback enabling experience innovation through frictionless data, in a co-creation process with citizens and residents.
Indeed, it’s a city that ‘learns’ based on constant interaction with users, collecting real-time data on user behaviour and needs, and enabled by AI and supported by predictive and prescriptive analytics. It responds quickly and automatically to improve the user experience making it more effective, efficient, sustainable and resilient.
New and existing smart cities have the opportunity to make this transition from smart to intelligent. This means a vital shift of focus and mindset, from technology infrastructure to data management, and from smart solutions to end-user experiences. Without this transition, there is a risk that smart cities underperform against their success criteria, don’t meet stakeholder expectations and so become unsustainable. A free, frictionless and efficient flow of open data is what really drives the evolution.
To do this requires collaboration across all of the stakeholders involved (from local authorities and investors to developers and telcos) in a model that delivers not only the user experience but also makes good business sense for each of them.
How are business models developing?
Today, new cities are designed around people’s needs and enabled by technology with real-time data analysed to create information to support human decision-making and interventions, with the option to fully automate some processes. Increasingly in the Middle East, the starting point is the use cases and personas they address, and then collaboration and co-innovation are required to incubate new solutions and applications, focusing on customer experience, lower costs or revenue streams from new paid services.
The increasing level of intelligence will improve the city’s ability to collect, store and monetise data based on specific and measurable goals for each persona, turning data into information and into defined measures of value – and of success.
So, the first and most important question for any new project is ‘what does success look like?’ – integrating the right business model and KPIs framed in business terms and not based on technology. This should unlock the value of data and define its ‘bankability’.
In fact, project owners must define the business model from the start, which means defining the success criteria based on specific business objectives and the design of end-user experiences for a range of personas.
This evolution from smart to intelligent cities creates new business opportunities for regional players with a full range of services – consult, design, build, operate – as well as for specialists in essential new layers of intelligence.
The region’s vendors have become active stakeholders in urbanisation projects – rather than passive suppliers – and play a vital role as the integration of cloud pulls them into direct operational relationships with customers and allows them to develop new streams of revenue.
Looking even further ahead, we see the future possibility of the ‘as-a-service’ model for the investor, eliminating major CAPEX and providing advanced OPEX-based services which can be scaled quickly and effectively. How are smarter city financing models evolving?
In the Middle East, a high proportion of cognitive or intelligent city projects are linked to government entities, with the option to become fully privatised or state-owned. Governments are now initiating public-private partnership (PPP) opportunities across this – and other – types of mega projects.
Public sector partners are looking for sustainable finance and funding partners; given the scale, complexity, cost and long-term nature of the CC/IC projects, the PPP model is emerging worldwide to finance projects based on an agreed business model, with legislation helping reduce the risk and reassuring private investors making long-term commitments. Investor confidence is essential in mobilising and orchestrating multiple partners in a collaborative ecosystem, ensuring it is economically viable and sustainable – as well as intelligent.
These long-term agreements share the investment and financial risk, revenue sharing and the design-build-operate responsibilities. On conclusion, the entire project and risk may be transferred back to the public sector owner for ongoing operations – or based on an OPEX model for services.
A PPP contract might require 25 percent financing by the public agency and then a private partner/s to co-finance the balance, but it must be a sustainable model through the life of the city. With the scale of ambition in the Middle East, this inevitably demands financial innovation.
Do intelligent cities really make financial sense?
Not all cities or developments are the same or as intelligent as they could be – so difficult choices may have to be made, and more creative ways found to make a project really intelligent, integrated and bankable.
All smart services do one (or more) of three things: improve customer experience, lower operating costs, and generate revenues, and a business case should be made for each service to determine the return on investment.
But which services are essential, desirable, affordable and deliverable in an urban environment – and when?
Real estate developers may not be able to operate an intelligent development – an industrial city or healthcare facility or an education campus – and may want to access smart services on an OPEX basis, phasing them in over time, as more (or different) budget becomes available, depending on the financing model.
But intelligent cities are more than the sum of their services and this synergy is part of the process of defining the intelligent project’s ‘bankability’ – and its ability to attract financing.
Major projects need significant finance through PPP or hybrid models, reflecting the potential 10–20-year lifecycle of the project partnership.
Projected returns on investment and the demonstrable ability to deliver the project and services are critical elements in successfully raising project finance – but service selection and how they are delivered (such as exclusive concessions) also influence its bankability.
Intelligent cities are certainly a good hope for a sustainable future, but they have to make financial sense today.
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Quelle/Source: Arabian Business, 04.07.2022
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