As more cities around the world invest in smart city projects, the role of the private sector in driving urban evolution is pivotal.

By Xische Editorial, November 6, 2018

Long before global trade and commerce flowed through the West, the Middle East was the engine of marketplace culture driving the international economy. As early as 5000 BC, early forms of capital innovation were taking hold in cities like Babylon. According to the historian Nima Sanandaji, early urbanism in these cities was defined by all matters of trade from capital markets and banks to artisanal industries. When it comes to the contemporary debate about building smart cities, this historical perspective might seem outdated but it is crucial.

The history of capitalism is woven together with the history of urbanism. The first cosmopolitan cities, which emerged as a result of advancements in agricultural production and technology, were hives of commerce, capital, and trade. As they became more powerful economically, private industries built the urban environment. Sometimes this was a force of the market and at other times it was at the direction of the rulers. Monarchs commissioned public infrastructure projects such as cathedrals and libraries to signal their city’s economic success and drive more growth.

The modern smart city project is the latest incarnation of this age-old dynamic. Instead of glass and masonry, city leaders are wielding ICT and data analytics in a bid to improve municipal efficiency, boost quality of life, and drive economic growth. Governments are trying to build smart cities by themselves, but the public sector represents just a fraction of the smart city experience. As more cities around the world invest in smart city projects, the role of the private sector in driving urban evolution is unavoidable.

The case of the United Arab Emirates highlights the limitations of a government-only approach. As a young country founded in 1972, the UAE has a remarkable amount of experience with government-led city investment and planning. Cities like Dubai were built from the ground up with the government making all decisions and carrying out all public projects. With the smart city revolution, Dubai government planners have realised that they private sector is the missing ingredient, which is why the city is a model of the private sector engagement.  

In the World Economic Forum’s 2016 ICT Readiness Index report, the UAE earned top marks on government promotion of ICT and adoption of smart services, but fell short in the areas economic impact, business usage and affordability. Without private sector engagement, the UAE achieved an aggregate ranking of just 26 out of 116, well behind Singapore, Hong Kong and the Scandinavian states.  The private sector is the missing link.

Scandinavian cities offer the perfect blueprint for how the private sector can assist governments in smart city development. Denmark is a world leader when it comes to public-private partnerships that harness the power of the private sector to reach urban goals. Around 250 Danish companies are involved in smart city activities in Copenhagen, and small companies make up two-thirds of the industry. As part of its smart city commitment, Copenhagen aims to become the world’s first carbon-neutral capital by 2025 with the help of local industry. Using Copenhagen as a reference, Danish companies are exporting their smart city experience to other cities around the world.

The obvious secret to Denmark's success is the financial gain the Danish private sector enjoys from public-private partnerships. Public money has been earmarked for smart city components carried out by private companies. Once projects are complete, these companies can export their knowledge and expertise to other cities around the world engaged in similar transformations. With a long history of using private companies to carry out public projects, many Western cities understand this formula; however, the story is different and more challenging in emerging markets.

Lacking the vibrant private sectors necessary for public-private partnerships, emerging market cities have turned to foreign investment. In Africa, for example, many countries have welcomed Chinese investment in infrastructure projects. From commuter trains in Nairobi to urban infrastructure in Cairo, the Chinese have invested massive amounts of money and resources. As part of the Chinese Belt and Road initiative, a global infrastructure project designed to pivot international trade flows towards Beijing, China has been one of the most active forces in emerging market cities.

But the Chinese model has limits, and solutions delivered in this manner act as crutches, rather than a transformation from within. Emerging markets need to build their own private sectors to fully create their own smart city environments. Without homegrown innovation, these cities run the risk of being dependent on foreign investors and multinational companies focused on turning profits instead of creating viable solutions to urban problems.

The UAE has stepped up its collaboration with the private sector in recent years, building an instructive smart city roadmap for others to follow. Using local capital to invest in smart city solutions from robotics in the services sector to the lowering of carbon emissions, Dubai demonstrates how local challenges can be met without foreign intervention. The Dubai government also invested heavily in the city’s private sector to create smart projects that are transforming Dubai into a futuristic smart city.

Given its position at the nexus of emerging markets, the smart city solutions Dubai’s private sector is creating can be exported to the rest of the world. With no history of colonialism or hostile foreign intervention, Dubai’s knowledge and expertise come with few strings attached for other emerging markets. As global superpowers compete for influence in growing emerging markets, Dubai’s private sector is an important counterbalance that will help spur positive development in cities around the world.