George Atalla, Global Sector Leader for Government and Public Sector, EY spoke to Jonathan Andrews on the sidelines of the Urban Future conference in Vienna about procurement, benchmarking and why social impact investing could be the answer to finance smart cities
In your opening presentation, you spoke about EY’s list of five challenges that cities are facing: data, funding, governance, standards, and best practice technology. How did you reach those five?
Each time we met with a mayor or city official we summarised what is actually bothering them. The list of five is a concise summary of 30 things that we heard. We usually have these discussions with mayors who have just become mayors, so they are looking at what is going to be their legacy for the city and how to improve the quality of life in their cities. We have often done benchmarking exercises, which tell a mayor where they are right now and where they could potentially get to if they address certain issues like mobility, renewable energy, electric charging etc. Most often we find mayors who say, ‘Well, this is all fantastic, but I actually don’t have authority to implement or influence the execution of any of those things that would make the city more liveable’.
How have you been addressing this?
We’ve been having a lot of initial conversations with mayors, city officials and their teams to get everyone around a workshop for a couple of days to agree and sign a memorandum of understanding. This is an initial plan that gets them working together in situations where the mayor does not have authority over areas they want to influence.
The second thing that comes up inevitably is the issue of funding. Cities want to do this but don’t have the money. If you think about city lighting projects for instance, when they install sensors and change the lights there is a capital cost involved because they are going to be changing everything but then downstream there are some savings. The city can justify the initial outlay from the savings that they will get.
What other new financing models have you come across for smart cities?
What would be even more interesting is to get the private sector to put in the capital and the savings that the city realises because of this change in technology, the city pays them back that way.
If a city’s goal is to use technology to reduce congestion by having active monitoring and dynamic lane shifting–things that would make travel easier–it becomes a little harder because it’s not like you are building a road and the private sector collects tolls over a long time. The benefits the city makes are not financial. No one is going to see cash coming out of anyone’s pockets. It becomes a little bit more difficult.
Everyone talks about social impact investing which has not been used in this area yet. They have been used for opioid use but there is no reason why you couldn’t use them for reducing congestion. The amount of underwritten social impact bonds is still quite minute. The last time I looked, it was less than US$200 million worldwide. It’s tiny.
We’ve been working with many different jurisdictions around financing in the traditional way on infrastructure projects but I don’t think anyone has exactly ‘cracked the nut’ yet on how to finance smart city infrastructure.
You are working with Dubai to help it monetise its data. How can cities take advantage of the economic potential of their data?
If you think about Google Maps, Google probably has more traffic data than any city in the world. You could argue that Google should sell that data to the city, or should Google be paying us users for that data? Technically, is it ours? Who owns the data? I think it is the user who should own it but in this case, who is the user? The city, Google or you?
Where it becomes easy is in cases like Dubai. The way the city is structured makes decision making a bit faster. If all of this data is sitting with the one entity, we can maybe look at ways to monetise it from the start before requests come in from the private sector. Then it would make more sense to us. This is what we were kind of doing with Dubai. I can’t tell you more about it unfortunately as we have signed all sorts of documents with them but all I can say is that they haven’t yet opened all their data.
Does this then go back to the whole procurement process needing a 21st century overhaul?
Everyone is talking about innovation and disruption but can you really innovate within a city environment? We have seen cities set up innovation labs where they bring in the private sector and there is a bit of joint thinking around urban problems. Think about how innovation typically works and how some of the venture capital funds innovation, they probably fund 10 to 20 different ventures a year and expect one or two to work out. So there is a very high level of failure. Which means that whatever investment that they’ve placed is gone but one of those investments–hopefully– will reap very high rewards.
Within a traditional public sector procurement framework you cannot do this. There is no way for you to actually allocate money with a high likelihood that it will probably be wasted. Unless you start thinking about the need to change procurement laws to allow that to happen to allow a set up for innovation to happen then otherwise it is going to be hard. There are no guidelines for how do you manage your data, for instance. How do you monetise your data; what is an acceptable way?
Even with PPPs in the UK you can go on the PFI [Private Finance Initiative] website and download tonnes of standardised contracts on all sorts of PPPs that the government has started capturing and codifying and everyone can download. The fear of, ‘Am I getting myself into trouble?’ is diminished because you are building off of some work that someone else has already done. You don’t have that yet with smart cities.
So more benchmarking and sharing information between cities is the answer?
A lot of cities start off with benchmarking. We were talking about Dubai; if you asked someone in Dubai, who do you benchmark yourself against, they aren’t going to mention Paris or New York. They’re probably going to mention Singapore. When we kept getting that same question of “how do I compare against Amsterdam or Barcelona?” we thought, why don’t we have a very scientific way for answering that?
We defined about 250 indicators of what we consider to be smart. These include sensor deployment, availability of zero emission vehicles and electric charging stations, the number of apps that the public uses, the government’s ability to connect with citizens, and more. We can take a look at your city and compare it to another that you consider your peer. We compare not only against that city but also the average. If you define 10 cities which are interesting for you, we can compare your city against the average of the 10 cities or each one of them. That is a great starting discussion with a lot of mayors who have just become mayors. Then they say, ‘I’m here, I should be there and maybe my legacy when I’m mayor is to fill that gap’.