Competing for mobile capital– the leadership dimension

Urbanisation has ushered in a new era of competition between cities, in vastly different areas such as for talent, manufacturing, tourism and of course finance. Yet, governments at national, state and city level usually have limited access to funds and ways of financing their plans to improve urban wellbeing.

So what is the best way to attract investors, and human capital, and enable the financing and delivery of critical infrastructure and public services? And how can urban leaders encourage investors, as well as businesses, knowledge institutes and engaged citizens, to invest in the wellbeing and success of a place?

The new capitalism

Cities are constantly in need of the funds to invest in the capitals they need to sustain competitive success–social capital, intellectual capital, human capital, cultural capital and political capital (see Figure 1).

The scale of the funding challenge is shown by, for instance, the global capital project and infrastructure market. This is expected to be worth over US$9 trillion per year by 2025 compared with US$4 trillion in 2012, spurred by rapid urbanisation and demographic changes.

But delivering effective, efficient and sustainable urban infrastructure is essential to provide the backbone from which economic success and prosperity can grow. As PwC’s Government and the Global CEO Survey 2016 shows, adequate physical and digital infrastructure is joint second on the list of government priorities for CEOs (behind skills).

The funding challenge is of course not restricted to capital infrastructure. As technology drives mobility and connectivity, cities are also seeking to upgrade what they can offer residents and businesses, and establish smart city systems that will position them as global leaders.

Cities are also more than just growth machines: they also cater to fundamental needs of human cohabitation. Cultural events, social activities, learning and playing are all characteristics of the human condition which cities (where more than 50 percent of Earth’s population currently resides) need to create the environment to deliver.

So in order to be seen as truly attractive cities, liveability is key covering the aspects of urban life that take place surrounding the working day including the spheres of leisure and culture. But this comes at a cost and requires cities to articulate their needs in a way that is attractive to potential investors.

Becoming investor ready

Public bodies at national, regional or city level need to tap into all existing sources of funding available to them, and create the right conditions to harness new sources of funding to deliver projects ranging from housing through to local transport.

Indeed, our research with Siemens and Berwin Leighton Paisner (BLP) demonstrates the importance of creating projects that are ‘investor ready’. This requires, first and foremost, that cities have a clear, well-formulated vision of growth and economic prosperity, underpinned by a set of well-defined strategic objectives (the what) and initiatives (the how).

But this vision must be owned by key stakeholders–politicians locally (and nationally, where appropriate), officials, businesses and residents–with strong leadership needed to develop and sell their city vision. This in turn provides confidence to investors that the emerging challenges are understood and will be managed.

Cities in particular must become more innovative and adventurous with respect to how they raise finance. Investment can come not only from domestic banks, institutions and capital markets, but also from overseas sovereign wealth funds, pension funds, bilateral and multilateral institutions, and public-private partnerships.

However major investors are increasingly conservative in their decision making which has three important implications. Firstly, local public bodies must demonstrate clearly how investors will capture the value from their investments. For example, in the case of infrastructure, that might comprise a variety of mechanisms such as tax incremental financing.

Secondly, investors need to see that the projects in which they’re investing are properly planned and have clear accountabilities for delivery. This is essential to provide assurance that funds will be properly used and risks managed. This is particularly important in the case of asset classes where the underlying technology is not proven and where the returns have long lead times and are therefore subject to greater variability. This calls for savviness and a commercial approach from project owners.

Thirdly, capturing value for the investor also requires that value is created for the user, and for which they are prepared to pay, like through a tariff or user charge. Of course, some upfront public sector investment is still often needed to create investor confidence in the commitment to a major project, and (if applicable) to subsidise the tariff charged to users. In this context, city leaders can play a vital role in galvanising and attracting the investment community, as well as businesses and knowledge institutes, to invest in a place.

New urban leadership

In this context, leadership lies at the heart of enabling and delivering sustainable urban competitiveness as our research on iUrban and Investor Ready Cities demonstrates. Cities need to show strong leadership in developing and selling their city vision of a quality of life proposition which exceeds that of its closest competitors and which provides a tantalising offer that investors and prospective residents can’t fail to ignore.

Leadership is also a critical capability to make things happen (Figure 2), especially as finance is usually a key barrier to delivering city strategies. As the challenges facing cities in the 21st century magnify, the role and importance of urban leaders can hardly be underestimated nor can the need for a more inclusive approach to those who can help make change happen in a place– including lead firms, knowledge institutes and engaged citizens.

Moreover, in many places around the world, responsibilities are being devolved from the national to the regional and local levels. This is heightening the pressure to achieve results, negotiate deals, guide actors inside and outside public organisations and find new ways of solving problems locally.

The key lesson from our forthcoming iUrban research* is that the leadership required to carry out complex urban development strategies requires multiple skills and new types of urban managers. It relies less on single people but on their capacity to connect and distribute power to other stakeholders, within and outside the public administration.

Within a sustainable competitiveness framework, leaders should therefore be able to inspire, connect cultures and stakeholders and act as institutional entrepreneurs within the public sector.

This in turn provides confidence to investors that the emerging challenges are understood and will be managed.

In a globally connected marketplace, where cities compete with each other for scarce investment funds, success will be reflected in the ability to attract internationally mobile capital (as well as talent).

Where next?

Ultimately, cities must create a quality of life proposition which exceeds that of their closest competitors and provides an attractive offering to investors and prospective residents. City competitiveness therefore comes down to how to attract the financial investment and human capital that will sustain a city into the future.