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Symposium 2015

Solution for How to Build Sustainable Cities for the Next Urban Billion?

The Challenge

By 2050 the number of people living in cities will reach 6 billion. Existing cities will not be able to accommodate an estimated 2 billion people who will migrate from the countryside to urban centers ...

By 2050 the number of people living in cities will reach 6 billion. Existing cities will not be able to accommodate an estimated 2 billion people who will migrate from the countryside to urban centers seeking employment, education, and a better living standard. How to build the next 500 sustainable cities created by this rampant urbanization is among the greatest challenges of this century and it also represent one of the greatest opportunity to address a multitude of issues related to the environment, economic development, social advancement, medical infrastructure, and education.

How Investors and Professional Developers Can Help Build Sustainable Cities for the Next Urban Billion

In the face of immense pressure from the combined forces of massive urbanization and increasing pressure on basic resources like clean water, clean air, reliable and affordable power and mass transit, governments unfortunately seem unable or unwilling to finance and build the kinds of infrastructure needed to accommodate this growth. Most local governments also appear handicapped in economic development because of slow bureaucracies, regulatory blockages, and a less than perfect understanding of how private sector jobs are created. This means that informal agglomerations of people—huge slums at the periphery of urban areas—emerge. This is bad for economic development since business costs are high, bad for social justice since it’s hard to get to work and wages are poor, and bad for the environment since resources are wasted and pollution is excessive (notably in transport, power, and sanitation).

We propose a business-facing set of solutions that engage industry, mobilize capital, and organize the spatial aspects of development in ways that local and federal governments seem to find increasingly unable to accomplish on their own. This solution has three components: Promotion of large urban areas by private or quasi-private entities; regulatory rework to encourage enterprise and capital investment; and the private finance of public infrastructure to support and underlay these goals.

Professional township and urban development has evolved beyond last century’s office parks, manufacturing enclaves, and residential subdivisions. Now areas like King Abdullah Economic City in Saudi Arabia (promoted by Emaar and funded by a public stock offering), Alama Sutera in Indonesia, Penang in Malaysia (promoted by EDIS of Singapore) and Phu My Hung New City Center in Ho Chi Minh City, Vietnam (planned and promoted by CT&D Group of Taiwan in a joint venture with the city government) each cover thousands of hectares, involve billions of dollars of direct investment by the promoters, and attract tens of billions of dollars of additional private investment from corporates and real estate firms. They have multiple uses and multiple income classes. These comprehensive solutions aim to create local employment, foster clusters of education institutions and medical service providers to achieve synergy, and to introduce advanced sustainable development techniques and urban planning principals to raise the overall standard in their host counties while being respectful of the host’s culture and urban traditions.

A number of these large-scale projects are modeled on the Sino-Singapore Suzhou Industrial Park in Suzhou, China, a corporation formed in 1994 as a government-to-government joint venture between China and Singapore. Among other characteristics, Suzhou’s spatial master plan anticipated growth and was adhered to. Suzhou also featured a clear separate professional governance structure to address safety of capital, enforcement of property rights, acceleration of approvals and permits, and a method to resolve commercial disputes.

Contrast this outcome with areas like Gurgaon outside New Delhi, Santa Fe outside Mexico City, or the uncontrolled sprawl from north of Los Angeles to south of Tijuana. Sprawl happens if governments can’t get ahead of infrastructure and land planning, and when smaller parcels of land are developed by real estate promoters interested in a quick return of capital more than they are interested in creating long-term integrated value of a whole system. If government officials, despite their best intent, prove unable to exert influence on land use to prevent sprawl—and unable to coordinate systems so that the provision of roads, power, and water and the careful planning of land use for housing, education, and industry—then a practical solution can be the professional development of large townships and urban areas.

Enterprise cities further fuel beneficial growth of jobs and individual opportunity in these and other cities and subcities. Often urban areas experience less than optimal growth through a combination of slow and contradictory approvals, taxes, permits, and inspections; plus a well-meaning but often anticompetitive set of policies that privilege favorite local firms. These conditions are understandable—but they scare away new capital and they can prop up organizations that are not innovative and not competitive. We propose a set of streamlined regulations, transparent tenders, and a level playing field that encourages competition on the merits. Success stories like Silicon Valley, Tel Aviv, and Singapore all work this way. These frameworks can be intentionally brought to existing and new cities too. In order to do this governments (local, state and/or central) would simply agree a Regulatory Framework Agreement (“RFA”). The RFA becomes an investor proposition for the country as a whole. At a city level, it is possible for this to act as an alternative delivery mechanism for reform for changes that would be very difficult at a national level because of the power of vested interest elites. The elites who benefit from distortion are less likely to object to the kind of reforms at the city-scale level. Ultimately the city can become a demonstration model of success and for the principles that sustain prosperity.

Finally, we encourage the private development, finance and operation of public infrastructure. Public private partnerships (PPP) are sometimes causes for worry—since there have been many global examples of abuse of PPP by the private sector and government alike—but a good PPP can bring new capital and needed expertise to infrastructure delivery. The PPP approach is not needed when a government has plenty of capital, plenty of borrowing ability, plenty of in-house capability, and plenty of other sources of revenue. But for many global cities, none of the above criteria apply; so the next urban two billion will not be served by public investment alone. A public private partnership is necessary when government funding alone will not be able to sustain the development of the city, which is particularly true in developing countries and emerging markets. The PPP should be structured in such a way that the government control of the venture does not damage the overall investor proposition but also ensures that public goods and services are properly developed in the zone. Crucially, repayment need not rely just on user fees or tariffs; cities are still free to subsidize users of key services like water or rail or sanitation—but global capital and expertise can be brought to bear to get these key assets in place. Examples of successful PPP for basic services include GE’s privatization of the formerly failed water system in Algiers, Algeria; AUSA the toll road from the Buenos Aires airport to downtown; many express toll roads in Texas, USA; and independent power producers (IPPs) all over the world. The best PPP also use modern capital equipment plus modern sensors and big data to optimize the use of existing infrastructure like roads, rail, and power lines: thus, saving energy, water, and CO2.

A new breed of services has arisen in the infrastructure space that takes advantage of sensor technology big data and predictive analytics—each of which never existed before—to manage the collective usage of electricity, car and rail traffic, and water in ways that generate substantial savings via the optimization of a multiuser service in a way that neither the utility nor the government nor the individual users could do before. These infrastructure offerings save so much money from shifting or organizing usage that users pay less, governments can retain more revenue, and there is still a profit margin left over for the service. Demand-response solutions in electricity from Schneider Electric, GE, and Siemens are an example. Cities should encourage these innovative and disruptive services when they benefit business, citizens, and the environment—rather than blocking them to protect incumbent providers. Too often the regulatory environment is stacked against these insurgent technologies in favor of vested interests and the status quo. By delivering an environment that allows these insurgents to function, the city will be able to give its citizens the advantages of these regulatory solutions.

These three business-facing set of solution frameworks that engage industry, mobilize capital, and organize the spatial aspects of development will ultimately assist many governments to find sustainable and individually tailored solutions to address the high pressures of urban growth.

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