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How Asian cities can survive… and even thrive

The good news is that Asia's city planners are leading the world in implementing smart solutions to sustainability challenges.

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Changi Airport's Jewel commands a rapt audience. Smart cities use new innovations to support growing urbanisation in ways that do not cause a strain on scarce environmental and human resources - even delivering positive social and environmental impact.

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Ms Min Lan Tan

ASIA's economic boom has occurred alongside one of the greatest rural-to-urban migrations in human history. Today, the region is home to 16 of the world's 28 megacities with a population in excess of 10 million people. According to the United Nations, Asia's cumulative population will double by 2030, from its 2010 total. And as our cities grow, commute time lengthens and the impact on our environment worsens, leading to a degradation of the quality of city life which we dearly treasure.

If Asian cities, Singapore included, are to continue thriving through the coming decades and beyond, we must navigate the disruptive forces of technological advancement, social change and resource constraints. That is, we have to become a whole lot "smarter".

What are smart cities?

There's no universal definition of a "smart city".

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To us, a smart city is one that harnesses the tools of the Fourth Industrial Revolution to optimise economic productivity and life satisfaction in a sustainable way.

"Smart" is more than the clever deployment of automation, connectivity and digitalisation to connect city dwellers with essential goods and services more efficiently. It is also about using new innovations to support growing urbanisation in ways that do not cause a strain on scarce environmental and human resources - even delivering positive social and environmental impact.

We see "smart cities" comprising six major building blocks - smart connectivity, smart governance, smart services, smart automation, smart health and smart mobility. The rollout of 5G networks that permit cutting-edge connectivity at up to 100 times faster than 4G is a key example. Another is telemedicine that provides the convenience and efficiency of remote access to healthcare - especially useful given the constraints in accessing a limited number of general practitioners. A third example is autonomous transport solutions that streamline the daily commute, such as last year's trials of on-demand autonomous shuttles and hands-free ticketing technology in Singapore.

Why Asia needs smart cities more than most

In Asia, 2.7 billion people will move into cities over the next 30 years, the UN estimates, with three quarters of the continent's total population living in urban areas, up from half today. If urban migration is to continue yielding economic and social benefits as in the past, infrastructure spending must rise sharply, just to keep pace. At today's rate of capital expenditure, the funding gap for the region stands at a staggering US$2.2 trillion a year until 2025.

The inconvenient truth is that Asia's economic success has come at a huge cost of environmental pollution - we are home to 18 of the world's 20 most polluted cities, according to the 2018 World Air Quality Report.

By 2030, Asia is expected to account for a third of the world's transport-related carbon dioxide emissions, as private vehicle ownership is currently doubling every five years in the region's cities. Even in the leading city states such as Singapore and Hong Kong, inefficient architectural choices mean that buildings still account for 90 per cent of national electricity use.

Asia is leading the adoption

The good news is that Asia's city planners are now leading the world in implementing smart solutions to these sustainability challenges. We expect this trailblazing trend to continue.

In 2017, China alone boasted 500 smart cities at different stages of development with an estimated market size of 650 billion yuan (S$129.5 billion). Beijing is driving deeper integration between artificial intelligence (AI) and daily lives, with the goal of building a data-driven smart economy.

In Singapore, the "Smart Nation" initiative launched in 2014 has pushed it to the forefront, topping global spending on smart city infrastructure and technologies. And this capital commitment is bearing fruit - investment in smartphone and fibre-to-home infrastructures has pushed Singapore to second in the IMD World Digital Competitiveness Ranking.

Where are the investment opportunities?

Smart cities aren't just an appealing prospect for their inhabitants - present and future.

We estimate that smart cities business and solutions will swell to a US$800 billion investible market by 2025.

Most of the investible opportunities lie in smart service and smart governance (See chart) - examples include companies that enable widespread implementation of smart energy grids, digital repositories that allow governments to safely and efficiently store records such as land titles and property rights in a "digital vault", or businesses that provide big data and AI-powered tools to governments.

Thematically, companies exposed to growth segments such as fintech, 5G, smart mobility (electric vehicles and autonomous driving) and healthtech are in a sweet spot thanks to strong demand and regulatory support.

On the downside, those engaged in antiquated urban operating systems are at risk of becoming outdated.

The case is clear that growing "smarter" is key to the future sustainability of our region's great cities. Asia's economic growth miracle can continue with the correct, deliberate investment in technology, talent and infrastructure.

For investors, the opportunities unleashed by this wave of innovation should be an attractive addition to a well-diversified investment portfolio too.

  • The writer is head chief investment office APAC, UBS Global Wealth Management.