Smart cities

City spending will more than double by 2023

by Philippe BAUDOUIN

Cities’ smart city spending represents only a slice of the global smart city market, which is also being fuelled by private sector players and other sources of public financing. In most cases, cities themselves are still the instigators of their own smart city projects, and their spending reflects a level of commitment to their local strategies and the projects they are mounting.

City spending: one driver of a market that is just taking shape

The smart city financing landscape is starting to take shape, at a time of increasing budget restrictions for local authorities and the lack of a well established business model for innovative city services.

IDATE DigiWorld’s analysis used cities’ own budgets as its starting point, examining dedicated budgetary items planned around their smart city strategy, or by financing projects through “classic” operational budgetary items: e.g. transport, IT, social services, etc.

The focus on city spending provides a perspective that supplements classic market analysis. Ultimately, this spending needs to be cross-referenced with other investments, from the public sector (supralocal public subsidies and government co-financing), private sector players and public-private partnerships.

Growing level of urbanisation in Africa and the Middle East

Progression in the number of cities with a population of over 300,000 between 2019 and 2023, by region

Source : IDATE DigiWorld in "Smart city market"

Cities (co)financing and facilitating smart city initiatives

In 2019, cities spent an estimated 87 billion USD, a figure that is expected to increase by 122% by 2023, and so bringing cities’ potential financial expenditures on smart city initiatives within 5 years to more than 190 billion USD.

This momentum can be attributed to four main drivers:

  • The growing maturity and sustainability of the infrastructures that undergird urban innovation;
  • Mobilisation and pooling of financial support through various mechanisms (smart PPP, national programmes…);
  • The deployment of 2nd generation smart cities, covering a wider range of smart areas and priorities (with particular focus on social and environmental issues);
  • The urban data issue and cities’ positioning as central to its governance.

Environmental concerns an increasingly central focus for the smart city

Distribution of smart city spending by area of application, in 2020 and 2023

Source : IDATE DigiWorld in "Smart city market"

A growing market, both geographically and in the areas of application

The smart city is an issue being explored by every metropolis around the globe. The era of pioneer cities and metropolitan areas is over, as all municipal governments are committing to a digital transformation.

We estimate that city spending will reveal three main market trends:

  • Markets in the Asia-Pacific and Middle East/Africa regions are projected to enjoy the strongest 5-year growth.
  • Asia-Pacific will account for close to 40% of global market growth over the next 5 years, compared to only 6% for the Middle East/Africa region.
  • If pioneer smart city initiatives’ core priorities (living, mobility, utilities) are still key areas of focus, a growing amount of cities’ resources will be devoted to smart environmental and economic initiatives in the coming years.

A fast growing market

Regional progression of cities' smart city spending

Source : IDATE DigiWorld in "Smart city market"

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