Aberdeen’s slowdown shows the dangers of being a one-industry town

Another sunny day over Aberdeen. Image: Getty.

Aberdeen has long been one of the UK’s most economically buoyant cities. In the 11 years that  Centre for Cities has published Cities Outlook – our annual health-check on UK city economies – Aberdeen has ranked among the best performing cities when it comes to wages, skill-levels and innovation.

This year’s Cities Outlook shows that Aberdeen continues to be a strong performer, with impressive figures for number of skilled workers, patent applications published and average wages. However, the downturn in the city’s standing in a number of key areas in recent years suggests that all may not be well in the Granite City’s economy.

There are five different indicators that show that Aberdeen’s economy has struggled in the last few years:

  • In terms of population, Aberdeen is the only city in the UK to see a decline in its number of residents between 2015 and 2016 – a fall of 0.3 per cent. This was driven by a sharp decline in those aged 20-24.
  • Business closures per capita have increased by 76 per cent, while business start-up rates have decreased by 21 per cent per cent between 2013 and 2016.
  • The employment rate was 2.7 percentage points lower in 2016 than in 2014.
  • Gross value added data shows that the economy was 7 per cent smaller in 2016 than 2014. As this isn’t adjusted for inflation, the real terms fall will have been even larger.
  • House prices have fallen by 9 per cent since 2015.

While local data is not detailed enough to say conclusively, Aberdeen’s economy appears to have been in recession in recent years. And this is counter to the experiences of other UK cities. While Aberdeen’s reliance on oil and gas appeared to shelter the city from the worst of the global financial crisis, the oil sector’s recent turbulence has pulled the city into reverse at a time when other cities have been slowly improving.

When we consider these findings in light of research published last July by Centre for Cities and the Centre for Economic Performance – which suggested that Aberdeen’s economy would be hit harder than that of any other city by either a ‘hard’ or ‘soft’ Brexit – It all adds up to a worrying picture.

So what’s going on? Much of this is likely to be down to Aberdeen’s dependence on the oil industry, which has hitherto been the source of the city’s economic success. However, in recent years there has been a well-publicised global slump in oil prices, with prices dropping from a peak of $115 per barrel in June 2014 to a low of $26 per barrel in January 2016. Prices have increased more recently, but remain around $50 below their 2014 peak.


This large reliance on a particular sector in Aberdeen draws out three wider policy lessons which have implications in particular for the Government’s Industrial Strategy, and the local industrial strategies that places will develop as part of this initiative:

Having a diverse economic base will help cushion cities against changes in the fortunes of specific industries

Reliance on an individual sector means that your fortunes are hooked on the performance of that sector. And this is something that has been seen throughout the last century – a number of cities have struggled after they’ve seen a decline of a dominant industry, be that steel in Sheffield (which accounted for 24 per cent in 1911), mining in Wakefield (which provided one in three jobs in 1911) or textiles in Burnley (which accounted for over half of all jobs in 1911).

While cities tend to be much more diversified today than they did 100 years ago, cities such as Sunderland (Nissan) and Derby (Rolls Royce) continue to be reliant on individual businesses to generate a large bulk of their exports. Diversifying their economies now by attracting in a broader range of business investment would help offset any future troubles that these businesses may face.

A local industrial strategy should have a place-based approach rather than sectoral approach

Despite the risks that an over-reliance on a small number of industries poses for places, the government’s Industrial Strategy has a strong sectoral dimension to it. The worry here is that will encourage cities to focus their local industrial strategies on what they perceive to be their sector strengths, rather than setting out a plan to attract in business investment from a range of sources. To do this requires an understanding of what the barriers that a city faces to attracting business investment are, and a set of coherent policies to overcome this.

Aberdeen’s recent City Deal very much focused on oil and gas, with three quarters of the £250m deal dedicated to establishment of Oil & Gas Technology Centre (which opened in February 2017). This is likely to be a great asset for the city while the sector is located in the city – but it does little to help it broaden the activities based there.

Encouraging diversity isn’t only the responsibility of the public sector, and the private sector has a role to play

Aberdeen’s over reliance on oil and gas led to the creation in 2015 of Opportunity North East (ONE), a private sector economic development body established with the aim of diversifying the local economy.

While ONE’s identification of a handful of sectors (food, drink and agriculture, life sciences, tourism) runs the risk of being too focused on sectors and not the drivers of business investment, the formation of this organisation reflects that fact that it’s not just the job of the public sector to help places adapt to on-going change – and that private sector will also have an important role to play. The local industrial strategies should define exactly what that role is.

Sania Haider was an intern at Centre for Cities, on whose blog this article first appeared.

 
 
 
 

What Citymapper’s business plan tells us about the future of Smart Cities

Some buses. Image: David Howard/Wikimedia Commons.

In late September, transport planning app Citymapper announced that it had accumulated £22m in losses, nearly doubling its total loss since the start of 2019. 

Like Uber and Lyft, Citymapper survives on investment funding rounds, hoping to stay around long enough to secure a monopoly. Since the start of 2019, the firm’s main tool for establishing that monopoly has been the “Citymapper Pass”, an attempt to undercut Transport for London’s Oyster Card. 

The Pass was teased early in the year and then rolled out in the spring, promising unlimited travel in zones 1-2 for £31 a week – cheaper than the TfL rate of £35.10. In effect, that means Citymapper itself is paying the difference for users to ride in zones 1-2. The firm is basically subsidising its customers’ travel on TfL in the hopes of getting people hooked on its app. 

So what's the company’s gameplan? After a painful, two-year long attempt at a joint minibus and taxi service – known variously as Smartbus, SmartRide, and Ride – Citymapper killed off its plans at a bus fleet in July. Instead of brick and mortar, it’s taken a gamble on their mobile mapping service with Pass. It operates as a subscription-based prepaid mobile wallet, which is used in the app (or as a contactless card) and operates as a financial service through MasterCard. Crucially, the service offers fully integrated, unlimited travel, which gives the company vital information about how people are actually moving and travelling in the city.

“What Citymapper is doing is offering a door-to-door view of commuter journeys,” says King’s College London lecturer Jonathan Reades, who researches smart cities and the Oyster card. 

TfL can only glean so much data from your taps in and out, a fact which has been frustrating for smart city researchers studying transit data, as well as companies trying to make use of that data. “Neither Uber nor TfL know what you do once you leave their system. But Citymapper does, because it’s not tied to any one system and – because of geolocation and your search – it knows your real origin and destination.” 

In other words, linking ticketing directly with a mapping service means the company can get data not only about where riders hop on and off the tube, but also how they're planning their route, whether they follow that plan, and what their final destination is. The app is paying to discount users’ fares in order to gain more data.

Door-to-door destinations gives a lot more detailed information about a rider’s profile as well: “Citymapper can see that you’re also looking at high-profile restaurant as destinations, live in an address on a swanky street in Hammersmith, and regularly travel to the City.” Citymapper can gain insights into what kind of people are travelling, where they hang out, and how they cluster in transit systems. 

And on top of finding out data about how users move in a city, Citymapper is also gaining financial data about users through ticketing, which reflects a wider trend of tech companies entering into the financial services market – like Apple’s recent foray into the credit card business with Apple Card. Citymapper is willing to take a massive hit because the data related to how people actually travel, and how they spend their money, can do a lot more for them than help the company run a minibus service: by financialising its mapping service, it’s getting actual ticketing data that Google Maps doesn’t have, while simultaneously helping to build a routing platform that users never really have to leave


The integrated transit app, complete with ticket data, lets Citymapper get a sense of flows and transit corridors. As the Guardian points out, this gives Citymapper a lot of leverage to negotiate with smaller transit providers – scooter services, for example – who want to partner with it down the line. 

“You can start to look at ‘up-sell’ and ‘cross-sell’ opportunities,” explain Reades. “If they see that a particular journey or modal mix is attractive then they are in a position to act on that with their various mobility offerings or to sell that knowledge to others. 

“They might sell locational insights to retailers or network operators,” he goes on. “If you put a scooter bay here then we think that will be well-used since our data indicates X; or if you put a store here then you’ll be capturing more of that desirable scooter demographic.” With the rise of electric rideables, Citymapper can position itself as a platform operator that holds the key to user data – acting a lot like TfL, but for startup scooter companies and car-sharing companies.

The app’s origins tell us a lot about the direction of its monetisation strategy. Originally conceived as “Busmapper”, the app used publicly available transit data as the base for its own datasets, privileging transit data over Google Maps’ focus on walking and driving.  From there it was able to hone in on user data and extract that information to build a more efficient picture of the transit system. By collecting more data, it has better grounds for selling that for urban planning purposes, whether to government or elsewhere.

This kind of data-centred planning is what makes smart cities possible. It’s only become appealing to civic governments, Reades explains, since civic government has become more constrained by funding. “The reason its gaining traction with policy-makers is because the constraints of austerity mean that they’re trying to do more with less. They use data to measure more efficient services.”  

The question now is whether Citymapper’s plan to lure riders away from the Oyster card will be successful in the long term. Consolidated routing and ticketing data is likely only the first step. It may be too early to tell how it will affect public agencies like TfL – but right now Citymapper is establishing itself as a ticketing service - gaining valuable urban data, financialising its app, and running up those losses in the process.

When approached for comment, Citymapper claimed that Pass is not losing money but that it is a “growth startup which is developing its revenue streams”. The company stated that they have never sold data, but “regularly engage with transport authorities around the world to help improve open data and their systems”

Josh Gabert-Doyon tweets as @JoshGD.