How will we finance the city infrastructure of the future?

New road tunnels under construction in Rio de Janeiro, Brazil, in 2013. Image: AFP/Getty.

What are the biggest financial priorities for cities in our rapidly urbanising world? Who are the key players to invest in urban infrastructure? What are the most effective, innovative financing mechanisms that cities can adopt?

These are urgent questions that global cities are asking as they face a huge infrastructure funding gap. To find solutions to this major 21st century challenge, the New Cities Foundation has launched the Financing Urban Infrastructure Initiative. Its mission is to produce actionable research and pragmatic recommendations for key urban decision-makers, including mayors, institutional investors and real estate developers, on how we can use innovative financing models that can address this gap.

The Initiative will be led by Dr. Julie Kim who joins us from the Stanford Global Projects Center as a New Cities Foundation Senior Fellow. We caught up with Dr. Kim, to find out more about her planned research.

NCF: How has infrastructure financing changed over the past few decades?

In the past 50 years, we went from infrastructure financing being largely in public hands to increased private sector participation – starting in the mid-80s for emerging economies and mid-90s for advanced economies.

More recently, it came back into the public hands with “remunicipalisation”, especially for the water sector.

Today, there is an unprecedented investor appetite for infrastructure globally and there are more financing options available for cities. As the market becomes more complex with increased demand, a more sophisticated approach is required.

NCF: What are the most pressing priorities in financing cities in the 21st century?

JK: Firstly, cities must strive to be more independent financially. They need to seek local financing capacity while capitalising on all resources available from multilaterals, bilaterals, central and provincial governments.

Secondly, they need to become smarter. The money is there, but packaging bankable projects is difficult. It takes sophistication and financial knowledge to reach well-balanced financing structures, which requires better education, networking and capacity building. This is one of the areas where the New Cities Foundation can play an important role.

Thirdly, cities need to be balanced in their development approach, especially big cities facing rapid growth and globalisation. They must balance the desire to grow economically with the need to address critical environmental and social equity concerns, whilst being sensitive to local needs and promoting inclusivity.

For small to medium-sized cities, it’s important to tap into all external resources – including grants, subsidies, credit guarantees and more.

NCF: It is well documented that cities in the Middle East and Asia face the toughest challenges when it comes to meeting investment resources with demand. How will you go about researching solutions specific to these zones?

JK: These cities need credible institutions and rule of law to attract financing: political instability presents a big challenge. In the short to mid-term, these cities must work closely with multilaterals and other development-oriented institutions to tap into their resources on technical assistance, capacity building and political risk insurance programs. Then, with multilateral backing, they must engage institutional investors for the long haul, in order for economic growth to catch up with the repayment needs.

In particular, they should explore opportunities with sovereign development funds and other impact investors who are interested in socially responsible investments with long-term positive impacts.

NCF: Do you have some standout examples of effective urban financing models that you’ve worked on or witnessed, that you can share with us?

JK: One example related to the local financial independence I mentioned earlier is the Enhanced Infrastructure Financing District (EIFD) model in California.

EIFD allows local and regional agencies new taxing powers – benefits assessment and Tax Increment Financing, for example – as well as multi-agency collaboration across multiple sectors, including transportation, water, waste management, and more. Urban infrastructure projects should not be developed in isolation, but in conjunction with land development that helps to trigger economic growth.

I was also involved in Pusan Centum City in South Korea where a 300-acre former air force base was converted into a major “economic incubator”. This was initially entitled “DMZ” – digital media zone – mixing technology, media and entertainment with education and residential land uses. This was a successful development that succeeded in drawing $2bn in outside investment.

NCF: This June, you’ll be coming to our New Cities Summit in Jakarta: a city that encapsulates many of the issues faced by rapidly urbanising zones in Asia. What interests you most about this city and its neighbouring areas?

JK: I’ll be fascinated to observe how this booming megacity plans to address economic, environmental and social equity challenges within a context of rapid urbanisation and growth. On a personal level I’m fascinated by Jakarta’s incredibly rich culture: its multi-layered, multiethnic population, peaceful and functioning effectively in all aspects.

I think Jakarta can emerge into one of the most unique metropolises in the world, on a par with global cities such as Paris, London, New York, Tokyo, Shanghai – growing to symbolise South East Asia beyond what’s being offered by Singapore.

Dr Julie Kim is a senior fellow at the New Cities Foundation (NCF), an international non-profit organisation. This Q&A was originally posted on the foundation’s blog.

The Financing Urban Infrastructure Initiative is supported by Cisco and Citi.

 
 
 
 

To see how a city embraces remote work, just look to Helsinki

A deeply rooted culture of trust is crucial to the success of remote work. (Sean Gallup/Getty Images)

When I speak to Anssi Salminen, an account manager who lives an hour outside Helsinki, he’s working from a wooden platform on the edge of a Finnish lake. With a blanket laid out and his laptop set up, the sun low in the sky, Anssi’s remote work arrangement seems blissful. 

“I spend around half of my time working somewhere else other than the office,” he says. “I can work from home, or on the go, and I also travel to the Netherlands once a month and work from there.

“The emphasis in my work has always been that it doesn’t matter when or where I work, as long as I get things done.”

For many people around the world, the shift to remote work was sudden, sparked by the coronavirus pandemic. Finland, however, is finding the transition much less significant. Before Covid-19, the Nordic nation already displayed impressive levels of remote working, with 14.1% of its workforce reporting usually working from home. Only the Netherlands has a comparable percentage of remote workers, while the UK lagged behind at 4.7%, and the US’s remote workforce lingered at around 3.6%

Anssi works for one of many Helsinki-based companies that offers its employees flexible policies around when and where they work. That arrangement is in part due to the Finnish capital’s thriving start-up scene. In spite of being a relatively small city by global standards it is home to over 500 technology start-ups. These companies are leading the way when it comes to keeping employees connected wherever they choose to work.

“Our company has a completely location-free working policy,” says Kasper Pöyry, the CEO of Helsinki-headquartered software company Gapps. “All meetings are made available for online participants and facilitated accordingly. Some employees have worked extensively from abroad on a working holiday, whilst others prefer the comfort and social aspects of the well-stocked office. Whatever works for our employees is what works for the company.”

Like Gapps, many Helsinki-based firms are deeply preoccupied with providing the necessary technology to attract talent in a vast and sparsely populated country. Finland has only 15 inhabitants per square kilometre, and companies understand that in order to compose teams of specialised expertise, they may have to seek talent outside of the city. Local governments take a similarly proactive stance toward technological access, and Helsinki offers free, unrestricted, high-speed Wi-Fi from city-wide hotspots, while the country as a whole boasts some of the best coverage in Europe. 

But encouraging remote work isn’t just about optimising the potential of Finland’s workforce – companies in Helsinki also recognise that flexibility has clear benefits for both staff and employees. 

“The idea of a good work-life balance is ingrained in Finnish culture,” says Johannes Anttila, a consultant at organisational think tank Demos Helsinki. “It goes back to our rich history of social dialogue between labour unions and employers, but also to an interest in delineating the rules of working life and pushing towards people being able to enjoy their private life. Helsinki has been named the best city in the world for work-life balance, and I think that this underlies a lot of the mentality around remote work.” 

For Peter Seenan, the extent to which Helsinki residents value their free time and prioritise a work-life balance prompted his move to the city ten years ago. He now works for Finnair, and points to Finland’s summer cottages as an example of how important taking time to switch off is for people in the country. These rural residences, where city residents regularly uproot to enjoy the Nordic countryside, are so embedded in Finnish life that the country boasts around 1.8 million of them for its 5.5 million residents

“Flexible and remote work are very important to me because it means that I don’t feel like I’m getting stuck in a routine that I can’t control easily,” he says. “When I’m working outside of the office I’ll go down to my local sauna and go ice swimming during the working day, typically at lunchtime or mid-morning, and I’ll feel rejuvenated afterwards… In winter time especially, flexibility is important because it makes it easier to go outside during daylight hours. It’s certainly beneficial for my physical and mental health, and as a result my productivity improves.”

The relaxed attitude to working location seems to pay off – Finland is regularly named the happiest country in the world, scoring highly on measures such as how often its residents exercise and how much leisure time they enjoy. With large swathes of unspoiled countryside and a national obsession with the outdoors, sustainability is at the forefront of its inhabitants’ minds, leading to high levels of support for measures to limit commuting. In January, Finland passed a new Working Hours Act, the goal of which was to help better coordinate employee’s work and leisure time. Central to this is cementing in law that employees can independently decide how, when, and where they work.

Yet enacting the new ruling is not as simple as just sending employees home with their laptops. For Kirsimarja Blomqvist, a professor of knowledge management at LUT University, perhaps the most fundamental feature that remote work relies upon is a deeply rooted culture of trust, which Helsinki’s residents speak of with pride. The anecdotal evidence is backed up by data which suggests that Finland boasts one of the highest levels of trust and social cohesion in Europe, and equality and transparency have always been key cornerstones of political thought in the country.

“Trust is part of a national culture in Finland – it’s important and people value it highly,” she explains. “There’s good job independence, and people are valued in terms of what they do, not how many hours they work for. Organisations tend to be non-hierarchical, and there is a rich history of cooperation between trade unions, employers, and employees to set up innovative working practices and make workers feel trusted and valued. 

“It’s now important that we ensure that this trust can continue to be built over technology, when workers might have been more used to building it face-to-face.”

As companies begin to look hopefully toward a post-Covid future, the complexities of remote work are apparent. Yet amid issues of privacy, presenteeism, and social isolation, the Helsinki model demonstrates the potential benefits of a distanced working world. The adjustment to remote work, if continued after the crisis, offers a chance to improve companies’ geographical diversity and for employers to demonstrate trust in their workforce. On these issues, Blomqvist believes other cities and employers can learn a lot from Helsinki.

“People are now beginning to return to their workplaces, but even as they do they are starting to consider the crisis as a jumping point to an even more remote future,” she says. “The coronavirus pandemic has been an eye-opener, and people are now interested in learning from Finland’s good practices… We are able to see the opportunity, and the rapid transition to remote work will allow other countries to do the same.”