June 13, 2021

Smart Cities Primer


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I have a special interest in what I term “Special Jurisdictions” – these are territories governed by a special set of rules, which enable people and businesses to thrive. These can be government initiatives, private initiatives, or public-private partnerships.  

Special Jurisdictions are created in order to create commercial and residential communities that are environmentally sustainable, are built on fair and efficient laws and governance systems, build and maintain effective infrastructure, facilitate efficient and optimal resource allocation, and provide useful and accessible education.

Special Jurisdictions can be categorized into three separate categories: Free Trade Zones (“FTZs”), special economic zones (“SEZs”), and Smart Cities. We will focus primarily on Smart Cities, which compared to FTZs and SEZs have large residential components and living spaces rather than only industrial areas.  

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Investing in Smart Cities: Options

Investors interested in investing in Smart Cities face four categories of projects – investments in the promoter, investments in infrastructure, investments in real estate, and investments in businesses.

The promoter is the company which creates and operates the city, and is responsible for creating a special jurisdiction, negotiating a public-private partnership with the government, securing land for the development, attracting developers, businesses, and residents, and operating the jurisdiction.  

Real estate investments include investments in land, residential and commercial developments, and investments in real estate management companies.  

Infrastructure investments include investments in roads and railways, ports, airports, internet and telecommunications, waste and water management, security, and power plants.  

Finally business investments include venture capital, private equity/debt, and public equity/debt investments in business operating in the city.

Investing in Smart Cities: Risks

The main risks for investors to consider are sovereign risk, socioeconomic risk, project risk, and financial risk.

Sovereign risks are risks associated with local or national governments, including asset expropriation, regime change, corruption, and political destabilization.

Socioeconomic risks are risks associated with general social and economic developments, including increases in unemployment, social disruption, and adverse media.

Project risks are risks associated with the development of technology, engineering projects, and the risk of dysfunctional management and/or the loss of key executives.

Financial risks are risks associated with currency fluctuations, project financing, and the movement of interest rates.  

Anticipated Growth Markets

We see tremendous growth opportunity for Smart Cities projects in Central and South America, Africa, the Middle East, and in Asia.  

Selected Examples

King Abdullah Economic City (Saudi Arabia)

Promoter: Emaar the Economic City (“EEC”)

Motivation: diversify the Saudi economy from oil exports, create youth employment opportunities, and make Saudi Arabia one of the top 10 competitive investment destinations in the world

Governance: KAEC was granted privileged regulations by the Saudi Government, including:

  • Foreign asset ownership, foreign employee sponsorship
  • Women are not required to wear cloak-like abayas
  • 20% corporate tax rate, no VAT, land, property, or personal income tax
  • Double taxation and bilateral trade agreements with key countries

Components: industrial valley, seaport, central business district, residential district, resort area, educational zone

Financing: the cost has risen to $100+ Bn. EEC listed 30% of its equity in a 2006 IPO, raising $600m+, and the Saudi government pledged to loan SAR 5 Bn to the project.

Status: KAEC is about 40% complete, with completion expected 2029. Inhabited by ~10,000 residents, expected to expand to 2 million. EEC has signed MOUs with several corporations and developers, including Ericsson, Cisco, Mars, Siemens, and Pfizer.

Gurgaon City (India)

Promoter: not centrally planned (result of local state lifting restrictions on land acquisition, liberalization of key industries, and delegation of governance functions)

Governance: different areas are under control of the Municipal Corporation of Gurgaon (MCG), the Haryana Urban Development Authority (HUDA), and private developers. Outside of a small area (35 km2) under control of the MCG, there is no clear authority or coordination between different areas of the city. Gurgaon is located in the Noida Special Economic Zone, which provides specific incentives for attracting investment into the zone, including exclusion from import/export taxes, minimum alternate tax, and state sales taxes.

Components: Gurgaon City was developed by several private real estate companies, the largest of which is Delhi Lease and Financing (DLF). Individual business parks were developed to the specifications of large international corporations, such as General Electric, Honda, and American Express. Each business park contains its own energy supply, security personnel, parking lots, cafeterias. Given the lack of centralized governance, very little centralized infrastructure exists. Water, sewage and waste disposal, electricity, fire safety, roads, and security are developed by the private sector on an ad hoc basis and are often unreliable and expensive.

Status: despite its infrastructure and governance issues, Gurgaon is today considered a leading financial center in India behind Mumbai and Chennai. The city has local offices for more than 250 Fortune 500 companies and has the highest Human Development Index of India.

Sources: GMU, Business Standard India, United Nations

Phu My Hung (Vietnam)

Promoter: Phu My Hung Corporation

Motivation: to provide ample and affordable public goods and urban services to earn huge profits

Governance: incentives for business include 0% VAT, duty-free import machinery, equipment, and raw materials, and export of products, and no remittance tax for profits repatriated


  • New city center: residential, financial, medical, entertainment, and trade centers (409 ha)
  • University place: schools, parks, civic uses and support facilities (95 ha)
  • High-tech center: setting for life and work, technology enterprises (46 ha)
  • Suburban merchandise centers: warehousing, distribution, and port functions

Financing: Than Thuan Corporation estimates that $1.7 Bn+ total has been invested:

  • 1993: PHMC formed a $60m JV between a Vietnamese PPP and a Taiwanese corporation
  • 2007: HSBC provided a $21m loan to PMHC
  • 2020: PMHC sold $75m in 8.17% corporate bonds maturing in 2026 to the IFC

Status: Phu My Hung is the most developed area of Ho Chi Minh City and touted as a rare success case of urban planning in Vietnam, with a population of 30,000+ (50%+ non-Vietnamese). By 2015, Phu My Hung had contributed more than $700 million to Ho Chi Minh City’s budget.

Sources: International Journal of Sustainable Built Environment, TuoiTre News, Finance Asia, Asia Pulse, Vietnam Investment Review, IFC

Songdo (South Korea)

Promoter: Gale International

Motivation: to promote green and low-carbon growth and decrease South Korea’s reliance on export-oriented manufacturing

Governance: Songdo IBD is located within the Incheon Free Economic Zone, which includes reduced corporate taxes and tariffs, eased labor regulations, and simplified administration

Components: (1) North East Asia Trade Tower, (2) Songdo Convention Center, (3) Songdo International School, (4) Jack Nicklaus Golf Club, (5) Songdo Central Park, (6) Arts Center Incheon, (7) Songdo Lotte mall, (8) Posco Office Building, (9) Canal walk, (10) Business Facilities, (11) Hotel, and (12) G-TOWER.


  • Joint venture between Gale International (which invested $100m for 70%) and Posco
  • 2005: Morgan Stanley invested $15m for 9% equity, and $350m from its real estate funds
  • A consortium including ABN-Amro, Kookmin Bank, and Woori Bank invest $1+ Bn
  • 2009: Japanese private equity firm Vana World signed an LOI to invest $3 billion  

Status: today, Songdo is less than 25% occupied with a population of 70,000 people. In 2019, Gale filed for arbitration against the Republic of Korea seeking $2 billion in damages for the expropriation of investment, real estate, and development rights.

Sources: BBJ, Korea Joongang Daily, Yonhap News, KJD, South China Morning Post, PR Newswire

Suzhou Industrial Park (China)

Promoter: China-Singapore Suzhou Industrial Park Development Co., Ltd. (“CSSIP”)

Motivation: SIP was developed between Chinese and Singaporean heads of state with the idea of bringing Singaporean governance and urban development experience to China

Governance: SIP is part of a special economic zone (CS-SIP) and export processing zone, with a one-time subsidy of 1-3% of invested capital, reduced corporate tax rate (15%), local income tax, VAT, and tariff exemptions

Components: (1) Education and Innovation Zone, (2) Central Business District, (3) Sino-Singapore Eco-technical City, (4) Comprehensive Bonded Zone, (5) Hi-tech Industrial Zone, (6) Eco-tourism and Holiday Zone


  • 1994: CSSIP formed through a joint venture of 24 government-linked Singapore companies ($67m for 65%) and 11 Chinese state-owned enterprises ($44m for 35%)
  • 1999: the Singapore government reduced stake (65% to 35%)
  • 2019: CSSIP raised $194m in an IPO to fund infrastructure renovation

Status: SIP has received foreign investment of $31.5+bn and created over $115bn in tax revenue over the past 25 years. Nearly 5,000 foreign-funded enterprises from 70+ countries have registered and operated in SIP, which currently has a population of more than 2 million.  

Sources: China Briefing, Refinitiv

Additional Resources

Charter Cities Institute: www.chartercitiesinstitute.org

Free Private Cities: https://www.freeprivatecities.com

Startup Societies Foundation: https://www.startupsocieties.org

FEMOZA: https://femoza.org

World Free Zones Organization: https://www.worldfzo.org/

WEPZA: http://www.wepza.org/

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