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Challenges and Opportunities of Developing Smart Cities in Emerging Economies

Overcoming hurdles in smart city development for social, economic, and environmental growth in the era of industry 4.0.

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As the world continues to urbanize, cities are facing unprecedented challenges such as rising pollution, traffic congestion, inadequate infrastructure, and lack of access to basic services. In response to these challenges, cities are turning to technology to improve the quality of life for their residents. The concept of a smart city has emerged as a solution that can leverage digital transformation to address these challenges and create a more sustainable and livable urban environment.

In this article, we'll explore the challenges and opportunities of developing smart cities in emerging economies. We'll examine the unique obstacles facing cities in these regions, as well as the potential for smart city technology to address these challenges.

We'll also take a closer look at some of the successful initiatives around the world and how smart cities can help improve the quality of life, efficiency, and competitiveness among citizens while meeting the needs of present and future generations.

So, let's dive in and explore how smart cities can catalyze digital transformation in emerging economies for economic growth, social, and environmental development.

What Is A Smart City?

Smart city initiatives offer an innovative approach to tackling urbanization and sustainability challenges by integrating digital technology into urban infrastructure systems. With the advent of Industry 4.0, Smart Cities emerged as an urbanization model to leverage the opportunities presented by the Internet of Things, Cloud Computing, and Open Data, focusing on socio-economic development and urban quality of life.

Developing Smart Cities is highly complex and context-specific, with challenges such as the limited capacity to connect urban sustainability challenges to actionable approaches. While developed economies have made progress in Smart City initiatives, there is a significant gap in adoption and outcomes in emerging economies, with technology companies favoring investing in cities with more mature economies in Europe and the US.

The widespread adoption of IoT, Cloud Computing, and Open Data offers opportunities for smart city development by connecting city stakeholders, improving citizen participation, and providing a holistic view of how different cities work together. However, to ensure the successful implementation of Smart City initiatives in emerging economies, it is crucial to address the unique challenges posed by their context-specific requirements and diverse socio-economic backgrounds.

In emerging economies, urbanization is happening at an unprecedented pace. By 2050, it is estimated that two-thirds of the world's population will live in cities, with most of this growth happening in emerging economies. This rapid urbanization presents significant challenges, such as resource constraints, infrastructure gaps, and socio-economic disparities. Smart city technologies, which leverage IoT, big data analytics, and other advanced technologies, can help address these challenges and create more livable, sustainable, and efficient cities.

Examples Of Successful Smart City Developments

Smart city initiatives have taken the world by storm, with Singapore and Amsterdam leading the way.

Singapore's Smart Nation initiative has transformed the city-state into one of the most technologically advanced nations in the world and is unique in its holistic approach to smart city development. It goes beyond the implementation of individual technologies and focuses on integrating different systems and services to provide seamless experiences for citizens.

Similarly, Amsterdam's Smart City program is a comprehensive approach to sustainability, innovation, and quality of life. It focuses on areas such as mobility, energy, and circular economy, and has resulted in notable achievements such as the reduction of CO2 emissions and the development of new smart mobility solutions.

These two examples serve as inspiration for emerging economies that are looking to leverage digital transformation and Industry 4.0 to build a smarter and more sustainable future for their citizens.

Challenges Of Developing Smart Cities In Emerging Economies

Smart city development requires a new way of thinking and collaboration among various stakeholders, including cities, businesses, citizens, and academia. However, developing smart cities in emerging economies is not without its challenges. While the benefits of smart cities are vast, the development of smart cities in emerging economies faces unique obstacles that need to be overcome.

1. No One-Size-Fits-All Solution

One of the key challenges in developing smart cities in emerging economies is the lack of a one-size-fits-all solution for smart city development. This is because each city has its unique challenges and opportunities, and what works in one city may not work in another. Factors such as the city's existing infrastructure, population, and cultural context all play a role in determining the best approach to developing a smart city.

For example, some cities may prioritize improving transportation infrastructure to reduce traffic congestion, while others may prioritize clean energy transition to reduce greenhouse gas emissions. Some cities may have a high level of digital literacy among residents, while others may face significant skills gaps.

To address this challenge, cities need to consider urban problems in a holistic manner before selecting appropriate smart technology solutions that address their specific needs. This could involve conducting a comprehensive assessment of the city's existing infrastructure, identifying areas for improvement, and developing a customized roadmap for smart city development.

2. Limited Resources and Funding

There is no doubt that developing smart cities requires significant financial and human resources, which may not be readily available in many emerging economies.

Developing smart infrastructure, such as smart grids or smart urban mobility, requires significant financial investments as the implementation of smart city projects often requires specialized knowledge and expertise. Cities in emerging economies generally have limited budgets and resources, making it difficult for them to finance large-scale smart city projects on their own, as seen in many developing countries’ lack of investment in infrastructure.

Countries in South East Asia spend only 2.1% of GDP on infrastructure investment, compared to around 5% for the EU and close to 8% for China. The underinvestment from the government makes it less likely for the private sector to invest. Hence, in order to address these resource constraints, cities in emerging economies need to look for creative financing solutions that pool both public and private resources.

Open Data in Smart City Development

Open data plays a crucial role in smart city development by providing access to valuable data sets that can be used to spur innovations and enhance existing services to address urban challenges while allowing for greater collaboration and transparency among city stakeholders.

International Development Research Centre (IDRC) identified open data portals as a key enabler of smart city developments in Africa, Asia, and South America. For example, in Lagos, Nigeria, the government has launched the Lagos Open Data Initiative, which makes data on a wide range of urban issues available to the public, including transportation, healthcare, and education. By making this data accessible, local entrepreneurs and civic groups can develop new applications and services that address the city's unique needs.

In Singapore, its government launched the Open Data Platform in 2011, which provides access to thousands of datasets from more than 60 government agencies. This platform has led to the launch of the Smart Nation Sensor Platform, which uses data from various sources, such as sensors and cameras, to enable real-time monitoring of traffic, weather, and environmental conditions, has helped reduce traffic congestion and improve public safety.

3. Digital Adoption and Skill Gaps Issues

The slow adoption of digital products and services, along with skills gaps among residents, present another significant challenge for the development of smart cities in emerging economies, hindering the acceleration of digital transformation.

IoT technologies, which are essential to creating a smart city ecosystem, require a level of digital literacy that may be lacking in many citizens of these economies. While connectivity may be less of a problem for newer generations, especially considering the 30% increase in internet usage post-pandemic, one-third of the world’s population still remains offline, according to the Global Connectivity Report 2022.

Moreover, a lack of awareness or understanding of smart technologies may lead to resistance to smart city development. The absence or weak lack of data privacy laws and cybersecurity measures in some emerging economies also worsens the already existing skepticism, not to mention a significant risk to the security and privacy of citizens' data.

Opportunities for Investment in Smart Cities

Despite the challenges faced by emerging economies in developing smart cities, there are significant opportunities for investment and growth in this field. Smart city development drives economic growth, improves the quality of life, and enhances infrastructure, making it attractive for investment.

As the world navigates a post-pandemic landscape, the digital adoption rate has skyrocketed across all sectors, creating unprecedented opportunities for smart city adoption. We can see this surprising growth in South East Asia alone, with 60 million people becoming first-time internet users during the pandemic.

While the public sector in emerging economies now became more aware of the potential benefits of smart city solutions, they may struggle to drive the digital transformation alone without the help of private investment.

1. The Role Of Venture Capital In Facilitating Smart City Development

Venture capital (VC) has been instrumental in driving innovation and growth in smart city development. In emerging economies, where public funding for smart city initiatives is often limited, VC can play a crucial role in facilitating the development of smart city solutions by providing the necessary funding and expertise to support start-ups and small and medium-sized enterprises (SMEs).

And while the funding allows these companies to build and test their products, develop partnerships, and scale their operations, venture capital firms bring more than just capital to the table. They also provide expertise, mentorship, and connections to help start-ups navigate complex regulatory environments and build partnerships with other companies and government agencies.

How Venture Capital Enables Digital Transformation

The majority of private investments in smart cities so far have been concentrated in the mobility sector as it is considered one of the most critical infrastructure components of any city. For many emerging economies with outdated transportation infrastructure, integrating IoT technologies for transportation systems can have the most immediate impact, making investments in this sector attractive to all stakeholders involved.

At Plug and Play, we aim to build the largest innovation ecosystem in the world, not only through offering startups a large network of corporate partners and investors, but also by participating in funding early-stage startups to accelerate digital transformation.

Let’s take a look at 3 startups under our wings that delivered groundbreaking technologies that solve the core urban development and planning issues for emerging economies.

ION Mobility
“ION Mobility adopts a full-stack approach with end-to-end capabilities to design, engineer and manufacture its electric motorcycles. The hard-tech or automotive technical skills and experience we look out for in hiring means we often find it hard to find the right talent, and have to best-source our talent from abroad.” — James Chan, CEO and Founder, ION Mobility

ION Mobility is an all-electric mobility company on a mission to create and deliver sustainable, yet affordable mobility and energy solutions for everyone. As mobility technology evolves, ION Mobility sees an opportunity to electrify the mobility sector by offering a cleaner solution for riders across SEA. Promoting the use of electric motorcycles in a region that has the highest market share for motorcycle ownership not only promotes sustainability in itself but also enables transportation to be smarter and more efficient.

“Founders developing innovative smart city tech solutions for emerging economies need to evaluate the feasibility of diverse deployment scenarios - focusing on the cost metrics & business model that precisely fits into the need (pain points) & budgetary appetite of paying clients.” — Dr. Kush Agarwal, Founder & CEO, Wavescan Technologies

WaveScan is an A*STAR spin-off company specializing in the research and development of disruptive beamforming electromagnetics-based smart sensor systems and advanced AI algorithms. WaveScan helps cities become smarter by providing an end-to-end AI-enabled asset inspection solution to create a predictive maintenance ecosystem for the built environment sector. By digitizing construction, the planning, building, and management of infrastructure and facilities can also become more efficient.

“Developing markets can be challenging because of lower digitization and buying power. It reduces SAM and pressures to lower prices. It's not short of opportunities though: no technological lock-in; bigger contract scope, as additional digitization is often needed. The biggest one thought is less competition which makes it is easier to differentiate and gain market share.” — George Surovtsev, Co-founder & CEO, Makini

Makini is the API for industrial maintenance data, providing software companies with the easiest way to connect with maintenance software systems used in industrial facilities today. The availability of open data via a single API means users do not have to deal with multiple data structures, authorization protocols, and data transformations.

2. Southeast Asia’s Regional Advantage in Smart City Development

Southeast Asia has a history of using technology to leapfrog over traditional infrastructure challenges and recently has seen skyrocketing growth for smart city technologies. Its large population, rapid urbanization, and growing middle-class call for digital transformation that can improve the quality of life, enhance sustainability, and make cities more livable. Below are four major industries that are ripe for disruption in the region.


The fintech sector has continued to thrive through COVID-19, particularly in developing economies, with financial services becoming rapidly digitized. The Philippines and India are at the forefront of fintech innovations as digital banking and payments in both countries see a large adoption rate that will only continue to grow.


Indonesia, Vietnam, and Thailand all play a key role in the global motorcycle market as it is a dominant mode of transportation in the region. The lack of nationwide public transportation, coupled with congestion in fast-expanding cities, set in motion the rise of innovative mobility solutions such as EVs, e-bikes, and ride-sharing services.


As a major producer and exporter of agricultural products, there is a need for AgTech innovations within Southeast Asia. Smart farming practices have seen a rising adoption rate which helps increase crop yields, lower food waste, enhance sustainability, and improve supply chain efficiency.


The digital transformation is reshaping Southeast Asia is opening opportunities for citizens and businesses alike. As the pandemic brought millions online for the first time, there was an e-commerce boom and solid growth has been recorded since, with the Philippines and Malaysia leading the region toward a full-on digital economy.


The challenges of urbanization in emerging economies have created a need for innovative solutions, and the concept of smart cities offers a promising way to address these challenges while paving the way for digital transformation. Although smart city initiatives have gained momentum in developed countries such as Singapore and Amsterdam, there is a significant gap in adoption and outcomes in emerging economies.

Developing smart cities in emerging economies is not without its challenges. It requires a customized approach that takes into account a holistic view of each city's unique challenges and opportunities. As we move towards Industry 4.0, the need to catalyze digital transformation in emerging economies for economic growth, social and environmental development is critical. Therefore, it is crucial to invest in smart city initiatives that can address the challenges of urbanization while ensuring a better quality of life for citizens.

Plug and Play Tech Center is a global innovation platform that brings together startups, corporations, and investors to accelerate the development of innovative technologies and digital transformation around the world. With Smart Cities being one of our key verticals globally, we have been supporting startups working on smart city solutions, and bringing key players together to tackle critical smart city challenges and accelerate innovation, thereby creating more efficient and sustainable cities. Learn more about our Smart Cities program.



As an in-house venture capital, our goal is to fund the teams that are building the defensible businesses of the future. By leveraging our capital, our network of VCs, and our corporate partners, we give our portfolio companies an added advantage. Join our platform today!


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