Thursday, July 31, 2014

Emergent Infrastructure

So, Pollinate Energy is basically awesome; for a whole bunch of reasons. If you're into renewable energy, sustainable development, poverty alleviation or any other change-the-world-fetish, go and check them out.

The model is an innovative combination of micro-finance (a la the Grameen Bank), small-scale renewable energy generation and LED lighting. Tent dwellers, outside of the formal economy, get the opportunity for clean, free light with a micro-finance loan over 5 weeks. Light allows study, cooking and family activity after dark, without the health impacts and ongoing costs of burning kerosene. Furthermore, Pollinate is set up to support the emerging business of providing micro-finance solutions for clean energy products (rather than simply retailing the products itself), showing good potential scalability and support for local micro enterprise.

A good news story all round.

That's enough of a plug... The theme of this post is rather around some thoughts that the Pollinate approach has sparked for me: models for delivering basic infrastructure services in informal settlements; because I believe that is one of the keys to effective future urban systems.

I was fortunate to get the opportunity to mentor one of Pollinate's interns, Glenda Yiu (@glendayiu), and the presentation of her experience in Bangalore got me thinking about flexible, informal infrastructure in ballooning emerging market cities.

There is a stat I discovered while developing the WSP Future Cities programme in Africa that floored me - less than 2% of the world's structures are designed by architects... Wow. That probably means that less than 2% of the world's structures include modern engineering, and that less than 2% of the world's structures are connected to conventional urban infrastructure. Many of those structures are in unplanned areas, outside the formal economy and knowledge sector.

The global urban world is predominantly informal. The global urban world emerges, it isn't planned.

This has profound implications for the formal property sector - from finance to design, construction and leasing. Our industry requires stable governance structures, private land ownership and high finance to function. Some, or all of these things are typically absent in the development model likely to dominate the engines of global growth for the next two decades - emerging market cities (McKinsey and BCG both estimate in excess of 40% of global GDP to come from these cities).

Most of the urban world is informal. Out of the reach of the design professionals who depend on it - engineers, architects, urban designers and planners. True, as emerging cities grow, many will broaden the areas well suited to conventional property investment, but there remains a large untapped opportunity in the informal sector for innovation in the delivery of formal services - either conventional 'property' services (like offices, markets, places for entertainment) or infrastructure services (energy, water, sanitation).

Listed property funds dominate the commercial property sector, while governments and large investment banks typically fund infrastructure. All of them have failed the informal sector to a greater or lesser degree and none have developed models for services that seem able to deal with the scale and pace of urbanisation in emerging markets.

Which brings me back to Pollinate - not just a renewable energy company, but a model for delivering basic infrastructure services to an entire socio-economic category currently unserviced by the formal economy. And a class which represents one of the engines of global growth and prosperity.

One of the big challenges that I foresee is the difficulty of applying the Pollinate model to other utility services - water and sanitation. The complexity of sanitation systems makes micro-finance more difficult and/or inaccessible, but the potential benefits are extraordinary. Clean drinking water and safe sanitation are two of the keys to unlocking the growth potential of informal cities. It is here that project like The Future of the Toilet (Gates foundation) and corporate innovation in decentralised infrastructure could have a huge role to play.

As the major global drinks retailers have learned, from Coca Cola to South African Breweries , there is money in the informal sector. But it is thinly spread and a challenge to access, requiring extraordinary distribution and logistics networks to function profitably. Combining emerging tech with micro-finance is revolutionary, but I have think there are real opportunities for refinement. Another sector with some lessons that I think may be relevant is the mobile phone sector, and particularly the M-PESA banking service that has engaged the informal sector in Kenya (nearly everyone has a mobile phone, not everyone has a bank account).

I would not be surprised to see mobile phone/data companies providing the framework for broader decentralised infrastructure services.

We have seen the rise of multi-utility service companies - MUSCos -  operating at the precinct scale (examples at Marina Bay in Singapore, Elephant and Castle in London and now Central Park in Sydney), supplying integrated municipal services to large urban infill developments: energy, water, sanitation and data. The mobile phone companies have already made the leap to decentralised infrastructure models and micro-finance, so it's not too far a step to develop energy and sanitation solutions to match.

If the McKinseys and BCGs are right, and emerging market cities prove to be the hub of future growth, then innovative solutions for informal, decentralised infrastructure could be the critical component to unlock that growth; for governments, corporates and service providers. And professional services businesses that rely on formal property models will have to adapt very quickly to the 'informal' to take full advantage of this next wave of global prosperity. 

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