Data story: key signals in Smart cities & connected infrastructure

By 2025, emerging markets are projected to account for over 60% of global smart city spending growth, with cities across Asia, Africa, and Latin America collectively investing an estimated $124 billion in connected infrastructure annually. Yet beneath these headline figures lies a more complex reality: fewer than 18% of smart city pilot projects in developing economies successfully transition to citywide deployment. This data story unpacks the key performance indicators that separate sustainable urban transformation from expensive technological experiments, examining the implementation trade-offs, stakeholder incentives, and hidden bottlenecks that determine whether connected infrastructure delivers on its promise.

Why It Matters

Smart cities represent one of the most consequential intersections of urbanization, climate action, and digital transformation. In emerging markets, where urban populations are growing at 2.5 times the rate of developed economies, the stakes are particularly acute. The International Energy Agency reported in 2024 that buildings and urban infrastructure account for approximately 40% of global energy consumption and 33% of greenhouse gas emissions—proportions that are rising fastest in rapidly urbanizing regions.

The significance extends beyond environmental metrics. According to the World Bank's 2024 Urban Development Report, cities in emerging markets that deploy integrated smart infrastructure systems demonstrate 12-22% improvements in municipal service delivery efficiency, 15-30% reductions in peak electricity demand through demand-side management, and measurable improvements in air quality indices within 18-36 months of implementation. These outcomes directly influence public health, economic productivity, and climate resilience.

However, the implementation landscape remains fragmented. A 2025 analysis by the McKinsey Global Institute found that while 78% of cities with populations exceeding 500,000 in emerging markets have announced smart city initiatives, only 23% have progressed beyond pilot phases. The gap between ambition and execution stems from a constellation of factors: misaligned stakeholder incentives, underestimated capital requirements, inadequate data governance frameworks, and the persistent challenge of retrofitting legacy infrastructure. Understanding the key signals that predict success—and the hidden bottlenecks that derail progress—is essential for founders, investors, and policymakers navigating this complex terrain.

Key Concepts

Smart Cities: Urban environments that leverage integrated digital technologies, IoT sensors, and data analytics to optimize infrastructure performance, enhance service delivery, and improve quality of life. In the emerging markets context, smart city implementations typically prioritize energy efficiency, water management, transportation optimization, and waste reduction. The term encompasses both greenfield developments (purpose-built smart districts) and brownfield retrofits of existing urban infrastructure, with the latter representing approximately 85% of implementations in developing economies.

Demand Charges: A pricing mechanism used by utilities that bills commercial and industrial customers based on their peak power consumption during a billing period, rather than solely on total energy consumed. In emerging markets with constrained grid capacity, demand charges can constitute 30-50% of electricity costs for commercial buildings. Smart building management systems that flatten peak loads can achieve demand charge reductions of 15-40%, representing a critical ROI pathway for connected infrastructure investments.

Heat Pumps: Electrified heating and cooling systems that transfer thermal energy rather than generating it through combustion, achieving efficiencies 2-4 times greater than conventional HVAC systems. In tropical and subtropical emerging markets, air-source heat pumps for cooling represent a significant decarbonization opportunity. The technology faces adoption barriers including high upfront CAPEX (typically 40-60% more than conventional systems), limited local installation expertise, and voltage instability in grids with <95% power quality reliability.

Micromobility: Lightweight transportation solutions including e-bikes, e-scooters, and electric three-wheelers designed for short-distance urban travel. In dense emerging market cities with limited road infrastructure, micromobility can address "last-mile" connectivity challenges more cost-effectively than rail or bus rapid transit extensions. Key KPIs include fleet utilization rates (>4 trips per vehicle per day indicates viability), maintenance costs per kilometer, and integration with existing public transit payment systems.

CAPEX (Capital Expenditure): Upfront investment required for infrastructure deployment, distinct from ongoing operational expenses. Smart city projects in emerging markets face distinctive CAPEX challenges including foreign exchange volatility (many technology components are imported), higher cost of capital (often 400-800 basis points above developed market rates), and limited availability of project finance structures suited to municipal infrastructure. Successful deployments typically target CAPEX recovery periods of 5-7 years through operational savings or revenue generation.

What's Working and What Isn't

What's Working

Integrated command-and-control centers delivering measurable operational improvements. Cities including Bengaluru, São Paulo, and Cairo have deployed unified operations centers that aggregate data from traffic systems, utilities, emergency services, and environmental sensors. Bengaluru's Integrated Traffic Management System, operational since 2023, processes data from 4,500 cameras and 1,200 sensors to optimize signal timing dynamically. The system has documented a 14% reduction in average commute times on monitored corridors and a 22% improvement in emergency vehicle response times. The key success factor: clear accountability structures with the Karnataka State IT Department serving as single-point integrator rather than distributing responsibility across multiple municipal agencies.

Utility-led smart metering programs achieving commercial sustainability. Unlike municipal smart city initiatives that often struggle with fragmented funding, utility-driven smart meter deployments have demonstrated consistent commercial viability. Colombia's Enel-Codensa rollout covering 1.2 million meters in Bogotá achieved a 12% reduction in technical and non-technical losses (electricity theft and billing errors) within 24 months, generating sufficient savings to fund ongoing expansion. The program's success derived from a clear value proposition: reduced distribution losses directly improved utility margins while enabling time-of-use pricing that benefited off-peak consumers.

Public-private partnerships structured around outcome-based contracts. Rwanda's Kigali Smart City initiative has pioneered performance-based contracting for connected infrastructure, where technology vendors receive compensation tied to verified improvements in metrics including streetlight uptime (>98%), traffic incident detection accuracy (>85%), and air quality sensor data availability (>99%). This structure aligns vendor incentives with municipal outcomes and shifts technology risk away from cash-constrained local governments. The model has attracted participation from global firms including Huawei and Orange while maintaining meaningful local procurement requirements.

What Isn't Working

Siloed pilot projects that fail to achieve interoperability. A recurring pattern across emerging market smart city initiatives is the proliferation of vendor-specific pilot deployments that cannot exchange data or integrate with broader urban systems. Jakarta's experience is instructive: by 2024, the city had accumulated 14 separate "smart" systems spanning flood monitoring, traffic management, and waste collection, each using proprietary protocols and data formats. The cost of retrofitting interoperability has been estimated at 40-60% of the original deployment costs, effectively stranding initial investments. The bottleneck is not technical but institutional—procurement processes that prioritize lowest upfront cost over lifecycle integration.

Insufficient attention to digital literacy and citizen adoption. Smart city deployments frequently underestimate the change management required for citizen-facing applications. A 2024 evaluation of smart transit apps across 12 African cities found that fewer than 8% of public transit users regularly engaged with digital tools, despite significant investment in platform development. Barriers included smartphone penetration gaps (averaging 45% in target populations), data cost concerns (mobile data prices in Sub-Saharan Africa remain 3-5 times higher per GB than global averages), and trust deficits regarding data privacy. Successful implementations increasingly incorporate USSD-based interfaces and community ambassador programs to bridge adoption gaps.

Underestimating grid infrastructure constraints. Many connected infrastructure deployments assume reliable electricity supply that does not exist. EV charging networks, IoT sensor arrays, and data centers require consistent power quality with voltage variation <±5% and availability >99%. Yet grid reliability in emerging market cities frequently falls short: average annual outage hours range from 50-200 in South Asian cities and 100-400 in Sub-Saharan African urban centers. Smart city projects that fail to budget for backup power systems, voltage stabilization, or distributed generation face persistent operational challenges that undermine ROI projections built on developed-market assumptions.

Key Players

Established Leaders

Siemens AG: The German industrial conglomerate operates smart infrastructure projects across 50+ emerging market cities, with particular strength in building automation and grid modernization. Their Xcelerator platform provides modular digital solutions scaled for lower-income contexts.

Huawei Technologies: The Chinese technology firm has deployed smart city solutions in over 200 cities globally, with significant presence in Africa, Southeast Asia, and the Middle East. Their Safe City and Smart Campus solutions address security and urban management needs, though geopolitical considerations influence procurement decisions in some markets.

Schneider Electric: The French multinational's EcoStruxure platform provides integrated building and grid management solutions, with a strong distribution network across Latin America and Africa. Their focus on energy efficiency delivers clear ROI pathways in markets with high electricity costs.

Honeywell International: The American conglomerate maintains significant smart building automation market share in Gulf Cooperation Council countries, India, and Southeast Asia. Their Forge platform emphasizes operational technology security, an increasingly critical concern for connected infrastructure.

IBM: The technology company's Intelligent Operations Center platform serves as the backbone for integrated city management in locations including Rio de Janeiro and Nairobi. Their consulting-led approach suits complex multi-stakeholder implementations.

Emerging Startups

Kara Technologies (Nigeria): Develops AI-powered traffic management systems optimized for mixed-vehicle urban environments common in African cities, where motorcycles, three-wheelers, and pedestrians share road space with automobiles.

Awesense (Canada/Brazil): Provides grid analytics and digital twin solutions for utilities in Latin America, enabling predictive maintenance and loss reduction without requiring full smart meter deployment.

Tractian (Brazil): Offers industrial IoT monitoring for building mechanical systems, using machine learning to predict equipment failures and optimize maintenance scheduling for commercial real estate in emerging markets.

Yulu (India): Operates a micromobility platform deploying over 25,000 electric two-wheelers across Indian cities, integrated with metro and bus transit systems to address last-mile connectivity gaps.

Payanini (Kenya): Develops integrated payment systems for urban services including transit, utilities, and waste management, enabling cross-subsidy models that extend service access to low-income residents.

Key Investors & Funders

International Finance Corporation (IFC): The World Bank's private sector arm has committed $3.2 billion to smart city and sustainable infrastructure projects in emerging markets since 2020, with a focus on climate-positive investments.

Asian Infrastructure Investment Bank (AIIB): The multilateral development bank has financed smart city components in projects across South and Southeast Asia, emphasizing digital connectivity and green infrastructure.

Breakthrough Energy Ventures: Bill Gates' climate-focused venture fund has invested in building electrification and grid modernization technologies with emerging market applications, including Form Energy (long-duration storage) and Palmetto (distributed solar).

African Development Bank: Through its Urban Development Strategy, the AfDB has mobilized $2.1 billion for smart city initiatives across the continent, prioritizing water management and transportation.

SoftBank Vision Fund: Despite broader portfolio challenges, SoftBank maintains significant investments in emerging market smart city enablers including Rappi (logistics), Ola (mobility), and construction technology platforms.

Examples

1. Bogotá, Colombia – Integrated Public Transit Digitization: Beginning in 2022, Bogotá implemented a unified fare collection and real-time tracking system across its TransMilenio bus rapid transit network and feeder services. The CAPEX investment of $180 million was structured as a 15-year concession with Cubic Transportation Systems, with payments tied to transaction volume and system uptime. By 2024, the system processed 2.8 million daily transactions with 99.4% availability. Measurable outcomes included a 34% reduction in fare evasion (previously costing $120 million annually), 18% improvement in schedule adherence through dynamic dispatch, and a 12% increase in ridership attributed to improved service reliability. The hidden bottleneck: integration with informal transit operators (accounting for 40% of trips) remains incomplete due to political resistance and operator concerns about revenue transparency.

2. Kigali, Rwanda – Smart Streetlighting and Environmental Monitoring: Rwanda's capital deployed 10,000 LED streetlights with integrated IoT sensors for air quality monitoring, noise level tracking, and traffic counting between 2021-2024. The $28 million project, financed through a mix of Korean Exim Bank concessional lending and domestic budget allocation, achieved 68% energy cost reduction compared to legacy sodium vapor fixtures. Beyond illumination, the sensor network provides real-time environmental data feeding into Kigali's urban planning processes. Key implementation trade-off: the decision to use proprietary Signify (Philips) technology provided faster deployment but created vendor lock-in for ongoing maintenance and software licensing. Stakeholder incentive alignment: Rwanda's strong central governance enabled coordinated implementation across municipal agencies, avoiding the fragmentation common in more decentralized political systems.

3. Chennai, India – AI-Powered Water Distribution Optimization: The Chennai Metropolitan Water Supply and Sewerage Board partnered with Grundfos and local startup Flutura in 2023 to deploy AI-driven pump scheduling across 12 distribution zones serving 4.2 million residents. The system uses machine learning to predict demand patterns and optimize pump operations, reducing energy consumption by 24% while improving supply pressure consistency. The $8.5 million implementation achieved payback within 2.3 years through electricity savings alone. Critical success factor: the project built on existing SCADA infrastructure rather than requiring greenfield sensor deployment, significantly reducing integration complexity. Hidden bottleneck: the system's effectiveness depends on accurate pipe network mapping, and approximately 35% of Chennai's distribution network lacks complete documentation, limiting optimization potential in those zones.

Action Checklist

• Conduct a comprehensive baseline assessment of existing infrastructure, including grid reliability metrics, data connectivity coverage, and current municipal IT systems before designing smart city interventions
• Map stakeholder incentives across municipal agencies, utilities, real estate developers, and technology vendors to identify alignment opportunities and potential resistance points
• Require open API standards and data interoperability provisions in all technology procurement contracts to prevent vendor lock-in and enable future system integration
• Structure financing to separate CAPEX recovery timelines from political cycles, using multi-year concessions or availability payment mechanisms where possible
• Develop citizen engagement strategies that account for digital literacy gaps, including USSD interfaces, community training programs, and multilingual support
• Budget for backup power and voltage stabilization requirements based on actual grid reliability data rather than rated capacity specifications
• Establish data governance frameworks addressing privacy, security, and ownership questions before deploying sensor networks that collect personal or commercially sensitive information
• Define clear KPIs with baseline measurements and target thresholds before pilot launch, enabling objective evaluation of scale-up readiness
• Build local technical capacity through partnerships with regional universities and vocational institutions, reducing dependence on foreign expertise for ongoing operations
• Create feedback mechanisms allowing iterative refinement based on citizen usage patterns and satisfaction data rather than technology-centric performance metrics alone

FAQ

Q: What distinguishes successful smart city deployments in emerging markets from those that stall at pilot phase? A: The differentiating factors are primarily institutional rather than technological. Successful deployments typically share three characteristics: unified governance with clear accountability (often a dedicated smart city agency or empowered existing authority), financing structures that align payment timelines with benefit realization (avoiding reliance on annual budget cycles), and pragmatic scoping that prioritizes quick wins with measurable ROI before attempting more complex integrations. Failed pilots commonly suffer from fragmented responsibilities across municipal departments, procurement processes that select lowest-cost vendors without lifecycle considerations, and overambitious scope that attempts too many integrations simultaneously.

Q: How should founders evaluate market entry opportunities in emerging market smart city sectors? A: Prioritize markets demonstrating three enabling conditions: political commitment evidenced by dedicated funding allocations and institutional structures (not merely announcements), utility or municipal partners with clear commercial incentives and technical capacity to implement, and existing infrastructure (power, connectivity, data centers) sufficient to support proposed solutions without requiring parallel investments. Markets satisfying only one or two conditions present execution risk that typically exceeds commercial opportunity. Additionally, assess whether local regulations permit the data collection and algorithmic decision-making your solution requires—regulatory frameworks in emerging markets range from permissive to highly restrictive and change frequently.

Q: What financing mechanisms are proving effective for smart city infrastructure in capital-constrained emerging markets? A: Four models are demonstrating traction. First, utility-led deployments where electricity or water distribution companies finance smart infrastructure through operational savings capture, effectively self-funding from loss reduction. Second, availability payment concessions where private operators finance, build, and operate systems in exchange for guaranteed payments tied to service availability rather than usage volume. Third, blended finance structures combining multilateral development bank loans (providing lower cost of capital) with commercial debt and equity. Fourth, shared savings agreements where technology providers accept compensation linked to verified performance improvements, transferring technology risk away from municipalities. The common thread: all successful structures align payment to value delivery rather than requiring upfront capital commitments from cash-constrained public entities.

Q: How do data privacy and security considerations differ in emerging market smart city contexts? A: Emerging markets present a complex and evolving data governance landscape. Some jurisdictions lack comprehensive privacy legislation, creating legal ambiguity for sensor data collection and algorithmic processing. Others have recently enacted stringent requirements modeled on GDPR, sometimes with data localization provisions that complicate cloud-based architectures. Security considerations are equally nuanced: while cybersecurity awareness is often lower in municipal agencies, the risks of smart infrastructure compromise—traffic system manipulation, grid destabilization, surveillance misuse—are identical to developed markets. Best practice involves designing systems to the highest applicable standard (typically GDPR-equivalent) regardless of local requirements, implementing privacy-by-design principles, and building local security operations capacity rather than relying solely on remote monitoring.

Q: What role does climate adaptation play in emerging market smart city priorities? A: Climate adaptation is increasingly central to smart city investment cases in emerging markets, where physical climate risks are often more acute than in developed economies. Flood early warning systems, heat island monitoring, water stress management, and air quality tracking directly address climate vulnerabilities affecting urban populations. Notably, climate adaptation-focused deployments often attract concessional financing from climate funds and development finance institutions that pure efficiency-focused projects cannot access. For founders, framing solutions in terms of climate resilience rather than solely operational efficiency can unlock funding pathways and political support that accelerate adoption. The data infrastructure deployed for climate monitoring also creates platform value for broader smart city applications.

Sources

• International Energy Agency. (2024). Global Status Report for Buildings and Construction. Paris: IEA Publications.
• World Bank. (2024). Urban Development Report: Digital Transformation in Developing Cities. Washington, DC: World Bank Group.
• McKinsey Global Institute. (2025). Smart Cities in Emerging Markets: Bridging the Implementation Gap. New York: McKinsey & Company.
• International Finance Corporation. (2024). Climate Investment Opportunities in Cities. Washington, DC: IFC.
• GSMA. (2024). The Mobile Economy: Sub-Saharan Africa. London: GSM Association.
• Asian Development Bank. (2024). Digital Solutions for Urban Services in Developing Asia. Manila: ADB Publications.
• African Development Bank. (2023). Smart Cities Strategy for Africa: 2023-2032. Abidjan: AfDB.