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Social Franchising Models Proving Poor Bring Profits

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

The four billion people in the world who live on less than US $2 a day have been described as the bottom of the economic pyramid, or BOP for short. In his book The Fortune at the Bottom of the Pyramid, Indian business consultant and professor CK Prahalad argues that this attitude must be turned on its head: rather than seeing the world’s poor as a burden, only worthy of charity, Prahalad sees nothing but opportunity and unmet needs that business can address. In short, he argues, profits can be married with the goal of eradicating poverty.

Prahalad has gone so far as to claim this is a market potentially worth US $13 trillion, while the World Resources Institute puts it at US $5 trillion in its latest report, The Next 4 Billion.

One of the tools business is turning to reach the world’s poor is known as social franchising. The concept borrows from the business world and the highly successful franchise models that are more commonly associated with fast-food restaurants and computer and clothing retailers – wherever rapid expansion and scale are required to reach the biggest market possible. And there is no bigger market, social franchising advocates claim, than the world’s four billion poorest people.

In the past, most formal business in developing countries chased the small middle class or the even smaller elite or foreign expatriate communities. Traditional poverty eradication strategies have also been criticized for being too narrow, focused on a very small group, or for wasting time and resources replicating what has already been achieved elsewhere, and for ballooning and shrinking depending on aid grants or success at fundraising. Social franchising aims to bypass these weaknesses by finding models that work, making sure they are self-financing, and then quickly scaling them up to reach as many people as possible. It’s a model that is gaining more followers and the serious interest of big and small businesses.

One example is the Scojo Foundation in India, established to tackle the common problem of blurry vision as people age (presbyopia). Not a disease, the first symptoms occur between the ages of 40 and 50. Low vision affects 124 million people in the world according to the World Health Organization’s Vision 2020 campaign, organizers of World Sight Day 2007 on October 11.

Blurry vision is a serious disability for weavers, mechanics, goldsmiths and others whose livelihoods depend on near vision. As vision deteriorates, these people are unable to provide for their families. Yet it is easily treatable with a pair of eyeglasses.

Since, 2002, the Scojo Foundation (the social franchising wing of eyeglasses manufacturer Scojo New York, has launched operations in Bangladesh, Mexico, Guatemala, El Salvador and Ghana. Its largest and fastest growing operation is in India, where it employs more than 560 entrepreneurs in rural villages, and selling more than 50,000 pairs of glasses since 2001.

It has grown quickly because the business model has been replicated by local staff who work as franchisees. It has followed the franchise model by building a network of “vision entrepreneurs” – low-income men and women, who in turn sell reading glasses directly to rural villagers throughout India. The franchise model enables the “vision entrepreneurs” to earn a good income, and gain respect from other community members.

Nico Clemminck, co-author of a case study on Scojo, found the price was very competitive with other options in India, and that the higher quality of the glasses made them attractive to villagers.

“The franchisees, or Vision Entrepreneurs as Scojo calls them, that we met were very involved with Scojo – some of them shifting away their focus from previous occupations to spend the majority of their time on conducting vision screenings and selling glasses. The main reason is that the business is quite profitable to them – they make a US $1 margin per glasses sold, which is very high compared to other retail products. A trend we did notice is that commitment decreases over time, as the entrepreneurs exhaust their immediate circle of relatives or target village populations, and the incremental sale becomes tougher to make.”

According to Clemminck, Scojo has been able to quickly and successfully expand to other countries by forming partnerships with existing networks that reach into villages.

The profit hierarchy works like this: the manufacturer charges US $1 for the reading glasses, Scojo charges another US $1, the franchisee a further US $1, and the customer pays US $3 for the glasses. By creating profit at each stage, the model ensures the financial incentives are there to keep the distribution network active.

Prior to Scojo, it was believed developing infrastructure in rural Indian communities is too high to sustain a franchising model for low-cost products. Scojo found it was possible to succeed with this model, by focusing on profitability and sustainability right from the start, pursuing aggressive growth through partnerships to build economies of scale, blocking competitors by having a strong brand and first-mover advantage, constantly refining the model across regions, and delivering a tangible social benefit, both economic and health.

On average, franchisees work 20-30 hours per month and earn US $15 to US $20 per month. Considering most franchisees were living on US $1 a day, the extra income is very welcome, Clemminck said.

“This project gave me insight into the large, untapped market opportunity that exists,” says case study co-author Sachin Kadakia, “and how the concept of ‘Bottom of the Pyramid’ provides a tangible and significant improvement to the quality of life of people in these communities.”

Another social franchise gaining ground in India is Medicine Shoppe. As a chain of pharmacies, Medicine Shoppe targets underserved communities by offering entrepreneurs franchises. It is an offshoot of the largest franchiser of independent community pharmacies in the US, Medicine Shoppe International Inc.. It can draw on its strong brand and identity to appeal to potential franchises.

Acumen Fund fellow Nadaa Taiyab, who is working with Medicine Shoppe’s expansion to help the rural and urban poor, found it was important to learn lessons and adapt the model.

“When I arrived in December (2006),” she said, “we opened the first Sehat Clinic. Last weekend we opened the seventh, with an eighth shortly underway. The model has undergone a tremendous evolution in the past six months. We shifted our site selection strategy from relatively affluent areas with a slum nearby, to locating the clinics right inside slums. We redesigned the process through which we recruit doctors and created an employment package that allows us to hire experienced doctors at a salary we can afford.

“We also implemented an entirely new concept for Medicine Shoppe called community marketing outreach. Through this program, we hire local women in each area to make daily home visits, refer patients to the clinic, spread health education and awareness, and promote our free health camps and health clinics. In the past four months we have held over 35 health-plus-vision-testing camps, serving over 4,000 people.

“We have also made some changes to the look and feel of the clinics and shops and put all our marketing materials in the local language, to make our services more appealing to low-income markets.”

There are critics of the BOP approach, however. Aneel Karnani from the Ross School of Business at the University of Michigan, argues from a for-profit perspective, business would be much better off targeting the needs of the growing middle classes, especially in countries like India and China. He, however, does acknowledge that social franchising businesses like above, where social responsibility is key, are relevant to meeting the needs of the poor.

Published: August 2007

Resources

  • A detailed and thorough case study of how the Scojo Foundation model works is found here
  • An excellent set of decision matrices to help budding social entrepreneurs and existing businesses to decide if social franchising is the right solution: www.createproject.org
  • The Social Enterprise Alliance has built a knowledge network and extensive range of resources (including 160 case studies) on social enterprise.

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Envisioning Better Slums

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY 

More than 900 million people – almost a sixth of the world’s population – now live in urban slums (UN). Improving conditions for these people is a critical Millennium Development Goal target. And the scale of the problem is vast: this year half the world’s population will live in cities, and already in developing countries 43 per cent of urban dwellers live in slums. In the least-developed countries the figure is 78 per cent.

The UN has estimated it will take US$18 billion a year to improve living conditions for these people – and most of it will have to come from the residents themselves.

An essential route to improving the situation is to give people living in slums the dignity and respect they deserve as human beings. Initiatives across the South seek to do this and turn the situation on its head: seeing slum dwellers as a valuable asset, not an urban blight.

The concept of ‘slum networking’ has been developed by Indian engineer Himanshu Parikh of Ahmedabad , a winner of the Aga Khan award for architecture. He starts from the point of believing there is no need for slum conditions to exist in India, but that slums do not need to be moved, just upgraded; and that good change can happen quickly. He also sees the residents’ involvement and financial contribution as critical to the sustainability of any improvements. His approach has already helped one million people overall, including 8,703 families (43,515 people) in Ahmedabad in 41 slum communities.

Slum networking does not depend on aid funds but is a self-reliant approach, in which residents make a partnership with private suppliers to get access to the most important services first: clean water and hygiene and sanitation.

Parikh’s approach involves providing channels for sewage, water supply and roadways in existing slum areas by exploiting the natural topography and pattern of development to provide the new infrastructure.

Parikh makes a detailed survey plan of the existing houses and divides them into groups based on the quality of construction. If they are of reasonable quality, they are left in place. Where possible, slum dwellers are allowed to buy the land they are squatting on. By buying the land, the owner now has a direct stake in its development.

“Working inside out, i.e. starting with quality infrastructure in the poor areas and working outwards to produce larger networks for the city or village, not only integrates the two levels, but actually produces far cheaper infrastructure at both levels,” Parikh told Architecture Week magazine.

In the Indian city of Indore, 181 slums were networked, giving the city 360 kilometres of new roads, 300 kilometres of new sewer lines, 240 kilometres of new water lines, 120 community halls and 120,000 trees. This transformed the two local rivers from open sewers back to water. According to the World Bank, the incidence of fatal water diseases fell by 90 per cent.

“No project for their rehabilitation could be successful until they were involved as the capital partners,” Parikh told India’s The Tribune. Upgrading “the civic amenities, including sewerage, roads and water supply, was the need of the hour for better living conditions of the slum dwellers.”

Another initiative in Bangladesh is bringing first-rate healthcare to the country’s water-logged slum dwellers. They live in areas called ‘chars’ — effectively stranded islands surrounded by rivers, plagued by frequent flooding and physically cut-off from the country’s transport and infrastructure networks. Located in northern Bangladesh’s Jamuna river regions of Gaibandha, Kurigram and Jamalpu, these areas are very poor and overlooked by most government and foreign aid programmes. The fact the islands shift around has made it difficult for much help to reach the people.

Bangladesh also has a severe shortage of doctors: there are 12,500 people per doctor, compared to 2,000 in Pakistan.

But a hospital ship run by the Friendship NGO (funded by private companies and NGOs) now brings healthcare to 4 million people, treating everything from cataracts to skin infections. It sees between 200 to 250 patients a day aboard a converted former river barge. Called the Lifebuoy Friendship Hospital because of its sponsorship by Lever Brothers Bangladesh Ltd. — makers of Lifebuoy soap — it cruises the river Brammaptura, helping 172,000 people since it set sail six years ago.

“People of the area look forward eagerly to our arrival,” said Dr Feroza Khatun, a doctor on the hospital ship. Other doctors and surgeons are provided by NGOs from Sweden, the Netherlands and France.

The ship carries a team of two doctors and four nurses, who live on board. It provides a range of services, from basic healthcare and immunisations to minor surgery. The ship is fully equipped with modern facilities, including clinics, a pharmacy, a treatment room and an operating theatre. There is also a four-bed ward for short-term care, a pathology lab and store, x-ray unit and dark room and an electrocardiogram (ECG).

Stays in the individual ‘chars’ are usually from three weeks to two months. When it leaves, a satellite clinic continues to provide care until the next visit. “In our satellite programmes, we bring in professionals for health and rural social education, provide paramedical care, give special treatment for mother and child health, family planning and pregnancy hazards, child nutrition and identify the needs for secondary care interventions,” said executive director Runa Khan to Bangladesh’s Star Weekend Magazine

Started as a trial in 2001, the ship began full operations in 2002. It has been so successful, it is currently expanding by building new ships paid for by the Emirates Airline Foundation.

Published: February 2012

Resources

  • Shelter Associates: established by Indian architect Pratima Joshi, an NGO working on slum rehabilitation.
  • SPARC: one of the largest Indian NGOs working on housing and infrastructure issues for slum dwellers.
  • Improving the Lives of Slum Dwellers: published by the Millennium Project.
  • Slum TV: Based deep inside Nairobi’s largest slum, Mathare, they have been seeking out the stories of hope where international media only see violence and gloom.
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Prisons With Green Solutions

An ingenious solution is helping Rwanda reduce the cost of running its bursting prisons, while improving conditions for the prisoners and helping protect the environment.

The country’s prison population soared to a peak of 120,000 suspects awaiting trial for their role in the 1994 genocide, in which 800,000 Tutsis and moderate Hutus were killed. The traditional court system, gacaca, is being used for national reconciliation, but the process is slow and costly for a country where 90 per cent of the population exist on subsistence agriculture, and where food production has dropped below 70 per cent of the levels needed for self-sufficiency (USAID).

But thanks to enormous, bee-hive shaped human manure digesters, a steady supply of biogas is on tap for cooking and lighting at prisons – the first country in Africa to do this. Five of the country’s largest prisons – two at Gitarama and one each in Butare, Kigali and Cyangugu – now have biogas plants producing 50 per cent of the gas needed to cook for prisoners. It has also saved half of each prison’s US $44,000 a year firewood costs. The money saved is being ploughed back into renovations to the prisons to improve conditions, and to provide more services like healthcare.

Biogas is produced from the fermentation of household or agricultural waste or animal or human feces, and has become a viable alternative when traditional gas sources become more expensive. The waste is placed in a 150 cubic meter beehive-shaped digester and fermented until a gas is produced. According to lead engineer on the project, Ainea Kimaro, 100 cubic meters of waste is turned into 50 cubic meters of fuel by bacteria devouring the manure in just four weeks.

The digesters are a project of the Kigali Institute of Sciences, Technology and Management ‘s Center for Innovations and Technology Transfer.

“Biogas kills two birds with one stone,” Kimaro told the BBC. It gets rid of all the human waste and helps cover the enormous costs of feeding so many prisoners. Prior to the digesters, the quantity of human waste was a real problem: it was flooding down hillsides and leaking into rivers and lakes.

A school, the Lycee de Kigali , also has a digester. “The methane gas is used to cook for 400 students and for operating Bunsen burners in the school laboratories”, Kimaro said.

Many would think this a smelly affair, but in fact the whole process isn’t that pungent. Most of the digester is underground and the gas produced burns a clean, blue smokeless flame. It is much cleaner than the smoke from firewood. The remaining sludgy residue is used as an odourless compost for soil. This is used in the prison gardens to grow maize, mangos, bananas and tomatoes – all of which ends up back on the prisoner’s plates, improving the quality of their nutrition.

“The firewood savings are excellent – they really make a difference for us,” a Cyangugu prison warden said, adding that the odour-free compost had done wonders for the prison gardens. “Look at all these bananas! This fertiliser really is the best,” he said to the BBC.

In Uganda, human urine and feces are being mixed with banana peels, algae, water hyacinth and poultry droppings to make biogas. In Uganda’s rural Mukono district, biogas is used for cooking, lighting pressure lamps and to power engines. The slurry left over is then used to fertilise the soil. For Ugandans, most of whom are rural dwellers, electricity is rare and petrol to run generators and refrigeration units is expensive.

“It keeps the environment free of organic wastes, is convenient, time-saving and reduces smoke-related illnesses often associated with the use of firewood,” said Patrick Nalere, country director of the Heifer Project International, an American NGO which shares livestock and knowledge to reduce poverty. “If the majority of Ugandans adopted biogas, we would preserve our biodiversity. People should exploit decomposing raw materials, which are free. Therefore, no monthly power tariffs.”

By David South, Development Challenges, South-South Solutions

Published: February 2008

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Global South Eco-cities Show How the Future Can Be

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

The world is currently undergoing a high-stress transition on a scale not seen since the great industrial revolution that swept Europe in the 19th and 20th centuries. Today’s urban and industrial transition involves many more people and is taking place on a greater proportion of the planet. With rapid urbanization comes a demand for middle class lifestyles, with their high-energy usage and high consumption of raw materials.

This is stretching the planet’s resources to breaking point. And as many have pointed out, if the world’s population is to continue past today’s 7 billion to reach 9 billion and beyond, new ways of living are urgently required. Radical thinking will be necessary to match the contradictory goals of raising global living standards for the world’s poor with pressured resources and environmental conditions.

But there are innovative projects already under development to build a new generation of 21st-century cities that use less energy while offering their inhabitants a modern, high quality of life. Two examples are in China and the Middle East.

Both projects are seen as a way to earn income and establish viable business models to build the eco-cities of the future. Each project is seeking to develop the expertise and intellectual capacity to build functioning eco-cities elsewhere. In the case of the Masdar City project in the United Arab Emirates, international businesses are being encouraged to set up in Masdar City and to develop technologies that can be sold to other countries and cities – in short, to create a green technology hub akin to California’s hi-technology hub ‘Silicon Valley’. Masdar City is also being built in stages as investors are found to help with funding. Both projects hope to prove there is money to be made in being green and sustainable.

The Tianjin Eco-city (tianjinecocity.gov.sg) project is a joint venture between China and Singapore to build a 30 square kilometre city to house 350,000 residents.

Tianjin (http://en.wikipedia.org/wiki/Tianjin) is a large industrial city southeast of China’s capital, Beijing. It is a place that wears the effects of its industrial expansion on the outside. Air pollution is significant and the city has a grimy layer of soot on most outdoor infrastructure.

China has received a fair bit of criticism for its polluted cities as the country has rapidly modernized in the past two decades. This sprint to be one of the world’s top economic powers has come at a cost to the environment. In this respect, China is not unusual or alone. Industrialization can be brutal and polluting, as Europe found out during its earlier industrial revolution.

But China is recognizing this can’t go on forever and is already piloting many initiatives to forge a more sustainable future and bring development and high living standards back in line with what the environment can handle.

Sino-Singapore Tianjin Eco-city is the second large-scale collaboration between the Chinese government and Singapore. The first was the Suzhou Industrial Park (http://www.sipac.gov.cn/english/).The Tianjin project came up in 2007 as both countries contemplated the challenges of rapid urbanization and sustainable development.

The project’s vision, according to its website, is to be “a thriving city which is socially harmonious, environmentally-friendly and resource-efficient – a model for sustainable development.”

The philosophy behind the project is to find a way of living that is in harmony, with the environment, society and the economy. It is also about creating something that could be replicated elsewhere and be scaled up to a larger size.

The city is being built 40 kilometres from Tianjin centre and 150 kilometres from Beijing. It is located in the Tianjin Binhai New Area, considered one of the fastest growing places in China.

Construction is well underway and can be followed on the project’s website (http://www.tianjinecocity.gov.sg/gal.htm). It will be completed in 2020.

This year, the commercial street was completed and is ready for residents to move in.

Residents will be encouraged to avoid motorized transport and to either use public transport or people-powered transport such as bicycles and walking.

An eco-valley runs down the centre of the city and is meant to be a place for pedestrians and cyclists to enjoy.

The basic building block of the Eco-city – its version of a city block – is called the Eco Cell. Each Eco Cell measures 400 metres by 400 metres, a comfortable walking distance. Four Eco Cells make a neighbourhood. Several Eco Neighbourhoods make an Eco District and there are four Eco Districts in the Eco-city. It is a structure with two ideas in mind: to keep development always on a walkable, human scale and also to provide a formula for scaling up the size of the Eco-city as the number of residents increases.

It is a logical approach and seeks to address one of the most common problems with conventional cities: sprawling and unmanageable growth that quickly loses sight of human need.

Agreement was also reached on the standards that should be achieved for a wide variety of criteria, from air and water quality to vegetation, green building standards, and how much public space there should be per person.

An ambitious project in the United Arab Emirates is trying to become both the world’s top centre for eco cities and a living research centre for renewable energy. Masdar City (http://www.masdarcity.ae/en/)is planned to be a city for 40,000 people. It is billed as a high-density, pedestrian-friendly development where current and future renewable energy and clean technologies will be “marketed, researched, developed, tested and implemented.”

The city hopes to become home to hundreds of businesses, a research university and technology clusters.

This version of an eco-city is being built in three layers in the desert, 17 kilometres from the Emirati capital Abu Dhabi. The goal is to make a city with zero carbon emissions, powered entirely by renewable energy. It is an ambitious goal but there are examples in the world of cities that use significant renewable energy for their power, such as Reykjavik, Iceland in Northern Europe, which draws much of its energy from renewables and geothermal sources.

Masdar City is designed by world-famous British architect Norman Foster (fosterandpartners.com) and will be 6.5 square kilometres in size.

The design is highly innovative. The city will be erected on 6 metre high stilts to increase air circulation and reduce the heat coming from the desert floor. The city will be built on three levels or decks, to make a complete separation between transport and residential and public spaces.

The lowest deck will have a transportation system based on Personal Rapid Transport Pods. These look like insect eyes and are automated, controlled by touch screens, using magnetic sensors for propulsion. On top of this transport network will be the pedestrian streets, with businesses, shops and homes. No vehicles will be allowed there, and people will only be able to use bicycles or Segway (segway.com) people movers to get around. An overhead light railway system will run through the city centre, all the way to Abu Dhabi City.

“By layering the city, we can make the transport system super-efficient and the street level a much better experience,” Gerard Evenden, senior partner at Foster + Partners, told The Sunday Times. “There will be no car pollution, it will be safer and have more open spaces. Nobody has attempted anything like this.”

Masdar City is being built in stages as funding comes, with the goal of completion by 2016. It hopes to achieve its aspiration to be the most technologically advanced and environmentally friendly city in the world. As for water supplies in the desert, there is a plan: dew collected in the night and morning and a solar-powered desalination plant turning salt water into drinking water.

Electricity will come from a variety of sources. Solar panels will be on every roof and double as shade on alleyways. Non-organic waste will be recycled, while organic waste will be turned into fuel for power plants. Dirty water will be cleaned and then used to irrigate green spaces. Because of the design, the planners hope the city will just use a quarter of the energy of a conventional city.

To keep the city smart and the project on top of developments in renewable energy, the Masdar Institute of Science and Technology (http://www.masdar.ac.ae/) will specialize in renewable energy technology.

The cost for the city was pegged at US $22 billion in 2009.

The chief executive of Masdar – Abu Dhabi’s renewable-energy company – is Sultan Al Jaber. He sees the city as a beacon to show the way for the rest of the Emirate to convert from a highly inefficient consumer of energy to a pioneer in green technology.

“The problem with the renewable-energy industry is that it is too fragmented,” he told The Sunday Times. “This is where the idea for Masdar City came from. We said, ‘Let’s bring it all together within the same boundaries, like the Silicon Valley model (in California, USA).’”

The project needs to gather much of its funding as it progresses. The United Nations’ Clean Development Mechanism (http://cdm.unfccc.int/) is helping with financing. Companies can earn carbon credits if they help fund a low-carbon scheme in the global South. The sultan is ambitious and sees this as a “blueprint for the cities of the future.” It has been able to bring on board General Electric (GE) and the Massachusetts Institute of Technology (MIT) to sponsor the university.

It is possible to visit Masdar City and take a tour (http://www.masdarcity.ae/en/105/visit-masdar-city/) and it is also possible to view online what has been built so far (http://www.masdarcity.ae/en/32/built-environment/).

Resources

1) Center for Innovation, Testing and Evaluation (CITE): Located in Texas, USA, CITE is a fully functioning city with no residents to test new technologies before they are rolled out in real cities. Website: http://www.pegasusglobalholdings.com/test-center.html

2) Digital Cities of the Future: In Digital Cities, people will arrive just in time for their public transportation as exact information is provided to their device. The Citizen-Centric Cities (CCC) is a new paradigm, allowing governments and municipalities to introduce new policies. Website: http://eit.ictlabs.eu/action-lines/digital-cities-of-the-future/

3) Eco-city Administrative Committee: Website: http://www.eco-city.gov.cn/

4) Sino-Singapore Tianjin Eco-city, Investment and Development Co., Ltd. Website: tianjineco-city.com

5) ‘The Future Build’ initiative, a new green building materials portal from Masdar City. Website: thefuturebuild.com

6) UNHABITAT: The United Nations Human Settlements Programme is the UN agency mandated to promote socially and environmentally sustainable towns and cities with the goal of providing adequate shelter for all. Website: http://www.unhabitat.org

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