Deindustrialization’s Silver Lining: Leveraging Smart City Tech for Sustainable Growth

Deindustrialization is a phenomenon where the proportion of industry, especially manufacturing, in a country's economic structure declines, often due to increased automation.

Authors: Tuhu Nugraha and Raine Renaldi*

Deindustrialization is a phenomenon where the proportion of industry, especially manufacturing, in a country’s economic structure declines, often due to increased automation, tight global competition, and a shift towards a service-based economy. Concrete examples of deindustrialization can be seen in the statistical data of several developing countries. In Indonesia, the contribution of the manufacturing sector to GDP has decreased from 29.3% in 2000 to 18.25% in 2022, according to data from the Central Statistics Agency (BPS). Meanwhile, in Brazil, the same contribution has decreased from 15.6% in 2004 to 11.3% in 2020, according to data from the World Bank. In South Africa, the figure has declined from 17.5% in 2000 to 12.5% in 2020.

The likely causes of this phenomenon include the adoption of advanced technologies such as artificial intelligence (AI) and robotics, which promote automation, reduce the need for human labor, and enhance efficiency. This frequently compels companies to downsize or relocate their manufacturing operations to more cost-effective and efficient locations. Moreover, shifts in global trade dynamics, characterized by the rise of countries with lower production costs, also pressure many industries in developing countries to either shut down or reduce their operations. In response to these challenges, the smart city concept offers an innovative solution. Through the integration of the latest technology that improves services and infrastructure, and by promoting economic diversification and the creation of new jobs in new sectors, smart cities help transform the economy into a more sustainable and competitive one. With a strong innovation ecosystem, and customized education and training, this concept aims to replace the traditional industrialization paradigm with a more adaptive and futuristic model.

Economic Diversification through Technology

Deindustrialization often occurs due to over-reliance on traditional manufacturing industries. However, with the smart city concept, there are significant opportunities for economic diversification. Through the implementation of innovation and technology, space is created for the growth of startups and SMEs focused on high technology and digital services. This approach not only reduces dependence on traditional manufacturing but also promotes the development of new sectors more resistant to automation and digitization.

Rwanda is a real example of the implementation of this strategy. The Rwandan government has invested in building technology infrastructure, such as broadband networks and data centers, which support the growth of the digital economy. This investment has successfully attracted global technology companies and spurred the growth of the technology sector in the country. Furthermore, Rwanda also uses technology to enhance productivity and efficiency in the agriculture sector, for example, through the use of IoT sensors to monitor soil and plant conditions and the use of drones for pesticide spraying and agricultural land mapping. These steps not only improve crop yields but also open up new opportunities in the agribusiness and agricultural technology sectors.

In the tourism sector, Rwanda has developed a digital platform that allows tourists to book accommodations, tours, and other activities online, and also utilizes virtual reality (VR) and augmented reality (AR) technology to promote tourist destinations. This integrated approach shows how smart cities can facilitate an inclusive and sustainable economic transformation in developing countries.

Industrial Transformation through Living Labs

Living labs in smart cities play a critical role as real laboratories supporting the development and implementation of new technologies, crucial for the transformation of traditional manufacturing industries into more efficient and sustainable Industry 4.0. This transformation is key to revitalizing the manufacturing sector, bringing it into a new era where innovation and sustainability are central to growth. As a strategic step, governments can provide fiscal incentives such as tax exemptions or subsidies for companies investing in advanced technologies and sustainable practices, and invest in infrastructure that supports digital technology and connectivity, such as fast broadband networks and data centers. Further, it is also important to develop collaboration between universities, research institutes, and industry to facilitate the flow of knowledge and innovation and accelerate the commercialization of new technological discoveries.

One example of this implementation is the Bandung Techno Park (BTP), a technology development area that also serves as a living lab for various smart city technologies, including Industry 4.0. BTP not only provides facilities and support for manufacturing companies to test and develop new technology-based products and services but has also successfully fostered innovation in the manufacturing sector in Bandung. Several manufacturing companies have successfully developed innovative products at BTP, such as IoT-based energy monitoring systems and AI-based production automation systems.

It is important to develop living labs like BTP with a clear focus on their positioning at regional, national, and global scales, and their role in the global economic supply chain. Living labs should be designed not only to meet local needs but also to contribute to the global ecosystem, strengthen the linkage of domestic industries with the global supply chain, and expand their innovation reach to international markets. This will maximize the effectiveness of living labs in supporting industrial transformation and promoting more sustainable and inclusive economic growth.

Creating New Jobs

The adoption of the smart city concept has spurred the growth of new job opportunities, particularly in the technology sector, which requires skills that meet the demands of the digital economy. This approach is a strategic solution for absorbing workers affected by deindustrialization, especially the younger generation who are generally more familiar with technology. In the context of smart cities, various new competencies and job opportunities are created as technology and innovation develop.

Among the competencies needed in the smart city ecosystem are expertise in big data analytics, cybersecurity, software development, and artificial intelligence (AI). Professions such as data analysts, cybersecurity experts, application developers, and AI specialists become highly relevant. Additionally, with the integration of technologies such as the Internet of Things (IoT), network specialists and technicians capable of managing and optimizing complex IoT infrastructure are also needed.

Furthermore, smart cities also promote the growth of jobs in the field of smart city management, where urban planners who integrate technology into the design and management of city facilities are needed. Professions such as technology project managers, sustainability consultants, and smart city systems analysts will also be increasingly needed to ensure that smart city initiatives can be implemented effectively and sustainably.

Looking to the future, the job market in the era of technology will continue to evolve with ongoing innovations. There will be a significant need for skills in managing digital resources, user interface design, user experience design, and the development and implementation of environmentally friendly technologies. Professions in these areas will not only support a smarter and more efficient urban life but will also aid global efforts to address climate change and maintain environmental sustainability.

Human Resource Development

In the smart city era, investment in education and training in digital skills is essential to prepare the workforce to face a dynamic and complex economy. Relevant education should include training in fields such as artificial intelligence, data analysis, and cybersecurity, as well as software and application development. These skills are not only vital for supporting digital infrastructure but also essential for innovation and sustainability in smart city management.

The skills required in the smart city era include digital literacy, programming, data analysis, cybersecurity, as well as critical thinking and problem-solving. Additionally, social and emotional skills such as communication, collaboration, empathy, and leadership are important for building human-centered solutions. Technical skills such as civil engineering and urban planning are also crucial for designing and constructing sustainable infrastructure.

Educational programs should be designed to provide not only theoretical knowledge but also practical experience through simulations, real projects, and internships. Education should also include aspects of reskilling and upskilling to ensure employees remain relevant to the latest technologies and can take advantage of new opportunities offered by technology. Methods such as short courses, workshops, and online training can be effective in facilitating continuous learning.

To support this, governments need to provide incentives to companies or organizations that invest in the digital skills training of their employees. These incentives could include tax reductions, subsidies, or financial assistance. Such policies not only ensure the availability of skilled labor but also encourage investment in human resource development, support the sustainable and inclusive development of the smart city ecosystem, and ensure economic growth that can be felt by all levels of society.

Conclusion

The smart city concept offers a range of innovative solutions that not only address deindustrialization but also pave the way for new economic growth in developing countries. With an approach focused on technology, education, and industry adaptation, the smart city becomes a symbol of hope that developing countries can move up in the global arena, even in the face of the challenges of deindustrialization exacerbated by the technology revolution.

*Raine Renaldi, President ID-Opentech Group, Chairman Indonesia Smart City Provider Alliance

Tuhu Nugraha
Tuhu Nugraha
Digital Business & Metaverse Expert Principal of Indonesia Applied Economy & Regulatory Network (IADERN)