Developing a Market-Based, Voluntary and Best-Practice Standard for Green Historic Buildings

Part 2: Lessons Learned from Benchmarking International Building Efficiency Standards and Their Certifications' Applicability to Historic Buildings

This multipart case study blog post explores the challenges of applying green building standards and certification schemes to historic city cores with an application to the unique built environments of Downtown Cairo and Alexandria. To overcome these challenges, we propose a new green building standard—customized to Egypt’s historic urban fabric and based on building audits conducted in Downtown Cairo. The effort strengthens and complements Egypt’s past and challenged green building certification efforts which are similar to many countries with rich inbuilt heritage but slow-moving greening efforts. This case study was prepared based on several years the OHK team spent planning the revalorization of Downtown Cairo and developing a ten-year regeneration program currently being implemented.

This is part 2 of the blog post summarizes our benchmark study across several green building certifications used internationally. Also, it offers recommendations on adapting commonly-used building efficiency standards to historic buildings’ upgrades in historic city centers such as Downtown Cairo.

Egypt’s Housing and Building National Research Center (HBRC), in conjunction with members of what is today known as the Egypt Green Building Council (EGGBC), developed the Green Pyramid Rating System, and in 2015 the EGGBC (then an independent NGO) developed TARSHEED. Both are green building certification systems (GBCs) that include a battery of building resource efficiency standards and performance thresholds. Both, however, are non-compulsory and not intended to be legally enforceable; rather, these are voluntary mechanisms that reward high-performing projects with recognition, similar to international certification programs like LEED (an American standard with broad international use) and the British BREEAM. This photo shows the famed 1950s-built Nile Ritz Carlton hotel (previously the Hilton) which borders Tahrir Square’s Nile bank and sits in the middle of a ~1,500 mixed building stock that amalgamates nineteenth-century architecture styles. The surrounding and largely European architecture (of the period 1860 to 1940) defines the historic significance of Downtown Cairo. This hotel however stands witness to Downtown’s post-1940 architecture influenced by an international style and American architects. Of Downtown’s total building stock, a considerable proportion cannot easily benefit from local or international green certification schemes due to cost or standards’ fit issues that deem them inappropriate for historic buildings’ renovation. Incidentally, the Nile Ritz Carlton hotel, owned by the Egyptian Government’s Misr Hotels Company, recently underwent a publicly-funded ~US$65 renovation plan without any green building certification. Photo © OHK Consultants.

Comparing the Application of Local and International Green Building Certifications in Downtown Cairo—the Case of LEED, Austria’s klima:aktiv and Egypt’s TARSHEED

The key to encouraging green building rehabilitation in Downtown Cairo will be to link improved building economics and resource consumption with a stronger green building certification. Neither of the two green building codes active in Egypt today—the international LEED or the domestic TARSHEED systems—is designed to address the economics of rehabilitation interventions, particularly in the challenging historical urban fabric of Downtown Cairo. Nevertheless, the latter offers the opportunity to resolve some of these challenges. Rather than proposing yet another code system in a market that already has considerable competition among brands, we will explore how this locally-driven system can evolve its existing certifications towards a standard applicable to Downtown’s historic buildings.

The klima:aktiv certification program from the Austrian Climate Protection Initiative that was launched to offer a bundle of sustainability measures of regulation, taxes, and subsidies. The klima:aktiv ‘passive house’ criteria is similar to the German ‘passive house’ standard and has become critical for receiving housing subsidies in Austria. It offers a catalog of criteria developed to achieve the klima:aktiv standard based on a point system and is intended to comprehensively represent the needs of the residential housing and buildings in general and their effects on the environment. This photo shows a variance in the building stock of Vienna’s Innere Stadt (first district) that is similar to Downtown Cairo. The 1910-built Art Nouveau style building with the observatory dome, known as the Urania, sits right next to the Wien River and the modernist Bundeswettbewerbsbehörde (Federal Competition Authority) building (green building in the photo). Photo © OHK Consultants.

The Emergence of Egyptian Voluntary Green Building Certifications and Applicability to Downtown Cairo

Egypt’s two standards reflect the varying implementability of green building certification systems (GBCs) between government-led efforts and civil society initiatives. In Egypt, the latter enjoys a degree of more flexible governance and greater agility (though this does not, inherently, make these standards more effective). The TARSHEED system reflects this agility. Though not explicitly tailored for existing construction, let alone the Downtown Cairo’s unique historic fabric, it is an important milestone in the realm of building resource efficiency and a point of reference for greening Downtown’s building stock. By being a member-driven organization with an affiliate membership program, the EGGBC has aimed to create a certification structure “by stakeholders for the stakeholders.” This self-regulation, together with strong representation from design and development practitioners in Egypt, has enabled it to overcome some of the challenges that face regulatory instruments. We identify three main characteristics of the TARSHEED certification system, with an eye towards its ability to overcome implementation challenges.

First: Intentiveness to Egypt’s Green Building “Gap”—Domestic programs are challenged by a fundamental contradiction within the Egyptian market. Firstly, uptake of GBCs in general in Egypt is constrained by unaffordability, a lack of perception of benefit, an absence of linkages to existing regulatory programs, and an absence of funding, such that GBCs are most appealing to the new construction projects of multinationals operating in Egypt. Secondly, those multinationals prefer a strongly branded GBC, which is best met by programs like LEED. These factors have strongly reduced the adoptability of local GBCs. TARSHEED has sought to address this by making itself affordable and simple, and by making an effort to develop a strong brand.

Second: Responsive to the Particularities of Egypt’s Residential Buildings—The economics of “greening” existing buildings in Egypt is highly challenged by the conditions of the buildings, their fragmented ownership, and the relatively high costs of renovation and certification. These challenges are exacerbated in residential buildings and even more so in Downtown Cairo, given the tenant-owner dynamics of rent control. Moreover, LEED’s certification scheme for existing buildings Operations & Maintenance Recertification (EB O+M) – does not address historic buildings and, again, like the rest of LEED standards, is not suited for localization. TARSHEED has distinguished itself from LEED and other international peers by evolving standards and customizing them to Egypt. In doing so, it has offered considerations that are specific to Egypt’s residential buildings and bridged part of the gap between systems like LEED and Egyptian conditions.

Third: Approachability Given Simplicity, Cost and Ease of Application—TARSHEED offers a single certification level, and uses an evaluation process that verifies achievements through a straightforward credit system. Comparing it to LEED proves this point. Instead of the seven categories of LEED, TARSHEED focuses on five, and instead of the complex LEED scoring scheme, it has a simplified method. For a building of the scale typically found in Downtown, LEED certification costs would range from $5,400 to $8,400, while TARSHEED ranges from $825 to $2,300.

This photo shows the pre-renovation status of the circa 1890s-built Italian-Renaissance-style ‘La Viennoise’ landmark building in Downtown Cairo. It is a polygonal-shaped three-story building on Champollion Street that was briefly used as an embassy for the Austro-Hungarian Empire in the early 1910s and most recently as a hotel. For the past few decades it has fallen to neglect until it was acquired by the Al-Ismaelia for Real Estate to redevelop it. OHK Consultants approached Al-Ismaelia in 2017 with a plan to certify the building renovations under a green building certification. OHK planned to use La Viennoise as a testbed for evaluating existing certifications and for developing a new certification system specific to historic buildings that can be applied to similar historic buildings in Cairo and eventually Alexandria. The photo was taken during a resource audit and feasibility study conducted by the OHK team to evaluate the prospects for applying LEED, TARSHEED, and klima:aktiv from 2016 to 2018. Photo © OHK Consultants.

TARSHEED can be seen by green building professionals as a correction that can overcome the compatibility and promotional shortcomings of other nongovernmental and international GBCs. The TARSHEED system is growing, with its Residential (New Construction) v1.1 (2016) currently active and further certification levels being rolled out for Commercial (New Construction) v2.0 and Community v2.0. A Commercial Renovation (v2.0) certification is being introduced and will be discussed in greater detail in Part 3 of this Case Study. To examine whether TARSHEED can be applied to Downtown Cairo’s building stock, three questions arise. In principle, can TARSHEED’s standards be applied to existing buildings given that most of its credits are structured for new construction? Further, can it add considerations to its current certification structure to cover historic buildings in Downtown Cairo based on recommendations and guidance from OHK? And, what elements can OHK recommend it borrows from international GBCs that do have provisions for historic buildings? Finally, can OHK push the envelope and help modify the standard to make it apply to historic buildings in Downtown Cairo and take it a step further to certify a renovation effort underway in Cairo for a historic building of value?

The key to encouraging “green” building rehabilitation in Downtown Cairo will be to link improved building economics and resource consumption with a stronger green building certification. Neither of the two GBCs active in Egypt today – the international LEED or the domestic TARSHEED systems – is designed to address the economics of rehabilitation interventions, particularly in the challenging historical urban fabric of Downtown Cairo. Nevertheless, TARSHEED, as we discussed in Part 1 of this case study, offers the opportunity to resolve these challenges. Rather than proposing yet another GBC system in a market that already has considerable competition among brands, we will explore how TARSHEED can evolve its existing certifications towards a standard applicable to Downtown.

The OHK team assessed over one hundred buildings in Downtown Cairo to better understand the feasibility of green refurbishments that might qualify for certification. This photo was taken inside the Davies Bryan & Co merchant-built gothamesque building (circa 1910) which borders three main streets in Downtown Cairo, Mohamed Farid, Adly, and Abdel Khalek-Tharwat streets. Colloquially known as the “Chourbagui” building (the namesake of its later owners), it is one the largest single buildings in Downtown and is a prime candidate for applying a green building standard in its renovation works. It offers a considerable efficiency opportunity given its size and its mixed commercial-residential uses. Photo © OHK Consultants.

Best Practice Anatomy of a Green Building Certifications: Applying LEED, Austria’s klima:aktiv and Egypt’s TARSHEED to Downtown Cairo Historical Buildings 

OHK’s view is that the creation of new levels of and enhanced standards for green building certification can be approached based on previous efforts—best practices and existing codes and standards. It is better to leverage an existing system and brand to pick up “market traction” among building owners. Also, the technical expansion of the standards and adaptation should have at its core auditing and application to actual candidate buildings. In Egypt, TARSHEED has already signaled to the market that it is ideal for most of Egypt’s building projects (outside of the narrow segment of multinational commercial buildings that will likely continue to select LEED) by virtue of its simplicity, affordability, and local specificity. In terms of technical adaptation, however, there will almost certainly be gaps in the applicability of TARSHEED’s standards (created for new construction) to historic and existing structures.

We proposed to address these gaps by borrowing best practice elements from Austria’s Klima:aktiv, a GBC with performance metrics that correlate to a building’s historic significance. Klima:aktiv is highly regarded for the comprehensiveness of its approach and uniqueness of its design, with more than ten years of experience and over 400 buildings certified, spanning new construction to renovation of historic buildings. Within this context, OHK evaluated three existing GCBs, namely, TARSHEED, Klima:aktiv, and LEED, and assess the applicability and rigor of each in the context of five aspects. The radar diagram below maps the findings.

In the above diagram, benchmarking of GBCs addressed five aspects: (1) Habitat and Contextual Factors—to what extent do the standards integrate less quantitative and more qualitative metrics of sustainability through connectivity and relationships to the surrounding building fabric? (2) Materials and Environmental Quality—how prominently do the standards weigh the usage of sustainable building materials (recycled materials, low organic compounds, etc.)? (3) Relevance to Heritage—to what extent do the standards incorporate considerations specific to the refurbishment of historic buildings, and how much provision is made to counterbalance the limitations that heritage preservation places on refurbishment and renovation actions? (4) Affordability and Streamlining—are the standards geared towards streamlined application processes, and are they consciously taking affordability as a goal? (5) Resource Efficiency (Energy and Water)—how rigorously do the standards track energy and water usage? Understanding usage requires a rigorous analysis based on technical modeling methodologies and software to quantify performance against benchmarks. Based on these aspects as comparison criteria, OHK compared TARSHEED, Klima:aktiv, and LEED and drew conclusions. The principal takeaway we inferred was that there is no one best GBC and that it is better to combine several when considering the application to historic buildings in general and in Downtown Cairo especially. Diagram © OHK Consultants.

We draw several key conclusions:

First: TARSHEED and Klima:aktiv (at least in the latter’s entry-level certification level) are comparable, having appreciable overlap across categories and similar efficiency targets—TARSHEED excels insofar as it includes water efficiency and has tailored its targets to actual construction processes in Egypt; however, in the case of Downtown Cairo these targets may not be fully applicable, given the uniquely European standards employed at the time of their construction. For its part, Klima:aktiv’s historic building focus, which was designed on the basis of an Austrian building stock that shares many of the same features as that of Downtown Cairo, may be considered the golden standard against which energy efficiency in Downtown Cairo can be measured.

Second: Habitat and Environmental Quality Metrics Across all GBCs Need to be Rethought for Heritage Buildings—LEED is the most comprehensive in its approach to habitat and materials and environmental quality. In Downtown Cairo, however, these two aspects – though important are not areas in which historic building refurbishments enjoy substantial flexibility or opportunity for change. The same is true for TARSHEED, which has focused on mitigating negative construction considerations, which is of limited relevance to the existing building stock in Downtown Cairo.

Third: TARSHEED is Likely to be Most Sustainable in Egypt—The prohibitive cost of LEED will likely ensure its continued absence from existing buildings or new construction outside of high-end, corporate offices. Klima:aktiv is an Austrian standard used only within Austria and its twin system, the Austrian Green Building Star (AGBS), which uses Klima:aktiv standards for international projects, requires the involvement of an Austrian team in design and/or construction. These limitations make TARSHEED a more affordable, locally relevant, streamlined process, and particularly a highly promising basis for expansion into historic building standards.

Fourth: International GBCs Can be Accretive to TARSHEED as a Foundational Certification—Achieving TARSHEED can facilitate the attainment of an AGBS rating (provided there is the demonstrable involvement of Austrian expertise), while both can, in turn, facilitate LEED certification. This additive value means that owners of buildings can initially take on TARSHEED as the most cost-effective certification, and can then go beyond that for international accreditation through LEED. The AGBS serves as a bridge, linking TARSHEED to LEED, first by adopting the AGBS standards for historic buildings, and secondly by filling gaps in LEED that would make it otherwise both economically and technically unsuited to Downtown Cairo.

Fifth: TARSHEED Is the Only GBC With Latitude for Change—As a relatively new standard that is still in the process of fully maturing, TARSHEED has latitude for modification of its existing standards and/or creation of new certification platforms. Moreover, the EGGBC has expressed an openness to review and build upon its existing standards, potentially creating a standard focused on existing and/or heritage buildings that can improve TARSHEED’s applicability to the historic cores of existing urbanized areas such as Cairo and Alexandria.

In light of this detailed analysis, we set out to adapt the TARSHEED certification and optimize it for historic buildings based on the Klima:aktiv system. In the context of Downtown Cairo, the key is improving the thresholds for energy efficiency while reducing the emphasis on environmental quality and habitat.

In case you missed reading Part 1 of this blog post, see it here.

Come back and visit the OHK website to peruse our blog posts and read Part 3 about how we formulated and applied a new green standard for certifying historic buildings that adapts and improves on world-leading comparable systems.

To learn more about OHK’s work in green buildings, resource efficiency and urban regeneration and planning, please contact us.

Developing a Market-Based, Voluntary and Best-Practice Standard for Green Historic Buildings

Part 1: The Case for Downtown Cairo and Alexandria, Egypt

This multipart case study blog post explores the challenges of applying green building standards and certification schemes to historic city cores with an application to the unique built environments of Downtown Cairo and Alexandria. To overcome these challenges, we propose a new green building standard—customized to Egypt’s historic urban fabric and based on building audits conducted in Downtown Cairo. The effort strengthens and complements Egypt’s past and challenged green building certification efforts which are similar to many countries with rich inbuilt heritage but slow-moving greening efforts. This case study was prepared based on several years the OHK team spent planning the revalorization of Downtown Cairo and developing a ten-year regeneration program currently being implemented.

This is part 1 of the blogpost and addresses the status quo before OHK’s involvement. It offers a primer on Egypt’s building efficiency standards and the “principal-agent” problem challenging historic buildings’ upgrades in Downtown Cairo.

The adoption and enforcement of building efficiency regulatory instruments have been challenged across Egypt, but nowhere more so than in Downtown Cairo, where economic challenges and rent control mechanisms have hindered long-term investment in the maintenance of buildings and the broader built environment. The photo shows OHK’s team visiting historic buildings on Champollion Street, close to Tahrir Square. Photo © OHK Consultants.

A Primer on Egypt’s Building Efficiency Standards, Regulations, and Codes

The promulgation of Egypt’s Law 119/2008 “The Unified Building Law” in 2008 marked a reform of building energy efficiency standards, effectively establishing a system of modernized building codes and specifying the entities responsible for drafting and approving them. Decree 114/2009 “The Executive Appendix to the Unified Building Law” is particularly salient. While the former law covers the administrative and statutory elements of building regulation in Egypt, the latter specifies the actual design and building determinants that are binding upon Governorate authorities’ issuing of building permits.

The content of Egypt’s building codes per the UBL is developed primarily by the Housing and Building Research Center (HBRC), an entity that has had, since its founding, a strong affinity to American building code systems. Downtown Cairo, however, falls under another set of government-based building standards under the administration of the National Organization for Urban Harmony (NOUH), in force since 2011. While the UBL regulations handle traditional construction and urban morphology such as heights, setbacks, ventilation, HVAC systems, stairways and lifts, and building performance, the NOUH regulations are more concerned with aesthetic and historical matters.

There are 41 administrative districts of Cairo Governorate, of which five overlap Downtown Cairo. Hence, there is a challenge of coordinating consistent implementation across these different municipal areas with varying degrees of urban and building conditions and institutional capability. The photo shows the variance in Downtown’s urbanscape and captures some of the ongoing efforts to redevelop Tahrir Square. Photo © OHK Consultants.

We identify the following main obstacles to the successful application of energy efficiency regulations to Downtown Cairo’s building stock.

First: Current Codes are of Limited Relevance to Local Contexts or Sustainable Urbanism—Local government officials, as well as building owners, have expressed frustration with the UBL code’s perceived irrelevance to most of Cairo. The codes are more akin to American or European city standards, with very generous provisions for street widths and open space allocations, and limitations on heights and plot densities that correspond poorly to the existing urban fabric. Despite its European design inspirations, Downtown Cairo is not exempt from this irrelevance, and as building codes around the world increasingly begin to integrate standards that explicitly refer to urban sustainability and livability factors, the UBL will be an increasingly insufficient guide to Downtown Cairo’s long-term evolution towards sustainability.

Second: Explicit Green Considerations are Absent from the Building Codes—Regulations and standards that deal with building resource efficiency are not connected to legally enforceable building code, and it is unclear whether any such standards will make it into the formal code any time soon. Moreover, the building code is not specific to different localities within Egypt, either in terms of climatic differences or different kinds of the urban fabric, and it is unclear what mechanisms exist, if any, to exempt older construction from particular standards that would be to the detriment of the buildings’ historical value if followed to the letter. While there have been calls to introduce a green building code as more of a statutory and legally enforceable document, HBRC’s drafts of such code date from 2003 and 2007 and have yet to be implemented or integrated into the country’s Unified Building Code.

The National Organization for Urban Harmony (NOUH) has completed the registration of heritage buildings in Downtown Cairo. They are 700 buildings registered, divided into three tiers according to heritage value and protection priority, between maximum protection areas, medium protection areas, and less protected areas. Photo was taken from the roof of the famed “Kodak” building overlooking the Kodak passageway which connects Adli and Abd al-Khaliq Tharwat Streets. Buildings shown in the photo are registered to different degrees of designation under NOUH with many are undergoing renovations. Photo © OHK Consultants.

Third: Non-complementarity of Standards and Lax Enforcement of Building Codes—Regardless of the issues above, enforcement of building codes remains lax and inconsistently applied. A 2008 study by USAID, the “Housing Study for Urban Egypt”, found that of 20,000 households polled across urban Egypt, only 36.4% had building height-to-street width ratios of less than or equal to 1.5, the maximum allowed by the Unified Building Code (a stipulation that existed even before the 2008 unification of the code). Even if we assume that some of this is attributable to buildings being either in the historical or informal urban fabric and thus outside of the technical or practical reach of the codes, it still is indicative of the challenges in enforcement. In the specific context of Downtown Cairo, enforcement has still other challenges. To issue building permits, the Cairo Governorate must, among other things, ensure that proposed designs conform to the standards set in the UBL, and, for historic buildings get the approval of the NOUH on design per their guidelines and standards handbooks. It is not clear, however, what happens if those two steps are at odds and if one takes precedent.

Fourth: Codes Governing New Construction Poorly Address Rehabilitation of Existing Building Stock— Downtown Cairo occupies some 2.9 million square meters and is home to 1,492 buildings, the majority of which were built before the 1960s. Of all the building stock in Downtown Cairo, there has been very little new construction in the past two decades, and very limited space remains for future development. As a result, the current codes may only apply to very limited, one-off construction projects in the future (such as the planned demolition and replacement of certain institutional buildings in the area known as the Ministries Quarter on the southern edge of Downtown). The primary need for regulatory content will come from and have to focus on the rehabilitation of the existing building stock, much of which is historic, thus requiring a new standard. Moreover, this standard must account for the fact that of 1,492 buildings in Downtown, 294 have been registered by the NOUH as historic buildings which will pose particular restrictions on refurbishment and renovation actions.

A view of the Soliman Pasha-era French neoclassical architecture that lines Midan Talaat, or Talaat Square Square, in Downtown. The square intersects with the Qasr el-Nil Street and feeds traffic to Tahrir Square. Although the facades of buildings and their sidewalks, up until Mohamed Farid Square, have been renovated by the Cairo Governorate, the interiors remain in derelict conditions given the principal-agent problem that deems most renovation efforts unfeasible. The key to unlocking greening Downtown Cairo’s buildings is to align owner and tenant incentives and to introduce instruments that are least challenged by the principal-agent problem that predominates historic and existing buildings in Downtown Cairo. Photo © OHK Consultants.

The “Principal-Agent” Problem in Downtown Cairo 

Under the prevalence of “old rent” contracts (that is, inheritable, long-term, rent-controlled leases with extremely low rental rates) in Downtown Cairo, the district’s rental economy is afflicted by a “principal-agent” efficiency problem wherein the leaseholder is the end-user of property and captures value from the low rent ceiling, but is not responsible for investing in the building or its efficiency, which is the owner’s responsibility. This is typical of the owner-tenant relationship in Downtown Cairo and results in split incentives.

The leaseholder acts as the “agent” paying rent and utility bills in exchange for the use of a given space. The building owner is the “principal” who often declines or is unable to make investments in the building because of insufficient rental income and because only the tenant benefits from reduced utility costs as a result of efficiency upgrades, for which the owner cannot raise the rent. By the same dynamics, the tenant itself has no incentive to make investments since it does not own the unit and any improvement in asset value goes to the owner (even if that value is unrealizable). For this reason, resource usage in Downtown Cairo’s rent-controlled buildings is detached from energy prices and would not respond to efficiency improvements. Even with utility prices rising considerably in Egypt in recent years, the owners have no incentive to make investments in building efficiency.

Come back and visit the OHK website to peruse our blog posts and read Part 2 about how we benchmarked green standards for certifying historic buildings based on international best-practices in North America, Europe, and the Middle East and learn about takeaways from world-leading comparable systems.

OHK helps government and private sector clients develop and implement sustainability initiatives around energy and resource efficiency in buildings, cities, and urban regeneration programs. To learn more about OHK’s work in green buildings and urban regeneration and planning, please contact us.

OHK’s Smart Urban and Transport Analytics Toolbox Articulates Leading Innovative Revitalization Planning in Five City Centers Worldwide

OHK implements a spatial reform model for our clients of town planners, policymakers, municipal administrators, and real estate investors to analyze urban spaces, support smart mobility behaviors and generate sustainability through preserving the heritage and urban values of our built environments. We support a systems-thinking view to describe the complexity of key relationships between factors affecting urban dynamics—how a city interacts with its users and how they interact back.

A toolbox is used in planning and re-planning initiatives and piloted in Budapest’s Pest, Cairo’s Khedivial Cairo, France’s Palais-Bourbon, Jerusalem’s Old City, and Amman’s Jabal Amman. This blog post illustrates such case studies and offers Insights from years of OHK’s work in urban transport and mobility systems. 

From Tahrir Square to Pest to Eiffel, our studies demonstrate metrics never before considered in these urban hubs. To name a few, daily flows into Cairo’s Tahrir Square exceed 250,000 non-resident persons a day on average, the largest of any public space in a Mideast city, versus only 20,000 local residents in its Downtown vicinity. Paris’s Palais-Bourbon, home to the tour Eiffel, experiences pedestrian and cyclist traffic increases during tourist seasons by a staggering 600% and 120%, respectively, while vehicular traffic rises only by a range of 35-50%.

Budapest, the seventh-largest city in the European Union with a population of just under 1.8 million, has been witnessing an urban revival in its major historic neighborhoods. A three-year pilot (2016-2019) was implemented in the area surrounding the St. Stephen's Basilica located in the heart of Pest, the eastern city Danube Riverbank, and one of the most pedestrian-heavy historic centers in all of Hungary. Studying the effect of pedestrianization and the city’s Bubi public bike-sharing system on non-tourism movements was conducted in the shoulder seasons from March to May and September through November. Year-on-year, pedestrian traffic increased by a range of 5%-7%, and cyclists traffic increased by a range of 15%-20%. Photo © OHK Consultants.

Public transport is playing an increasingly vital role in everyone’s lives. It has a critical impact on the competitiveness of both cities and the industries within and around them, it delivers people to work, connects urban fabric, and is the main connective tissue of a civic society.

A government’s role in public transport is critical and foundational because it sets policy, determines the standards of safety and design, provides funding for substantial parts of national infrastructure, and franchises and regulates service delivery. These different areas of responsibilities provide the basis for the delivery of transport services by a range of public, service, and commercial organizations, and without them, cities and their connective mesh of regions cannot economically flourish.

The governance, management, and delivery of a reliable, safe, secure, and efficient transport-mobility system in historic and old cities to serve urban revitalization are different in practice to the planning schemes of new urban areas. The former must respond efficiently to existing needs and living legacies of individuals and businesses whilst safeguarding the built environments. This is a major challenge given the intricacies of human-building relationships which dictate the problem boundaries and solution limitations. OHK has led innovation at this intersection of urban regeneration and smart transport solutions in many places that have only started to deal with such complexity. Over many years, we have worked with governments to help realize policy initiatives that are grounded in a conception of solutions through their development and justification, to their ultimate delivery.

One of the biggest challenges in developing policy is 'designing in' the evaluation of different ideas in regeneration schemes. Too often, this is not considered until after the policy has been implemented, when it may be too late to evaluate whether or not the planned benefits can be or have been realized in practice. Many regeneration schemes fail because they have not asked the right questions about transport and made their answers key to planning and evaluation. In our experience, this is an integral part of policy development at the very early stages of urban regeneration considerations.

Tahrir Square, Khedivial Cairo’s major public town square and one of Egypt’s urban and historic icons, is undergoing works to reinvigorate public space and movement. It is one of the country’s most congested urban spaces for public transport, vehicular movement, and pedestrians. OHK’s urban regeneration plan of Historic Cairo (2016-2018) supported a 15-months pilot of the first traffic study in Cairo’s center since the 1980s, and the first pedestrian study in Cairo’s urban history—both considered two of the largest schemes of movement measurements ever conducted in Egypt or old cities of the Mideast. The study concluded that daily flows into Cairo’s downtown area exceed 250,000 persons a day on average, the largest of any city in the Mideast. This effort was funded by the European Bank for Reconstruction and Development (EBRD). Photo © OHK Consultants.

As part of our policy and planning efforts, OHK has expertise in a range of technologies to measure movement from baselining to varied scenarios of transport and mobility solutions. Many such technologies are costly, require complex logistics, and do not fit into the spatial planning 'asks' of a robust urban regeneration plan. Most imperatively, the need for a data-rich, quickly-mobilized, low-cost, user-friendly, and well-streamlined set of tools that can be shared, synced and applied to traditional planning approaches useable by our clients. 

Understanding traffic and pedestrian congestion stands out as one of the key elements of such ‘tooling’ for regeneration planning needs. How congestion affects our movement is worsening worldwide and no more evident than in old-economy cities, historic centers, heritage towns, and tourist hotspots. The pace at which it negatively affects the built environment, quality of life, and ability to realize heritage conservation is understated in most of the regions OHK has worked. A study we conducted estimates that urban traffic congestion costs the countries of the five pilots in this blog post nearly $35 US Billion every year, and at a rate between 1%-3% of their annual GDP.  We also found that in the five pilot cities referenced herewith, in general, travel times increase by a factor of 3 to 7, and carbon dioxide (CO2) emissions rise by a range of 80%-150%. 

Building smart cities of the future in especially fragile areas—OHK’s definition of fragility is an immediate or short-term livelihood sensitivity to regeneration efforts, threats to heritage values or pre-existing patterns of land use and people movement that have caused congestion and livelihoods to become one urban reality—can not only be a result of sweeping changes that implement large infrastructure schemes, transport strategies, or innovative traffic management technology. OHK’s approach has always explored first a phased approach of traffic-oriented micro-interventions strategically focused on impact locations and ‘pain areas’ combined with in situ urban re-planning interventions that reexamine land use, control and motivate the users through pattern-changing policy instruments. 

Paris’s 7th arrondissement, the Palais-Bourbon, is a pedestrian haven given its international tourist attractions such as the Eiffel Tower and the world-leading museums of Musée d'Orsay and Musée Rodin. This pilot study (2018) evaluated pedestrian and cyclist movement versus vehicular traffic in the tourist high season (June through mid-September, Mid-to-late December) versus other months and found that despite the density of tourists during the summer months and locals and visitors increased shopping and seasonal activities in December, vehicular activity only increases by a range of 35-50% in public squares and intersections while pedestrians and cyclists increase by a staggering 600% and 120%, respectively. Photo © OHK Consultants.

This is where OHK’s toolbox comes into play because it supports a quants-based holistic view. It allows a policy strategist insight into the implications behind the configuration of movement, and enables a planner to read the main parameters of urban spaces that govern the relationships between a site or group of sites, their built environments, and circuits. With our technology experience in developing tools used in urban planning studies and regeneration evaluations, we emphasize a outcome-based focus, asking where and what to measure and what value can that add. OHK’s end-game underscores a sized approach; namely, how directing small to medium and, eventually, larger interventions can address challenging traffic and movement issues timely and cost-effectively.

The toolbox is, in reality, a few tools used together, each applying a certain technique and technology.  Central to the components of our tools are the use of software and applications to complement and add value to the approach. OHK’s toolbox is, therefore ‘highly innovative from a technical and urban modeling point of view, yet achieves recommendations quickly’ as one of our clients expresses. 

First, we usually produce a space model that emulates the built environment in the area-of-interest. This identifies and accurately measures buildings, infrastructure, and other built environment features through a Digital Surface Model (DSM) representing the XYZs associated with the surface of the urban area including topography and all-natural or human-made features.

In many urban places especially those that fall in developing countries or UNESCO heritage areas, little or no local source data are available to populate analytical models, As a result, in our toolbox, we overcome that through a detailed satellite-based model using stereoscopy, and use satellite sensors from IKONOS, SPOT-5, WorldView, and Terra-ASTER depending on the quality, time horizon and scale of our focus. Once the model is built, it is calibrated a rapid local survey using GPS control in the field. Secondly, Three Dimensional (3D) modeling in a Geographic Information Systems (GIS) application is used to visualize the study area.

The 1,500 years old, roughly 1-square-kilometer Old City of Jerusalem is a highly visited religious center in the Middle East. It includes the al-Aqsa Mosque, the Temple Mount, and the Church of the Holy Sepulcher and is a UNESCO World Heritage Site since 1981. The pilot was implemented over one year (2015) and was the first pedestrian study in the history of old Jerusalem. Under a regeneration scheme to convert a portfolio of 200 plus Vatican City State buildings from residential to mixed-use, the purpose of the study was to evaluate the buildings’ best-use and optimal locations for adaptive reuse based on pedestrian circuits and current flows. A GIS model for the buildings and pedestrian flows was constructed and run through an optimization algorithm for site, routing, and location selection. This effort was funded by the Vatican, the UN-Habitat, and the European Union. Photo © OHK Consultants.

The third step involves the creation of a detailed urban digital model of the area and the reconstruction of buildings, landscape, and city settings in a language relevant to urban and traffic planning. A tool like Esri’s CityEngine can offer a detailed urban and architectural object visualization, placement, and arrangement. The next step is the introduction of a land-use model sourced from a combination of existing land use maps, google data, and field observations. This takes us many steps further into adding layers of types of data to represent not just the form of places but the use and behaviors. At this stage, traffic and flow measurement points are determined along the main circuits and routes identified while considering land-use patterns and user-centric observations in the field.

Fifthly, a tool running on iOS mobile devices, developed by OHK, is used in the field by a team of surveyors to harvest data on movement in the public street system. They are later aggregated into a single traffic volume, source, and flow model. A step of superimposing various data layers on the 3D model follows and involves analyses to look at traffic levels, movement, and circulation, as well as possible scenarios of different and scale-varied interventions. 

Seventh, we may build an economic model of the area under study through combing an algorithm that converts horizontal, vertical land and building uses to economic value and applies that in a GIS environment to conclude a ‘value heatmap’—showing the magnitude of economic activity as variation in color to indicate intensity. Based on the urban configuration, land use scheme, and urban value chains, it is possible for the model to calculate the contribution of the area under study (or parts of it) to city or overall country GDP to signify the order of magnitude. If infrastructure or commercial project opportunity funding is within the scope of our assignment, the heatmap is used to indicate area-wide points of attractiveness as opposed to inputs to bankability studies.

Jabal Amman, dating back to the Neolithic period and constituting the center of Amman’s 1st Circle, is the major vehicular and pedestrian east-west historic artery of the city and offers a mixed urbanity and the city’s oldest residential buildings in the Eastern Mediterranean style. The area has a grid-street network and on weekends becomes one of the city’s most congested areas. Many consider it a top priority for pedestrianization and architectural preservation, especially Rainbow Street, the main access street up the hill. It is a narrow, two-lane, one-way, local street with buildings and shops on both sides that reaches jamming traffic volumes and densities on weekends which considerably reduce its level of service especially in the evenings. The pilot was conducted over 2 years (2018-2019) to compare weekday and weekend vehicular traffic and found that the number of vehicles multiplies by a factor of 3 to 5 at weekends and that through drivers constitute more than 75% of the vehicular traffic. Photo © OHK Consultants.

Eighth, we construct emission and noise models to calculate the area’s contribution to environmental impacts. For emissions, we may use data from vehicular traffic surveys to construct a macroscopic emissions model that uses standard emission factors. Pre and after scenarios are constructed to examine several scales of interventions from part to full pedestrianization, bicycle sharing, vehicular restrictions, and different phasing of reliance on vehicular traffic. Often, however, we use portable air quality and noise handheld monitors to take microscopic readings in key intervention areas during different states of congestion and extrapolate a general understanding of the expected reduction levels. 

Finally, depending on the scope of new developments that may be introduced, there may be a need for a Traffic Impact Study (TIS) to estimate impacts associated with the proposed changes. The study factors in on-site and off-site improvements and predicts the effect of changes, be it potential re-routing, pedestalization, lane strategies, or traffic signaling. The complexity of the TIS varies depending upon the complexity of the proposals. 

OHK’s toolbox and its steps bring data-driven insights into our client’s problem-solving capability. Information is available in vast quantities throughout our urban and transport networks but is rarely managed and modeled in a way that adds a real advantage to organizations involved in public spaces. Without data-centered understanding, it is difficult to take a policy through to implementation and benefits realization. Our toolbox of urban and transport analytics encourages innovation in how we measure and see the problems to bring about quick insights to complex urban reform and transport issues. 

For further information regarding our work in the five cities mentioned in this blog post, our client services in urban planning, transport and mobility sectors, or other areas of government support, please contact us.

The Middle East’s First E-Government Platform Focused on Online Innovation Services to Public and Private Stakeholders

OHK was hired to formulate and translate over 300 global best practices from nearly 100 innovation organizations performing innovation advocacy and support worldwide into a working model for a nationwide digital platform for Jordan. This mapping of best practices, combined with a comprehensive screening of Jordan’s existing innovation ecosystem, yielded a strategic vision and roadmap for a new organization, the National Center for Innovation, that is very strongly informed by an innovation support platform, the Jordan Open Innovation Platform (JOIP). 

The viability and impact of JOIP are enhanced by the fact that IT B2B and B2C systems are underused in Jordan and that no overarching ICT framework has been applied across the innovation ecosystem, and therefore the platform has a broad remit to set innovation digital transactions standards that apply nation-wide. The strategic centrality of JOIP as the nucleus of Jordan’s innovation ecosystem is highlighted by OHK implementing a detailed technical design of the platform. Jordan suffers from a multiplicity of tech-enabled ambitions that have fallen short because the strategic and business logics are not translated into technical specifications, and thus there is no continuity of vision or personnel to ensure that digital platforms that are introduced enable e-government products that respond to country and stakeholder needs over time. OHK has implemented a 2-year long project to support Jordan avoid this pitfall. The thought leadership and visioning capability brought by the OHK team have realized the design and development of the platform to become a global leader in the use of technology in national innovation practices and enhance the development of an innovation-based society in Jordan.

First, JOIP is established as the leading portal to Jordan's innovation ecosystem and act as a single point for all things innovation through an integrated, technology-empowered cloud-based SaaS platform. JOIP is integral to the innovation mission of public and private stakeholders and the majority of their interventions. It turns support functions into digitized services and optimizes B2B and B2C exchange, cooperation and oversight tasks. The services in SaaS are enabled by productivity tools that automate the innovation processes involved such as lead qualification, recruitment, matchmaking, grant processing, and reporting. It does so while consolidating information, integrating organizations and individuals into one productivity space and building the collective inputs and outputs into a country-wide knowledge databases. 

JOIP is the hub and marketplace for innovation services in Jordan as well as the open information highway for Jordan’s collaboration with the world. Therefore, it serves private and public stakeholders in Jordan and beyond and connects hundreds of organizations and tens of thousands of researchers and entrepreneurs active in R&D and science and technology. 

Secondly, JOIP utilizes a Cloud-Application-User Framework which acts as one integrated cloud computing, innovation processes’ workflow system built on applications that operate with and within cloud resources. JOIP is defined as a computing cloud made of a set of network-enabled applications that provide scalable services, service-guaranteed, normally personalized, and on-demand, and accessible in a simple, user-friendly and pervasive way. The P/SaaS technical architecture built for JOIP generates and aggregates value to help any organization active in innovation deploy and manage a spectrum of innovation activities that meet its target stakeholders or latent needs. The platform is built on functions common to R&D and innovation. 

JOIP’s core users are not only the individuals in research centers, universities, or the private sector but also the organizations that house them and that are keen to use JOIP to derive information and use tools to help them improve their standing and the productiveness of their communities. Any organization in Jordan, government, public, private, donor, or NGO can join JOIP as an enterprise user and qualify part or all of its staff to become individual users in JOIP.  The platform intends to achieve a balance between a tool available to all at a marginal cost and enough revenue to allow the platform to grow and develop. A pricing tier is adopted across both individual and enterprise users  of JOIP with fees charged monthly or manually and depend on options such as the type of services the user accesses and the number of accounts per enterprise.

OHK has helped position JOIP as both a steward of Jordan’s innovation system and a provider of products and services to innovation stakeholders across the innovation value chain. Given the novelty of such a model in Jordan and the Middle East overall—where digital platforms built on products and services via modern web tools and applications—this sets a new model in the region and worldwide for one-stop-digital-shops offering innovation-support services to diverse and varied innovation stakeholders.

For more information about OHK’s innovation advisory services in emerging markets and across the globe, contact us.

OHK Implements the World’s First National Innovation ID System in Jordan

The existing fragmentation in Jordan's innovation ecosystem means that multiple frameworks, databases, and information silos persist and hamper advancement. Globally, not a single country has a comprehensive national identification system for its innovation communities and agencies that is systemized into law and implemented across the totality of innovation processes and value chains. The new system implemented by OHK in Jordan achieves this; it consolidates all operations of innovation into a single database and communication system. To name a few game-changing developments, it introduces new and state-of-the-art e-government services, streamlines integration and knowledge sharing between innovation players, prevents information loss, digitizes processes, and limits red-tape and bureaucracy. 

Both individuals and organizations active in the country's R&D and innovation ecosystem benefit from this government-endorsed, comprehensive ID system for its identity, qualification, and certification applications. It covers personal and professional information, academic abilities, innovation achievements, publications, patent track record, and innovation metrics. National agencies and ministries, local government units, government-owned or publicly-controlled corporations, government financial institutions, donor-supported projects, and public, bi-lateral, and IFI funds of innovation will endorse and utilize the system in a national roll-out effort led by the country’s National Innovation Center.

OHK implemented this nationally-driven effort to create and maintain a registry of unique IDs linked to any person or organization active in innovation in Jordan. Moreover, the national ID system represents Jordanians and their organizations overseas and connects them to internationally certified databases including the majority of reputable publishers. Since the framework of identifications is tied to a global set of internationally recognized, corresponding IDs, Jordan's own IDs are standardized by virtue of linkages to the world of innovation beyond Jordan.

OHK has facilitated agreements with international organizations managing global ID standards to harmonize them with Jordan's ID system. Under this system, a Jordanian person or organization acquiring a national ID in Jordan receives an international ID at the same time. The system consists mainly of five category IDs, each connected to a broad set of corresponding international IDs, and, therefore, once a user is registered locally, they are effectively linked to approximately one-hundred IDs in use globally. This design by OHK works as a translator, connector, and harmonizer between all IDs and for all data reference and innovation management purposes.

This work is financed by the European Bank for Reconstruction and Development with funding from the World Bank’s Middle East and North Africa Transition Fund to support the Jordanian Government, via the Higher Council for Science and Technology, strengthen the country's innovation ecosystem.

For more information about OHK’s innovation advisory services in emerging markets and across the globe, contact us. 

The European Model of Transit-Oriented Developments

Our experience in public transit is unique in how OHK has developed analytics to measure financial, planning and service delivery aspects in interspersed transit-land use systems. We have used this knowledge to enhance future land development in new, emerging and transitioning municipalities linked to railway, metro and bus systems. Best-practice in Transit-Oriented Development (TOD) is an area we try to holistically integrate into our urban design and redevelopment projects. The TOD terminology is rarely used in Europe, even though its use has been intrinsic to most planning practice in European cities. We have decoded complicated planning policies and documents in cities in Austria and France, the Netherlands and Sweden, to name a few, to identify best-practices in urban and regional transit developments that underscore TOD principles and structures.

There is no one consensus on the definition of TOD, OHK uses a minimal criterion of ‘3D’—Density, Diversity, and Design. European transit projects that made our list of best-practices are at least: transit-oriented urban developments that push for or integrate high-density residential components, a diversity of land uses and urban functions, and a sustainable urban design that offers public space along with a qualified transit service and modern mobility standards. The City of Vienna has an existing and new array of TOD developments including the new Seestadt Aspern—one of Europe's largest urban redevelopments located the city's 22nd district. Like many other areas in Vienna, the Seestadt embodies intrinsic 3D characteristics, it is a TOD that relies on residential density, public transit, decreased energy consumption, and varied mobility schemes from walking and cycling to extensive pedestrian-oriented spines and organized open space.  Photo © OHK Consultants.

Building rail transit hubs, metro network upgrades, street re-routing projects and smart city infrastructure should no longer be afterthoughts to urban (re)planning. They are all integral to growth strategies of cities, municipalities, and districts. Our modus operandiis that regardless of the kind of urban challenges, interventions that are based on TOD thinking offer workable solutions irrespective of the stage of planning and the scale of interventions.

Europe is a hotbed of major transit projects that underscore this thinking. We have reviewed multiple initiatives that have shaped what we call the ‘European model of transit-oriented developments’, a series of projects that OHK has analyzed extensively and found world-leading on several fronts. Overall, this model offers a wide range of approaches that have successfully addressed weak linkages between land use, transport, economic regeneration, and funding. Many of our clients, similar to other transit and city authorities in many corners of the world who are faced with development and operational challenges, find it difficult to adapt to new urban realities and in particular their ability to sustain an urban footprint’s economic growth and mobility. In this respect, we often present our analytics from the European model of TODs as a new way of thinking about the interplay between land-use and transit and potential solutions.

Despite Europe’s proven track in TODs, information that is readily translatable to best-practice is scarce. Projects and their knowledge are dispersed across many agencies, regions, and in languages and data formats that are varied and inconsistent. A city planner or manager who has not been directly involved in these projects would struggle to learn about them let alone adapt them to other projects and regions. To overcome this, OHK archived existing initiatives from European cities that have wide global applicability. Further, we distilled the information to make it usable in practice—in different contexts and regions and mapped each project's best-practices against our analytics from the perspective of public land and transit managers.

The outcome is a practitioner’s guide to European TODs that can be used by any city or transport planner or manager anywhere in the world. Four main guiding themes were presented in a way that showcases how they can be planned in sync and feed off each other in practice.

France has many TOD examples that surprisingly are not recognized globally as such. There are many transit projects that are successful TODs integrating compact, mixed-use developments within walking distance of transit stations and within a modern mobility scheme. OHK considers Euralille, a north-east quarter in the City of Lille, a world-leading TOD example. It has undergone urban regeneration since the early 1990s to integrate a high-speed train station, transport reorganization, urban redevelopment, and an extension of the city’s urban core. Photo © OHK Consultants.

First, the development of alternative funding opportunities linked to improved transport systems. Here we defined operational, and investment frameworks that can support a transit agency’s diversification of revenues beyond traditional municipal budgets, central government allocations, tariff restrictions, government subsidies, and tax revenues. Further to the European examples, we also reflected on alternative funding methods from our and our peers' work in the US, Canada, South Africa, Australia, Hong Kong, and Dubai.

Secondly, ways to amalgamate planning mechanisms and tools. Here an emphasis was placed on two tracks that integrate public transit investments and land-use planning. We addressed how reforming transit-linked districts can alter urban realities in some of the most complex and congested transit networks. In particular, guidance was provided on how to combine transit plans and land-use planning in and around stations and city hubs, respectively, with urban regeneration, open space development, and Private Sector Investment (PSI)-led real-estate projects.

Thirdly, developing TOD protocols and Land Value Capture (or LVC) models and how transit planners, operators, and municipalities have applied them in Europe and similarly elsewhere. We thoroughly presented how comprehensive strategies can be formulated to coordinate land assessment, land-use/urban design, increased public transit accessibility, and enhanced funding based on asset value uplift and capture. Case studies from lines and stations of national, regional and light rail, metros, trams, buses, and even ferry terminals were annotated along with a presentation of thematic attributes and international best-practice.

Fourth, how to ensure dialogue facilitation among central and local governments, municipality officials, transit executives, public and private land developers and service users in complicated settings and mobility-challenged cities. This is more pressing in regions where existing structures do not lend themselves to stakeholder census and in infrastructure/land development projects that suffer from turf-overlaps among different stakeholders with conflicting views, needs, and interests.

OHK has institutionalized various land use master plans and transit-oriented projects that include more than five million square meters of TODs. We implement 360-degree stakeholder communications and TOD-focused programs that enable commercialization approaches and private sector participation, along with PPPs and fiscal reforms. To learn more about OHK’s track record in working directly with municipalities and transit operators to realize positive public cost-benefits and funding implications, land-use and community impacts, and real-estate prospects, please contact us.

Preparing Cities to Meet the Smart Challenge

Our team of planners, infrastructure experts, and business analysts have developed smart city schemes in Asia, Africa, and the Middle East.

OHK’s HQ in San Francisco, continuously ranked in the top 5 smart cities globally, works with the world’s most innovative smart city solution providers. © OHK Consultants.

Information and Communications Technologies (ICT) are reshaping the 21st century. Ubiquitous ultra-high-speed access to ICT services promises to transform urban fabrics into smart and productive cities as did the car in the 20th century. Any city, new, emerging, or mature can compete globally by integrating all-encompassing ICT infrastructure. City administrators and developers are rethinking urban services to retain a competitive edge. ‘Smart’ solutions are increasingly pushing partnerships that create value across a city’s economic sectors and urban chains.

But what is a smart city? 

Is it an oasis of world-leading technology? 

Does it use ICT infrastructure to enhance the lives and welfare of residents and visitors alike? 

Does it provide world-leading innovative services to businesses and consumers? 

Does it manage the built environment to respond to changing conditions? 

Does it enhance the quality of life and the environment? 

Does it tap into all sectors integrating services within, for example, healthcare, education, and e-government?

The answer is all the above. 

And it does so through a technology backbone that can maintain wide accessibility and sustainable affordability. To wit, it is accessible from any location, indoors and outdoors, in homes and offices, within a single building and across tens of blocks of buildings, in open areas and public spaces, and in networked systems such as transport, energy and utilities. 

Meanwhile, it must be competitive through marketable bundles and tiers that meet various demand and price points. So, a balancing act of interests between municipal decision makers, infrastructure investors, and ICT operators can place the consumer at the heart of marketability and give value to all those involved in delivery.

OHK Consultants has been at the forefront of smart city developments in Dubai from the early beginnings. At the inception of projects such as the Downtown Dubai, Dubai Marina, and the Palm Islands, we helped formulate the operational and value-sharing frameworks under which the city municipality, real-estate master developers and ICT service providers operate. Photo shows Downtown under construction in 2008.  © OHK Consultants.

If smart infrastructure is a win-win with both value creation and low-cost delivery, a city’s ambition does not stop at access. It goes all the way to game-changing innovation. OHK estimates that smart infrastructure can contribute 1-3% of GDP per capita growth in emerging markets and economies in transition. The multiplier effect of smart city provisions cannot be underestimated. Capitalizing on large developable land inventories will boost economic productivity, enhance multiple service economies, and support land and real-estate values. 

All-encompassing ICT infrastructure has become the hallmark of new cities such as Songdo in Korea and Dubai in the UAE. Major conurbations such as Singapore have quickly responded by planning their transformation into smart cities. Also, the ‘ICT-retrofitting’ of existing services is now a given in every e-government and ICT strategy in the Gulf, from Oman to Qatar. In redevelopment plans, efficiency in services, from smart energy grids and distribution networks is integral to Africa’s new master plans such as Konza in Kenya. The same can be said about non-oil economies of the Middle East and emerging Europe where donors and IFIs are pushing smart street lighting and building efficiency as instruments of city regeneration from Cairo to Kiev.  

OHK Consultants helps municipalities and developers map their involvement in the value chain of city-smart services and define the role they could take up and the services to offer. © OHK Consultants.

OHK has been involved in the above initiatives, and helped clients own a stake in the smart city revolution. It starts with identifying sources of value and uniquely positioning them to capture the opportunity. We work from the inception of ideas and as early in the master planning process as possible to grandfather smart city considerations in the founding vision. In various cityscapes, we have mapped institutional and partnership frameworks for how different parties can effectively work together—developers, builders, and municipal providers be it in utilities, transport or even security services.

Municipalities often deploy civil infrastructure but do not have the expertise in-house to install and manage ICT infrastructure required to support smart services. The figure above shows the role of a city administrator or infrastructure provider can assume across any urban value chain. Through option studies, we enable a better understanding of the window of opportunity and help draft city frameworks for building and retrofitting infrastructure. A “sharing” vision not only requires technical scoping to reduce costs of reverse-engineering but also methods of deployment. 

A team from OHK Consultants worked with the Saudi government to conceptualize a smart city plan for Neom, the future 26,500 sq. km city in the border region of Saudi Arabia and Egypt. We modeled the city’s GDP from the ground up and built forecasts of the value contribution of smart city services as part of a PPP arrangement between the two countries and international smart city vendors. © OHK Consultants.

A city may generally be discouraged to go further downstream in ‘smart servicing’, particularly when it’s challenged with urban congestion, weak transportation modes, outdated regulation, and mounting deficits. It is often easier not to move beyond the implementation of civil infrastructure especially when a mature market of partnerships with service and technology suppliers can offer a range of business models to match each city’s appetite for risk and reward.  Therefore, it is important to set smart strategies in a way to best suit a certain position based on competitive advantage, financial capabilities, risk mitigation, and the dynamics of regulatory and market conditions. 

Increasingly, we are helping cities push the envelope and move beyond their physical asset base towards getting involved in value-adding technology provisions. There is a greater role for municipalities to go beyond deploying infrastructure to delivering services to end users or to retail service providers. Most recently, we helped a master-planned city own a stake in their smart services’ market with the view on holding a position worth $ 2.4 USD Billion a year, per a city GDP of $ 80 USD Billion. We modeled various options and provided scenarios of financial positions taken or desired and recommend the technical scope for long-term viability. 

In today’s globalized market of ICT infrastructure, OHK has close relationships with leading smart city vendors, and we continuously help guide the best G2B deal options that can fit a certain regulatory environment and strike joint ventures that are low on risk and appropriate for public-private partnerships (PPPs). 

Please contact us for our case studies on leading smart cities, London, New York, San Francisco, Seoul, and Dubai, and learn more about our work in emerging markets and smart city PPPs.

OHK Launches the World’s First Urban Metrics Framework for Urban Planning and Pilots 100+ Metrics for Downtown Cairo’s Regeneration

Quantitative metrics can explain choices and outcomes in urban systems. Understanding the relationships between spatial planning and the factors that can guide a team of urban planners to design new cities or regenerate existing ones is very useful but often complex. In OHK's work in urban design, we often presented "scale comparisons" of planning areas with statements like "the area of planning is the size of London." It is telling to compare the characteristics of land development in China or Dubai to a mature city in Europe. From our experience, this narrative does not always advance analytics that make it into the design process. 

We conclude that metrics and data analytics are challenged as a practical planning tool and that using urban indicators albeit useful is not relevant in most work done by planning firms. In this respect, we see two challenges: (1) planners are not data mining experts and the skill set required to plan a new urban core, a city or a neighborhood does not include urban informatics or data modeling, and (2) even if the metrics are developed, there is gap between having them and applying them— ex ante to derive a planning decision.

OHK set out to come up with a practitioners' framework that can advance the application of metrics, indicators and comparative quants in design. First, we wanted to reduce the complexity around determining which indicators to use and how to measure them including which source data and what modeling techniques. The overall aim is to reduce the ex-post emphasis often associated with metrics and scientific and policy reviews and to streamline their use for urban design purposes. Secondly, to make the framework tool-ready, accessible and not complicated for planners, city administrators and urban experts to apply.

OHK is currently applying the framework in various urban planning projects and working with partner planning firms to afford them the expertise to use it to make data-based interventions in their design assignments. To aid in the dialogue between a planning firm, its client, a planning approval authority and the public, we designed a presentation tool that offers a side-by-side visual comparison of the metrics (as shown in the above photo).  Here, it is presented in Arabic for decision-makers in the Cairo Governorate. After we completed data mining and information modeling and analytics for the city’s urban core, we captured the 100+ indicators in various decision tiers and displayed them in this large-format color Infowheel© which makes it easy to find any specific indicator. A planner can illustrate quickly and easily through visual comparison how metrics of a certain area compare to others, and by simply rotating the wheel more metrics are presented with results instantly. Photo shows the Downtown Cairo wheel with the colors denoting various decision tiers and categories of metrics such as land use, sustainability, economics, and benchmarks. The wheel can be bilingual or in any language. Photo © OHK Consultants

In response, OHK designed sets of accessible, standardized and open-data indicators that are categorized around planning decision tiers. Each set comes with an established methodology. Applying any one indicator under a tier helps derive patterns and trends of urbanization and offers perspectives for early design decisions. Over the course of 2016, the OHK team, through a series of consulting assignments, expert reviews, and modeling techniques developed and tested hundreds of metrics in the development and redevelopment of urban areas in cities around the world. An important distinction in the framework is that decisions are prospective and not retrospective -- not made after a plan is implemented but during planning.

Currently, the framework includes ten tiers of analytics and 120 metrics or indicators that can define an urban area and guide planning teams.  Most recently, we piloted the framework to measure and characterize more than 50 municipal zones in Downtown Cairo's 3-million square urban fabric using a combination of high-resolution land datasets, on-ground surveys, and analytical research into spatial, economic, population, and sustainability characteristics. These zones were delineated and then analyzed in spatial and socioeconomic terms, and a regeneration master plan was derived using metrics during planning and not after the fact.

OHK Consultants publishes urban indicators for cities around the world under the copyright Infowheel© with all rights reserved. No part may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of OHK Consultants. For more information about OHK’s informatics services that can help planners and cities reshape their design decisions, contact us.

OHK Participates in the Drafting of the Petra Declaration on Investing in Tourism for an Inclusive Future

OHK has participated in the drafting of the United Nation’s “Declaration on Investing in Tourism for an Inclusive Future,” known as the Petra Declaration. Upon invitation of the World Tourism Organization (UNWTO), OHK’s Ahmed Hassan convened along with heads of various governments, chairs of international and regional organizations, and investment and banking sector leaders at the Regional Conference on Investing in Tourism for an Inclusive Future: Challenges and Opportunities, organized by the European Bank for Reconstruction and Development (EBRD) and the UNWTO in Petra, Jordan, on 26 and 27 October 2016.

The Declaration was a team effort that synthesized and reviewed past efforts to make tourism more inclusive, namely:

• the UNESCO Convention on the Protection of the World Cultural and Natural Heritage
• the UNWTO Global Code of Ethics for Tourism
• the UN General Assembly resolution A/RES/64/14 of 2009 on the UN Alliance of Civilizations and intercultural dialogue
• the UN General Assembly resolution A/RES/66/288 of 2012 that endorses the outcomes of the UN Conference on Sustainable Development
• the UN General Assembly resolution A/RES/69/233 of 2014 on the promotion of sustainable tourism
• the UN General Assembly resolution A/RES/70/1 of 2015 on Transforming our world: the 2030 Agenda for Sustainable Development
• the UN General Assembly resolution A/RES/70/193 of 2015
• and finally the T20 Tourism Ministers’ Declaration of 2015 on Tourism, SMEs and Employment – Policies to Stimulate Job Creation and Inclusiveness, the 10-Year Framework of Programs on Sustainable Consumption and Production Patterns (10YFP).

In drafting the Declaration, special emphasis was placed on the importance of tourism as one of the fastest growing socio-economic sectors – in 2014 tourism was the third largest world export-earning category (after fuels and chemicals), accounting for an estimated 10% of total world GDP, one in eleven jobs, 7% of global trade, and 30% of trade in services. OHK estimates that in 2016, total GDP contribution had risen by 3% over the preceding two years. Additionally, the Declaration made special consideration of the industry’s horizontal links with other sectors and the diversity of its value chain, highlighting how the sector can drive (and has driven) entrepreneurship and cross-industry structural transformation – a field in which OHK is particularly active as an advisor in the Middle East tech innovation, venture capital, and entrepreneurial management.

OHK’s Ahmed Hassan argued that the push for a “sharing economy” in tourism is not urgently needed in most of the struggling SEMED and MENA destinations, and that innovation in physical infrastructure, transport, security, and financing solutions are far more pressing needs for communities like Wadi Musa (pictured above), the nearest town to the archaeological site of Petra. Photo © OHK Consultants.

The Declaration paid special homage to the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals, of which three specifically mention tourism, namely inclusive and sustainable economic growth (Goal 8), sustainable consumption and production (Goal 12), and the sustainable use of oceans and marine resources (Goal 14). Reference was also made to how resource efficiency in tourism can simultaneously meet both competitiveness and climate change imperatives, per Goal 12 and Goal 13 respectively. OHK’s Ahmed Hassan highlighted that, despite global efforts throughout the past two decades, the world still lags in putting host communities at the heart of tourism development and growth, noting in particular the discrepancy between massive investment in tourism facilities, hotels, and airport infrastructures alongside continued disinvestment the host and neighboring communities. 

In response to this observation, the Declaration has placed more recognition on tourism as an instrument for local development while underscoring the promotion of stronger links among investment flows from the private sector, national development plans, and international aid flows. As a result, the Declaration did call upon the private sector, investors, financial institutions, and governments to “ensure that tourism development is based on responsible and sustainable planning, evidence-based decision making, and the involvement of all stakeholders, including the host communities and disadvantaged groups of society.” The role of governments to incentivize entrepreneurship across the entire tourism value chain, as well as to reform regulatory frameworks to enable micro, small, and medium enterprises, is inseparable from strengthening local economies, whether in established urban destinations or more remote, rural ones.

Petra believed to be 9,000 BC old and the 4th century BC capital city of the Nabataean Kingdom is today a UNESCO World Heritage Site. OHK has conducted conservation strategy work in Southern Jordan including the Petra region as part of its support to the Government of Jordan. Photo © OHK Consultants.

Mr. Hassan pushed for a realistic perspective on the role of innovation across different types of destinations and cautioned that innovation is highly dependent the maturity and resilience of a destination’s value chain. Although the Declaration references the sharing economy as a tool to improve the quality of tourism, Mr. Hassan emphasized that innovation in tourism products, business models, and management is more likely to “take” in the more mature components of the value chain, rather than in areas where enabling infrastructures are lacking. He also noted that the resilience in infrastructure, businesses, linkages, markets, and distribution is the critical enabler of tourism innovation.

Mr. Hassan argued that in Petra, the namesake of the declaration, innovation will lag until the government takes strong steps, in partnership with the private sector, to build a strong physical and technology infrastructure. In places like San Francisco, where OHK is headquartered, innovation has come on the back of significant intellectual and physical infrastructure that is often taken for granted. He cautioned that less developed destinations often ignore the building of critical enabling factors, skipping instead directly to novel market concepts and hoping they can rapidly bridge the gaps with more developed destinations.

OHK’s Ahmed Hassan (third from right) speaking during the Conference’s plenary panel and Declaration deliberations, which was moderated by CNN Money Emerging Markets Editor John Defterios (seated far left), and chaired by Ms. Lina Mazhar Annab, Jordan Minister of Tourism (seated center). Photo courtesy of the UNWTO.

The Declaration was passed on 27 October 2016 with an 11-point pledge to use and promote tourism as a tool to achieve the 2030 Agenda for Sustainable Development. The pledge of those present in the conference, including the representatives of tourism administrations, international and regional organizations, investment and banking sector, and the private sector is to build an inclusive and sustainable tourism sector that is based on human rights, social and economic justice and equality, and to continue to engage in the dialogue on how to foster public-private partnerships and increase investment in tourism, particularly related to infrastructure, product and human resource development, financing, host communities’ enablement, capacity building, research and technology, and sustainability of the tourism sector. Download the Declaration (available in English and Arabic) below:

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The Petra Declaration on Investing in Tourism for an Inclusive Future

 إعلان البترا للاستثمار في السياحة من أجل مستقبل شامل

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For more information about OHK's work in international economics, business strategy and innovation, and sustainable tourism development, contact us.

9 Theses on Israel's Startup Landscape: Perspectives in Venture Capital and Entrepreneurial Management (Part 3)

Part 3: Lessons 7 to 9 and Closing

This is the final part of a three-part post by OHK’s Ahmed Hassan, providing perspectives and lessons learnt from VC expert exchanges, interviews with industry veterans, and OHK’s own insight from advisory on success in innovation and entrepreneurship.

WeWork, a global co-working startup in its own right, has Israeli-founder roots but has chosen as many of Israel’s ventures to be US-based. There are many lessons for emerging countries especially in the SEMED region on why WeWork and other Israeli ventures have been successful. Photo courtesy ofWeWork.

Thesis 7: Israeli Startups' Geographical Separation from the American Consumer Causes Self-sorting into Oversubscribed Verticals

A surprising number of Israeli startups move to Silicon Valley. There is an increasing personal desire and resonance among Israeli entrepreneurs to measure their success by close proximity to Silicon Valley, and to seek mentorship from their network in the US (from remarks by Oded Hermoni, Rhodium Ventures and Gil-Ben Artzy, UpWest, interviews in Palo Alto). Personal reasons aside, there is however little quantitative understanding of why these startups move from a business sense. We propose that much of this movement is motivated by two factors; firstly, Israel’s small domestic market together with historical ties to America means that America becomes the prime market for Israeli businesses looking to scale. Secondly, however, the geographic and cultural distances between Israel and America pose serious challenges in understanding and responding to American markets. This is a critical point, as it calls into question the traditional narrative in which America and Israel enjoy a unique cultural and structural closeness. To what extent is the movement of Israeli startups to Silicon Valley a function of pursuing proximity to the venture’s opaque end market in America, as opposed to funding or clustering effects? In meetings with Oded Hermoni, Rhodium Ventures and Eyal Shinar, FundBox, both emphasized this as “Israel is a small domestic market which means that start-ups naturally look at the US for global growth” and “the US is the largest finance market in the world so if you are serious you need to raise money here [US]”, respectively (from various interviews in Palo Alto and San Francisco).  

Moreover, we believe there to be a focus among Israeli startups on what we consider oversubscribed sectors and applications. While technology and communication sectors contribute over 22% of the companies listed in the Tel-Aviv stock exchange, VC funds predominately invest in technology and communication related companies with over 73% of the investment going into life sciences (21%) and clean technology (6%). This is a remarkable contrast to earlier Israeli innovations in agriculture, water management, and civil engineering, most of which today is the purview of large, incumbent companies as opposed to startups. We hypothesize that this self-sorting into a relatively limited number of fields – particularly enterprise-facing applications – reflects a broader ignorance of the American consumer market that we highlighted above, as well as the aforementioned tendency of Israeli startups to focus on narrow technical specializations. There are large gaps, however, in our understanding of the sector-wise distribution of Israeli startups and the impetus for entry into those sectors. We argue that this information is critical to understand the startup landscape’s longer-term trajectory. We surmise that Israeli startups (particularly those with a Silicon Valley connection) will shift focus to more under-indexed and more “high touch” sectors such as Internet of Things, healthcare, SaaS, and consumer-facing apps (meeting with Gil Ben-Artsy, UpWest Labs). 

In 2013, Google acquired the Israeli-founded Waze, one of a handful of its competitors in the mobile mapping space, for a reported US$1.3 billion. Photo shows Angela, an Uber driver in Hong Kong that uses Waze to maneuver the city’s traffic. Photo © OHK Consultants.

Thesis 8: Israel Has Succeeded in Creating Massive Value through Early M&A Exits

We have found that Israeli startups tend to follow a standard narrative in which early technical innovation and development is done in Israel, but scaling (and real economic return) is achieved by relocation to Silicon Valley or/and acquisition by a US firm. Extending on the failure rate comparison made earlier to take on value creation, it is noteworthy in this thesis to point out that when Israeli startups succeed, they do better than their US counterparts in VC exit valuation. Israeli M&A exit valuations are 2X return on the invested fund versus just 0.7X in the US. Exit duration is comparable, with an average exit taking .9 years more than the five year average for US counterparts.

While much has been written about the Israeli startup miracle, less reflection is devoted to the failure of Israel to retain the value these companies create as they grow in funding to mature enterprises. It is unclear – and yet critically important to understand – what drives this failure. Is it a fundamental challenge of geography, whereby Israel is too small to support large enterprises itself and unable to integrate with surrounding economies, thus precluding it from becoming the Singapore of the Middle East? Is it rather that Israel struggles to provide managerial and marketing talent needed to grow ventures into enterprises? Has the Israeli government overemphasized support of R&D and underemphasized regulatory and market reforms that would support growing businesses rather than creating them? Or does this preference for being US-sheltered lie within the mindset of Israeli founders who see their acquisition as the “perfect choice”. In reviewing one specific acquisition with its founders, we noted in discussions with Cyvera CEO Uri Alter evidence of this notion. He described the acquisition by Palo Alto networks as a “perfect marriage,” and that while Cyvera founders needed to retain some control over operations, they saw the acquisition as having a “big brother that protects us.” (meeting in Palo Alto Networks Headquarters). In our discussions, we found that startups overwhelmingly prefer to be acquired, and that it is exceedingly rare for ventures to turn down a foreign acquirer in order to retain the "Israel-ness" of the company. The answer to this question is of tremendous policy value to Israel, insofar as it wishes to capture more of the value that its citizens create and move abroad.

Thesis 9: Israeli VCs are Not Converging on a United States Model

Considerable attention has been paid to the similarities of American and Israeli VCs, and many argue that the Israeli model increasingly resembles the American VC model. It is interesting to note, however, that the Israeli venture capital industry has suffered persistent losses and is poised to experience a major downsizing. Israel VC investments have declined by 10% in last four years, from a USD 1.9 Billion in FY2010 to USD 1.7 Billion in 2013. When comparing quarterly investments over this period of time, VC investment has been relatively flat in recent years (37 and 38 deals in Q1’14 and Q2’14, respectively), a decrease of 20% when compared to the year before (51 and 43 deals in Q1’13 and Q2’13, respectively).  Interestingly, the total initial investment dropped by 20% in recent quarters from USD 300 Million in Q4’13 to USD 238 Million in Q2’14.

Tel Aviv, Israel’s hotbed of startups and VCs is a global emerging tech innovation ecosystem that is defying the region’s perceptions and making a name for itself on the world stage.  Photo © OHK Consultants.

While the VC industry is inherently prone to fluctuations in returns regardless of geography, we surmise that there are persistent structural differences between Israeli and American VCs that account for this flight from Israeli venture funding. We suggest that further research is needed into the qualitative perception of Israeli VCs by Israeli founders. Are Israeli VCs difficult to work with, whether because they demand harsher deal terms, are less likely to participate in follow-up rounds, or are more prone to short-term returns over longer-term growth? We maintain that it is not sufficient to assume that the Israeli and American VC contexts are converging; rather, we believe that fundamental differences between the industries play an important role in emerging venture finance trends.

Closing

We believe that an understanding of the Israeli startup landscape (as well as its likely trajectory) requires a sober and meticulous look at the structural factors that make the Israeli ecosystem enduringly unique, whether for better or worse. While we have tried to quantify some of our hypotheses, and have relied on intensive engagements with subjects deeply embedded within the Israeli startup landscape, each of our theses can be supported or clarified with further additional qualitative and quantitative data. The implications are myriad, and have consequences not only for the future of Israel’s startup culture, but for other countries that ardently seek to replicate Israel’s “startup miracle”.

OHK’s Ahmed Hassan would like to thank colleagues from the Wharton School, namely Vijeta Johri, Bruno Samuel, Richard Tsai and Jian Zheng, and special thanks to insights by Professor Rafi Amit, Founder and Director of the Wharton Global Family Alliance at the Wharton School.

For more information about OHK's work in venture capital and entrepreneurial management, contact us.

9 Theses on Israel's Startup Landscape: Perspectives in Venture Capital and Entrepreneurial Management (Part 2)

Thesis 5: Tech Development Costs in Israel Are Uncertain but Are Changing Rapidly

Israel is often touted as an ideal off-shoring destination for technical work or for the placement of an offshore development center, boasting excellent technical skill at a lower cost basis and possibly higher skilled than the United States. However, there is relatively little data available about the actual cost basis of Israeli tech production. Our Israeli interlocutors gave contradictory responses as to the cost basis in Israel, with some saying that Israeli development is cheaper than US development across the board, some saying that costs in Israel had caught up to the US and were comparable, and some saying that routine development work remains cheaper in Israel but higher-level development is on par with the US. At the same time, we hear of an increasing number of Israeli startups themselves outsourcing tech work to cheaper locales. While considerable ink has been spilled on Israel’s general macroeconomic competitiveness on a national level, less has been written about startup competitiveness.

Thesis 6: Israeli Startups Disrupt Existing Technologies but Not Existing Business Models

A question resounds when talking about Israeli entrepreneurship: why has Israel, for all its innovation and entrepreneurial character, not produced a Google, an Uber, a Dropbox, or an AirBnB? Why has Israel yet to produce a multi-billion dollar business that becomes a household name? A number of our theses thus far have hinted at an answer. We suggest that Israeli entrepreneurs excel at technological innovation, but lag in business model innovation. Israeli technologies may disrupt existing communication protocols, for instance, but are less likely to disrupt entire business models like logistics, healthcare, or hospitality. We suggest that Israeli innovation tends to entail improving upon an existing business model, rather than upending it. Consequently, a preponderance of Israeli ventures is in the B2B space rather than B2C or C2C models.  

The Wharton School hosts study tours and exchanges with Israeli startups. Ahmed Hassan maintains strong ties to his Alma Mater’s global leadership in tech innovation and finance.  Photo © OHK Consultants

This thesis is supported by strong recent statistics. In 2013, of the 1100 Israeli start-ups formed, failure among B2C startups was roughly double that of B2B startups, while 16% and 9% of B2Cs and B2Bs shut their doors within one year of operations, respectively (source: “Mapped in Israel.” http://blog.mappedinisrael.com). Concomitantly, the customer ratio of B2C versus B2B is 1.6:1 in Israel and 2:1 in the US (source: Start-up Ecosystem Report for 2012, page 19 and Startup Genome. January 2013), thereby increasing the chance of failure.  This pattern is less surprising given insights from our previous theses – purely technical teams are better positioned to improve upon their narrow specializations rather than reimagining entire industries, or, as explored elsewhere in this paper, improving on incumbent technologies facilitates acquisition by said incumbents, as opposed to inherent growth, which may in fact be generally more appealing to Israeli founders.

OHK’s Ahmed Hassan would like to thank colleagues from the Wharton School, namely Vijeta Johri, Bruno Samuel, Richard Tsai and Jian Zheng, and special thanks to insights by Professor Rafi Amit, Founder and Director of the Wharton Global Family Alliance at the Wharton School.

For more information about OHK's work in venture capital and entrepreneurial management, contact us.

9 Theses on Israel's Startup Landscape: Perspectives in Venture Capital and Entrepreneurial Management (Part 1)

This OHK blog post is the first of three parts. It was first presented in an executive roundtable discussions in the Wharton School in the University of Pennsylvania. OHK’s Ahmed Hassan provides perspectives and lessons learnt from VC expert exchanges, interviews with industry veterans and OHK’s own insight from advisory on success in innovation and entrepreneurship.

Visits with Israeli startups in the Bay Area offered valuable exchanges and case studies on the VC landscape in Israel’s strong emerging market. They offer perspectives and lessons for peers, especially in the wider Middle East.  Photo © OHK Consultants

Part 1: Background and Theses 1 to 3

Both popular and academic literature about the Israeli startup scene abounds with heady language. Israel is referred to as the “Startup Nation”; its entrepreneurial-minded citizenry lauded as an economic miracle and its landscape given the playful sobriquet “Silicon Wadi”. Authors and theorists have gone to great pains to compare Israel to Silicon Valley, seeing the former as something of a younger brother to the latter or two sides of the same entrepreneurial, late-capitalist coin. Much of the literature revolves around either a) the convergence of the two, measuring both the Israeli and American startup ecosystems against a universal, model-type, end-stage entrepreneurial ecosystem, or b) the applicability of the “Israeli model” to developing countries. Less is said about the differences between the Israeli and American models, and the extent to which those differences may be more structural than incidental (and thus problematic as templates for other countries).

In the spirit of Hall and Soskice’s pioneering work on global “flavors” of capitalism (see: Varieties of Capitalism: The Institutional Foundations of Competitive Advantage. Oxford University Press, 2001), this discussion sets out a series of hypothetical theses that aim to provide insight into the differences between the Israeli and American startup environments and to set a research agenda going forward. We proceed from the assumption that differences between the two startup landscapes are not epiphenomenal accidents of history, but rather reflect more fundamental structural differences between the two. In using the term “structural,” we are referring to unique institutional and cultural forces that are fundamental to national identities and that, while not immutable or uncontested, have come to characterize local economic landscapes. The economic phenomena we seek to highlight in these theses are slow-moving and often unwritten; to understand startup cultures, it behooves us to look not at individual companies, actors, or events, but rather institutions and regulatory regimes.

Some of the nine theses we identify have strong quantitative bases, while others are more qualitative and have emerged from various guided discussions with subjects from both Israeli and American startup ecosystems. In each case, however, we provide a lens through which to better understand the particularities of the Israeli startup landscape and predict its evolution. This is particularly useful in the context of emerging markets and the wider Middle East, and in countries like Egypt, Jordan, Morocco, and Tunisia where there is a significant potential to develop a far more developed VC ecosystem.

Thesis 1: Aspects of Israel's High-Tech Ecosystem Are Not Easily Replicable

Throughout the literature, there are ample references to Israel’s unique high-tech ecosystem. We believe that three aspects of this ecosystem and, in particular, the interplay of these factors is unique and difficult to replicate.

The GrEEK Campus is an Egyptian attempt at setting up a “San Francisco” or a “Tel Aviv” – a technology innovation hub in the heart of Downtown Cairo. Photo shows campus walls of the American University in Cairo which today houses this growing hub. Photo © OHK Consultants

Much of Israel’s startup dynamism can be traced to a three-part institutional framework, which in turn is highly specific to a history of bilateral cooperation between Israel and the United States. Firstly, Israel’s "Law for the Encouragement of Industrial Research and Development—1984" encourages “raw” R&D on a national level. We believe this particular legislation departs from the more common paradigm of economic promotion through FDI, tax breaks, clustering, and attraction of mature “anchor” enterprises, focusing rather on raw research and tech development. Secondly, Israel has created an Office of the Chief Scientist populated by startup and private sector veterans that coordinates support for and resources to tech entrepreneurs in Israel. Thirdly, funds like the BIRD Foundation, a product of US-Israeli bilateral ties, directs funding to tech companies to support R&D and has had a hand in many of Israel’s largest startups. It is essential for the student of the Israeli startup ecosystem to understand the extent to which these regulatory and institutional bodies are unique to Israel and would be unfeasible in other countries, whether because they are at odds with broader cultural attitudes toward legislation (as in the regulation-averse United States) or because prerequisite institutions or bilateral relationships are absent (as in any number of developing countries). As a result of this interplay and supportive environment, expenditure on R&D in Israel as a percentage of GDP is the highest in the world, as noted by Orna Berry, Former Chief Scientist, to OHK’s Managing Partner, Ahmed Hassan.

In interviewing various Israeli startup founders in Palo Alto, we noted that the Israeli military is a unique onramp for talent, while Israel’s compulsory military service ensures that virtually all Israeli startup founders have military experience, it does not explain why a preponderance of successful entrepreneurs come from elite units like Unit 8200 of Israel’s Intelligence Corps. Not only are founders commonly alumni of such units, but many of Israel’s leading startups are in industries that parallel the unit’s specialization, including security, telecommunications, and encryption. Over the course of a week spent engaging with Israeli startup veterans, our estimate for the number of startups with founders coming from Unit 8200 ranged from 25% to 90%. This highlights the need to better understand the role of entities like Unit 8200 in Israel’s entrepreneurial ecosystem and how they supports entrepreneurship in tangible terms. Exactly how much of Israel’s startup talent comes from such an alumni pool? And how precisely do such units create and maintain this startup elite? Do they function as an MBA providing leadership skills and holistic critical thinking, as a technical undergraduate degree providing foundational and top-notch technical training (i.e., an MIT), or as an incubator attracting existing talent and providing hard and soft resources for improvement? Further research is needed.

Israel’s universities were founded as early as 1912 with the Technion. Today there are eight, three of which are ranked in the world’s top 200 universities, per QS World University Rankings. In 1959, the Weizmann Institute established the Israeli Technology Transfer Office (TTO) marking academia’s ingress to research transfer. Since then, every leading university in Israel has created technology transfer companies. Presently, Israeli TTOs generate around NIS 1 Billion in royalties, license 150 new technologies, and support 15 new research-based companies every year. “Yissum” of the Hebrew University and “Yeda” of the Weizmann Institute rank among the top ten in terms of revenue of global TTOs, notes Yaacov Michlin in “Where Science Means Business–Technology Transfer: The Secret Engine Behind Israel’s Success.”

Although this aspect is not dissimilar from elite universities in the United States, again the focus of the government shines through in the founding and support of these institutions and how intricately they fit into the high-tech ecosystem, factors more unique to Israel.

Thesis 2: Lower Pre-Money Valuations are Indicative of Brand Challenges

Despite the breathless praise of Israel’s startup culture as an economic miracle rivaling that of Silicon Valley, and despite anecdotal evidence that Israeli technical talent often exceeds that in the United States, pre-money valuations of Israeli startups are persistently below those of comparable startups in Silicon Valley. We believe that any student of the Israeli startup ecosystem must understand the extent to which this devaluation is a function of Israel’s brand; that is, its perception among the various players within global finance. Do Israeli startups suffer from a geographical discount much in the same way that startups based in peripheral American markets are valued less than those in Silicon Valley? Or do lackluster pre-money valuations reflect perceptions of Israeli startups’ market viability?

Upwest Labs is a Silicon Valley seed fund targeting Israeli tech entrepreneurs. Photo courtesy of Upwest Labs.

On the latter, there is growing evidence; data suggests that Israeli startups are 46% more likely to take on smaller markets relative to startups in Silicon Valley, and that Israeli startups are 5% and 33% less likely to take on USD 1 to 10 Billion and over $10 Billion markets, respectively, as noted in “The Startup Genome, Startup Ecosystem Report 2012”. This corresponds well to remarks made by Gil Ben-Artzy who suggested that US venture capital funding of Israeli startups should “redefine success,” move away from traditionally smaller exits, and expect bigger returns and shorter times to market (reflection from meeting with Gil Ben-Artzy, Founder, UpWest Labs Headquarters, Palo Alto).

Thesis 3: Israelis Frame the "Founder's Dilemma" Differently than Americans and Other Leading VC Markets

When asked about the challenges they face, American entrepreneurs frequently focus on difficulties related to career decisions and transitions – the difficulty of leaving a high-paying job for an uncertain venture, the challenge of balancing their family’s needs with the founder’s business imperatives, and choices around managing risk. In addition, US startup founders amplify the importance of “getting the team right,” while their Israeli counterparts hardly mention it. To wit, Israeli founder challenges appear 67% less likely to be team related and 39% more likely to be product centric. In a meeting with Gil Ben-Artzy, he noted that age may well play a factor given that on average founders in Israel are in the mid 30s.

“The Founder’s Dilemma” by Harvard’s Noam Wasserman discussed startup pitfalls and how daunting they may be for founders of startups in the US innovation landscape, however we do not see Israeli peers necessarily seeing it the same way. Photo © OHK Consultants

Our experience with Israeli founders is that the question of personal risk is far less salient. Indeed, some are downright dismissive of the “founder’s dilemmas” that preoccupy American founders. We propose that it is necessary to frame these discussions with further insights into the perceived and real opportunity costs and demographics of Israeli founders. Are Israeli founders less saddled with debt? Are their families more receptive to riskier career choices? Is there some nebulous “survivor mentality” among Israelis that reframes the founder’s dilemma in a way unintelligible to American founders?  We suggest that the answers to these questions are as much ethnographic as statistical.

OHK’s Ahmed Hassan would like to thank colleagues from the Wharton School, namely Vijeta Johri, Bruno Samuel, Richard Tsai and Jian Zheng, and special thanks to insights by Professor Rafi Amit, Founder and Director of the Wharton Global Family Alliance at the Wharton School.

For more information about OHK's work in venture capital and entrepreneurial management, contact us.

OHK Hosts a Forum on Its 5 Policy Principles for Urban Regeneration

OHK conducted a forum on urban regeneration in San Francisco’s historic Ferry Building, one of America’s preeminent success stories in modern urban renewal and adaptive reuse. Hosting a group of thinkers, urbanists, economists, and planners, OHK’s Ahmed Hassan presented the 5-principle framework, which was developed to tackle the paradox of spatial strategy, innovation, and economic development in urban regeneration schemes. Fifteen case studies from San Francisco, London, and San Francisco analyzed urban policy decisions, implementation methodologies, and adaptation responses behind prominent urban rehabilitation projects since the 1950s. Interactive exercises were conducted to demonstrate the outcomes of applying the 5-principle framework over several breakout sessions. The forum concluded with a discussion on transferable lessons from the three cities and suggestions for how stakeholders in urban regeneration can incorporate the framework into regeneration planning and decision-making.

OHK Hosts "Export Development 2.0" Strategy and Technology Roundtable

OHK Consultants has recently undertaken a two-day roundtable discussion in San Francisco with various thought leaders on export promotion and development in emerging markets. The focus was on comparing various export development efforts underway in emerging economies. We facilitated the benchmarking of export promotion and marketing schemes across established exporter nations, such as Ireland and Hong Kong, and newer initiatives from Commonwealth and MENA nations, including South Africa and Egypt. The results were synthesized through our "9P marketing framework," tailored to developing export development strategies in today's markets and emerging technology trends.

OHK's Ahmed Hassan led the roundtable's four modules in strategy, implementation, capacity building, and technology. The roundtable culminated in an outlook presentation on technology as a catalyst for export promotion, changing how markets interact and how the future looks for exporters and their governments. 

OHK’s Hoda Hamdy Takes Part in Egypt’s 2015 Economic Development Conference

Hoda Hamdy is in Sharm el-Sheikh to witness the Egypt Economic Development Conference (EEDC) taking place March 13-15, 2015. The conference is “a key milestone of the [Egyptian] government’s medium term economic development plan, which is designed to bring prosperity and improved social services to the people of Egypt.” OHK Consultants has taken part in many of Egypt’s reform efforts in the past twenty years and takes a particular interest in investment opportunities for domestic and international investors across key sectors. OHK has developed Egypt’s 30-year tourism investment map and has advised on several megaproject initiatives in various sectors and regions. Hoda directs OHK’s office in Egypt where we have our design studio and coordinate our Middle East projects. 

OHK Showcases Its Regional Land Development Scheme at the World Economic Forum

OHK showcased a 3D physical model of an area in Jordan that is one of the largest investment schemes ever created in the Middle East. The area is north of the capital Amman and is the size of London, with the resulting model weighing over half a ton and spanning 3.6m x 3.6m. It represents the master plan that our team completed for the Hashemite Royal Court under a 6-month contract, where we were responsible for developing a detailed spatial, economic and institutional plan to launch a new tourism and FDI destination on the world map.

The model, handcrafted under our team’s supervision in London by 20 craftsmen working for five weeks around-the-clock, using great precision and state of the art laser cutting, more than 10,000 pieces were crafted and assembled with custom-made materials and finishing. The model has a horizontal scale of 1:10000 and a vertical scale of 2:1 with an elevation change of -200m above MSL to 1220m. It took 1,800 man-hours to complete the model and, among other details, it shows the topography of the region, proposed land use, and 18 new tourism projects that are estimated to bring more than JD 6 billion in FDI over 20 years.

OHK Writes White Paper on Assisting Political Party Formation post-Arab Spring

Of the many changes which have come in the wake of Egypt’s historic January 25th Revolution, perhaps the most prominent is the explosion of grassroots political organization. The young activists which thronged Cairo’s Tahrir Square have now begun the process of channeling their energies into the formation of political parties (PPs) and civil society organizations, seeking to integrate themselves within Egypt’s emergent democracy and preserve the momentum of the popular revolution.

Shortly after these historic events, the ruling National Democratic Party was banned, and in March of 2011 the interim Supreme Council of the Armed Forces issued a new Political Party Law which removed many of the arbitrary and restrictive provisions. A deluge of new applications has been submitted since March, with several long-standing applications (such as that of the al-Wasat al-Gadeed Party) approved and many more currently under review. Our interviews suggest that some 34 new PPS are currently pursuing registration.

Already, however, inequalities in capacity and resources are emerging among these would-be parties. Many of the PPs are being formed by activists and politicians galvanized by the Revolution, but who lack the managerial and organizational capacities to run their parties. For many, merely collecting the 5,000 founding members needed for registration is a paramount challenge. Interviewees familiar with the political landscape feel that only six or seven of the PPs awaiting registration will cross these hurdles in time for the parliamentary and presidential elections looming at the end of the year. Other would-be parties, however, benefit from greater resources and institutional reach. Moreover, those parties that had operated underground pre-Revolution benefit from their existing networks and organizational experience.

Accompanying the growth in potential PPs is a wide variety of civil society organizations, political associations, and labor groups. Many of these entities were marginalized and intimidated in the pre-Revolution environment, but now see opportunity for legitimization and organization. Still others entail nascent coalitions and alliances of youth eager to join political life but who do not necessarily want to join a PP. Though some have long-term political party aspirations, these organizations operate in the civil sphere and some aspire to the role of Political Action Committees found in American politics. Nevertheless, these groups share many of the same managerial and organizational needs as PPs – as well as the same challenges, including a lack of management capacity and the absence of the requisite systems for internal management, human resources, communications, and finance.  

It seems that in the post-Revolution political environment, the challenges to PPs and associations have shifted from the restrictive “gate keeping” of a dominant party to managerial and organizational challenges – from political challenges to productivity challenges. These challenges threaten to recreate a political environment in which success is available only to a small cadre of amply-resourced parties and organizations, thus dispelling the populist and democratic potential enabled by the Revolution.

How can the playing field be leveled without privileging one proto-party over another and tipping the scales of Egypt’s nascent democracy? Contact OHK to learn more about our White Paper proposing mechanisms for capacity-building and technical assistance.

OHK Leads a Delegation from Jordan on a MENA Investment Road Show

OHK's Ahmed Hassan and Ken Rubin led a high profile delegation representing the government of Jordan on a MENA road show to promote investment opportunities of US$10billion in tourism, infrastructure, healthcare, and real estate. Representing the Prime Minister of Jordan, the delegation has visited Abu Dhabi and Egypt and met with several of the region’s largest investor groups.

Advocating Greater Transparency and Accountability in Sovereign Wealth Funds

OHK’s Ahmed Hassan was interviewed in a special cover report by MEED, the Middle East Economic Digest, on rising concerns over the lack of transparency and accountability of Sovereign Wealth Funds (SWF). The article addresses the rise of cross-border asset holdings of GCC countries and poses the question of whether Gulf funds should adhere to a code of conduct, and whether failure to do so poses risks for international economic and financial structures.

Mr. Hassan explains: “Management of the Gulf’s SWF holdings should greatly concern us in today’s current financial markets’ uncertainty because of the funds’ size, vague investment policies, vague transparency and their latent capability for disrupting markets. The deals keep getting bigger and bigger and so does the associated risks of vague policies and decision making.” SWFs have roughly tripled in the last 15 years, with assets believed to be just shy of US$10 trillion, and unlike European SWFs (with Norway’s Government Pension Fund-Global [CPFG] leading the world in terms of transparency and accountability) no one knows the size of Qatar, Saudi Arabia, and the UAE’s coffers; there are no financial statements published and the decisions taken are not discussed publicly. “What’s right for Norway is not necessarily right for Qatar’s Investment Authority (QIA),” Mr. Hassan explains.

“If you apply the same yardstick to rate CPFG against the QIA fund based on a criteria of structure, governance, behavior, accountability, and transparency, you will be shocked at how poorly Middle Eastern funds perform in these aspects,” he adds. GCC funds have been around since the 1970s, when entities like the Kuwait Investment Authority became long-term, passive holders of assets in Europe with many of these investments coming under fire for poor due diligence and corruption. Yet they remained unscathed in international markets. Mr. Hassan remarks: “We are still living the financial crisis of 2008. The Gulf funds’ ever-increasing pools of petro dollars have become de facto bailout capital in times of bubbles, insolvency, and constrained credit. This will undoubtedly result in international pressure to better self-regulate; however, a transition from voluntary codes of conduct to regulatory requirements is decades away.”

Updated in 2014:

Four months after story ran, the International Monetary Fund and the International Working Group of Sovereign Wealth Funds proposed the Santiago Principles of best SWF practices, and later founded the International Forum of Sovereign Wealth Funds as a voluntary group of SWFs that have pledged to advance the Santiago Principles in their activities. In 2014, this culminated in the adoption of a three-year strategic plan focused on promoting the use of the Principles.

OHK Advises Libyan Officials on Foster+Partners Cyrene Regional Master Plan

Libya coastlines are one of the only remaining unspoiled parts of Mediterranean; the International Union for Conservation of Nature (IUCN) invited OHK’s Ahmed Hassan on a mission in Libya to promote an initiative in the Green Mountain region (shown in photo), a 5,000 sq km abundant with sites of Greek, Roman and Byzantine antiquity.  Ahmed met with members of the leadership and the newly established Green Mountain Conservation and Development Authority to advise on a sustainable development vision for 300km of pristine eastern Mediterranean with Foster+Partners.