A key aspect of urbanization will be a new generation of cities with smarter functionality, as well as next-generation infrastructure and services, Jared Cook writes in an essay for finews.first.
This article is published on finews.first, a forum for authors specialized in economic and financial topics.
Presently more than half the world’s population, at 55 percent, lives in cities, up from just 30% in 1950. However, by 2050, this figure is expected to soar to 70% - which translates to an estimated 2.5 billion more people migrating to urban areas over the next 20 years.
This trend has been driven by rapid urbanisation, as mass migration towards cities started in the years following the Industrial Revolution. As crop yields fell and there was less demand for manual farm labour, people migrated to cities in search of higher-paid jobs by working in factories that produced consumer goods on a massive scale. But it wasn’t until 2007 that the portion of the global population living in cities exceeded the total living in rural areas. This dramatic growth has resulted in the emergence of a number of megacities – defined as an urbanised center with 10 million or more inhabitants – across the world.
«Indonesia, is projected to be the world’s largest megacity by 2030»
There are currently 33 megacities in the world1, and as one might expect this contains the likes of New York, London and Paris. However, the list also heavily features emerging markets, with megacities in China and India in particular, and other notable examples that have experienced dramatic growth. Colombia’s Bogota, for example, gained 3.6 million people between 2000 and 2016, while the population in Lagos, Nigeria, doubled to nearly 14 million people over the same period2.
We believe that developing nations are likely to dominate megacity growth over the next decade. For example, Jakarta, Indonesia, is projected to be the world’s largest megacity by 2030, while in Africa, the population of Angola’s largest city, Luanda, is forecast to increase by 60 percent. However, these countries will not just experience a surge in their respective populations; they will also likely benefit from huge economic growth. Cities such as Dhaka (Bangladesh), Manila (Philippines) and Bangalore (India) are all expected to exhibit close to 150% GDP growth by the end of the decade, and in 2030 there are expected to be 39 megacities contributing 15 percent of global GDP3.
«Urbanization occurs for socioeconomic reasons»
If we look even further ahead to the year 2050, it is projected that the landscape of megacities will be dominated by emerging market countries. This urbanization trend is expected to be predominantly focused in Asia and Africa, with India, China and Nigeria alone expected to add a combined one billion to the global urban population.
Urbanization occurs for socioeconomic reasons, with economic pull factors particularly strong in emerging markets as an increase in the standard of living has the potential to lift millions out of poverty. In addition, large cities can provide additional advantages – and potential opportunities for investors.
First, the local concentration of industry as companies flock to these populous areas. This has significant advantages such as low transport costs, a strong local market and a large supply of labor. All these factors can lead to potentially greater returns on capital and potentially higher profits for companies. For example, Delhi is one of India’s most productive metro areas, and we expect its services sector to continue to drive the city’s rapid economic growth.
«A key aspect of urbanization will be a new generation of cities with smarter functionality»
Second, the potential for technological innovation. As the companies that make up an industry concentrate in a single area, they accumulate even more information and create local specialization. This allows them to help direct the flow of new and innovative ideas, and potentially increase financial returns. For example, Shenzhen and Bangalore are prime technology hubs with top-class talent pools, encouraging start-up growth and expansion in their respective countries, and are potentially attractive to investors.
A key aspect of urbanization will be a new generation of cities with smarter functionality, as well as next-generation infrastructure and services. In a more sustainability-focused world, characteristics like smarter utilities, car-sharing, digital healthcare systems, greener buildings and transport infrastructure should feature in new megacities. This could create a wealth of potential new opportunities for investors. What’s more, monitoring environmental, social and governance (ESG) factors and engagement by both international financial institutions and investors is crucial to collectively achieve a sustainable model.
Jared Cook is a Fixed Income Investment Specialist at Axa Investment Managers.
Previous contributions: Rudi Bogni, Peter Kurer, Rolf Banz, Dieter Ruloff, Werner Vogt, Walter Wittmann, Alfred Mettler, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Albert Steck, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Mirjam Staub-Bisang, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gerard Guerdat, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Adriano B. Lucatelli, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frederic Papp, James Syme, Dennis Larsen, Bernd Kramer, Ralph Ebert, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Will Ballard, Nicholas Yeo, Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Klaus Breiner, Ana Botín, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Claude Baumann, Markus Winkler, Konrad Hummler, Thomas Steinemann, Christina Boeck, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann, Christoph Sax, Felix Brem, Jochen Moebert, Jacques-Aurélien Marcireau, Ursula Finsterwald, Claudia Kraaz, Michel Longhini, Stefan Blum, Zsolt Kohalmi, Karin M. Klossek, Nicolas Ramelet, Søren Bjønness, Andreas Britt, Gilles Prince, Salman Ahmed, Stephane Monier, and Peter van der Welle, Ken Orchard, Christian Gast, Jeffrey Bohn, Juergen Braunstein, Jeff Voegeli, Fiona Frick, Stefan Schneider, Matthias Hunn, Andreas Vetsch, Fabiana Fedeli, Marionna Wegenstein, Kim Fournais, Carole Millet, Ralph Ebert, Swetha Ramachandran, Brigitte Kaps, Thomas Stucki, Neil Shearing, Claude Baumann, Tom Naratil, Oliver Berger, Robert Sharps, Tobias Mueller, Florian Wicki, Jean Keller, Niels Lan Doky, Karin M. Klossek, Ralph Ebert, Johnny El Hachem, Judith Basad, Katharina Bart, Thorsten Polleit, Bernardo Brunschwiler, Peter Schmid, Karam Hinduja, Zsolt Kohalmi, Raphaël Surber, Santosh Brivio, Mark Urquhart, Olivier Kessler, Bruno Capone, Peter Hody, Lars Jaeger, Andrew Isbester, Florin Baeriswyl, and Michael Bornhaeusser, Agnieszka Walorska, Thomas Mueller, Ebrahim Attarzadeh, Marcel Hostettler, Hui Zhang, Michael Bornhaeusser, Reto Jauch, Angela Agostini, Guy de Blonay, Tatjana Greil Castro, Jean-Baptiste Berthon, Marc Saint John Webb, Dietrich Goenemeyer, Mobeen Tahir, Didier Saint-Georges, Serge Tabachnik, Rolando Grandi, Vega Ibanez, Beat Wittmann, David Folkerts-Landau, Andreas Ita, Teodoro Cocca, Michael Welti, Mihkel Vitsur, Fabrizio Pagani, Roman Balzan, Todd Saligman, Christian Kaelin, Stuart Dunbar, Fernando Fernández, Lars Jaeger, Carina Schaurte, and Birte Orth-Freese, Gun Woo, Lamara von Albertini, Philip Adler, Ramon Vogt, Gérard Piasko, Andrea Hoffmann, Niccolò Garzelli, Darren Williams, Benjamin Böhner, Mike Judith, and Gregoire Bordier.
