Firms slow to move as global urban growth booms
LONDON (Reuters) - Businesses are failing to conduct forensic research needed to capitalize on a wave of urbanization across emerging economies that is unprecedented in its speed and scale, McKinsey Global Institute (MGI) said on Thursday.
The research arm of the consultancy McKinsey & Co said it expected one billion extra city-dwellers to be earning enough by 2025 to become significant consumers of goods and services.
About 600 million of them would be living in about 440 cities in emerging market centers that were likely to generate close to half of global GDP growth between 2010 and 2015.
In the latest of a series of reports on urbanization, MGI said it was not an exaggeration to say that the most significant shift in the global center of economic gravity was unfolding.
"What's going on in emerging markets is bigger than the Internet in terms of impact on the world economy; it's bigger than World War One and World War Two put together; and because of the speed at which it's happening, I think it's bigger than the introduction of the plough," Richard Dobbs, a McKinsey director and one of the authors of the report, told Reuters.
The transformation of China is happening at 100 times the scale of the first country to urbanize, Britain, and at ten times the speed, according to MGI. Between 2007 and 2010 alone, three more Chinese cities had reached mega-city status with populations of 10 million or more.
The rapid rise is not limited to China. In 2007 the GDP of Latin American cities was 26 percent of the level in Europe; by 2010 the figure had risen to 37 percent.
MASSIVE CONSTRUCTION NEEDS
But how the expanding urban consumer classes spend their rising incomes will vary considerably, and few firms are doing the homework needed to maximize the opportunities, MGI said.
MGI expects Shanghai, Beijing and Tokyo to be the leading growth hot spots by 2025 for elderly higher-income consumers; for young entry-level consumers, the top trio of cities will be Lagos, Dar es Salaam and Dhaka.
For laundry care products, MGI says Sao Paulo will be the place, followed by Beijing and Rio.
"Yet, disappointingly, most companies are still not looking at cities as they calibrate strategy," the report said. A new, separate McKinsey survey found that fewer than one in five executives were making location and resource decisions at the city, rather than country, level.
The boom in urbanization will generate massive construction and infrastructure needs, providing a fillip for the world economy as populations in many advanced countries age rapidly.
MGI forecasts that by 2025 urban centers will need annual physical investment to more than double from today's level to more than $20 trillion, with emerging economies accounting for most of that.
-- By 2025 cities will need to construct floor space equivalent to 85 percent of all today's urban residential and commercial building stock.
-- The capacity of ports to handle container traffic needs to rise by more than 2.5 times from today's level to meet rising consumer demand. MGI estimates the cost at $200 billion, with emerging markets making up 85 percent of the total.
-- Cities will have to invest about $480 billion between now and 2025 to meet demand for municipal water and wastewater treatment of which $200 billion will be spent in the top 440 emerging market cities, MGI estimates, firstly Mumbai, followed by Delhi and Shanghai.
(Reporting by Alan Wheatley; Editing by Louise Ireland)
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