Urbanisation will lead to the creation of one billion new city consumers by 2025, said a study by McKinsey Global Institute (MGI). The study said these will live in some 440 dynamic emerging market cities (the ‘Emerging 440’), that are set to generate close to half (47 per cent) of expected global GDP growth between 2010 and 2025. Among these, 36 cities are from India.
Richard Dobbs, a director of MGI based in Seoul, said: “At a time when mature economies are facing the challenges of de-leveraging and aging, the urbanisation wave in emerging markets is a positive force for global growth. The urban shift is changing the balance of the world economy, and governments. Investors and businesses need to ensure that they understand, and respond.”
It said while China is right in the middle of its sweeping urbanisation, while India is in the early stages of the process. “India is also urbanising, but the process is at a much earlier stage; today, only 30 per cent of the population lives in cities of all sizes and fewer than one in five lives in its large cities. However, we expect India’s cities to generate half of the nation’s GDP growth to 2025,” said the report. New Delhi, Mumbai and Kolkata were mentioned as the top three cities in India by growth in region.
The study pointed out that growing consumer classes will accelerate growth in demand for many goods and services . It explained that many large emerging economies, including China and India, were seeing higher shares of their populations moving into income segments where the consumption of many goods and services takes off rapidly. Indian cities alone are expected to contribute nearly 10 per cent of global growth in residential and commercial floor space demand to 2025.
The MGI report said to cater to their new urban consumers’ needs, cities will have to invest heavily in infrastructure. “Cities will require annual physical capital investment to more than double from nearly $10 trillion today to more than $20 trillion by 2025.”
Municipal water demand in large cities is expected to have to rise by 40 per cent from today's level by 2025—a rise of almost 80 billion cubic meters, more than 20 times what New York consumes today, the report said. The top two cities by expected growth in municipal water demand between 2010 and 2025 globally are Mumbai and Delhi.
The report said companies need to take a more scientific approach to locating the most promising markets for their businesses and then allocating resources pro-actively to capture the opportunities they offer. It said that identifying fast-growing segments in emerging cities not currently on the radar will be a necessary skill.
The report also mentioned that the public policy agenda is different in the developed and developing urban world. “Rapidly growing cities in the developing world face a complex and challenging task to keep pace with their expanding populations: investment, planning, and meeting the labour aspirations of their new inhabitants. For the more mature cities of developed economies, the challenge is different: city leaders are more likely to be grappling with growth that is too slow,” said the report.
It added that local and national governments will need to ensure they are connected to emerging market hubs. For example, physically through airports, as well as re-directing their commercial and diplomatic efforts towards the regions most likely to shape the 21st century.