More megacities will offer opportunity for investors

The proportion of people living in urban areas rising to 68% by 2050 means that there will be an increase in megacities to 43 from 31 today

By ALIFAH ZAINUDDIN / Pic By BLOOMBERG

THE global economic focus has shifted from countries to cities with over half of the world’s 7.8 billion population now living in metropolitan areas.

Cities around the globe have attracted many innovators in the past decade, with San Francisco, New York, Singapore, Tokyo and Sydney being transformed into hubs for disruptive technologies ranging from streaming services to artificial intelligence and electric vehicles.

A report by the United Nations estimates that by 2050, the proportion of people living in urban areas will rise to 68% which accounts for an additional 2.5 billion people. This essentially means that there will be an increase in megacities — those with more than 10 million inhabitants — to 43 from 31 today.

By 2028, New Delhi is projected to become the most populous city on the planet. The Indian capital became the world’s second most populous city in 2014, more than doubling its population since 1990 to nearly 25 million.

Tokyo is currently the world’s largest with 37 million inhabitants, followed by New Delhi (29 million), Shanghai (26 million), Mexico City (22 million) and Sao Paulo (22 million). By 2050, the vast majority of the world’s megacities will be in Asia, and New York is forecast to slip to 14th place.

The report also estimates that in the next decade, nearly half of all global GDP growth will come from around 400 cities and growing economies that are on a trajectory to reach one billion new consumers. So, what does this mean for investors?

With a growing sophisticated and wealthy population, megacities offer a long-term trend that provides a massive growth opportunity for investors.

Records have shown that there is a direct correlation between cities and the creation of wealth.

Data from the CIA World Factbook indicate that three of the richest countries in the world (as measured by GDP per capita) are Qatar, Luxembourg and Singapore. In each of these three countries more than 90% of the population live in cities.

Conversely, three of the poorest countries in the world are the Central African Republic, Democratic Republic of Congo and Burundi. In these countries the percentage of the population living in urban areas are 41.4%, 44.5% and 13% respectively.

In other words, higher levels of urbanisation can translate to higher levels of economic growth. The potential for long-term growth that can be achieved by investing in cities is huge and this is a long-term trend.

That is not to say there are no failures. The US city of Detroit, which heavily depended on the automotive industry, is synonymous with cities in decline as many US car manufacturers move their production facilities out of the city. Hence, innovation forms a key determinant of a city’s success.

Apart from start-ups, innovation and talent are also found in universities. The world’s top 20 universities are all located in successful cities and global innovation hubs such as New York, Boston, London, Beijing and Singapore. These are the cities where innovation is taking place.