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Credit Suisse Emerging Market Research Institute publishes “Opportunities in an Urbanizing World”
Research report identifies the challenges and explores the opportunities for governments and investors as emerging market populations migrate towards citiesThe Credit Suisse Emerging Market Research Institute’s (EMRI) “Opportunities in an Urbanizing World” report is an in-depth study of the migration of the world’s population from rural areas to cities. Estimating that by 2037, half the world’s population will live in emerging market cities, the report identifies migration trends over a 100-year period and their impact on the global economy. The report further analyses where the highest growth rate in urban population is concentrated, namely in Non-Japan Asia and Sub-Saharan Africa. Those countries providing the best investment opportunities based on this theme include China, Egypt, India, Indonesia, Nigeria, Pakistan, Philippines, Thailand and Vietnam.
Alexander Redman, Co-Head, EMRI, said: “This research addresses a very broad spectrum of issues related to the emerging markets urbanization theme. For example, critical for the outlook on global carbon emissions will be the urban density ultimately achieved in the growing cities of China, India and other developing nations. Will they achieve the density of New York with its low per capita emissions or the higher emissions associated with lower density more sprawling cities in the US sunbelt?”
Fan Cheuk Wan, Co-Head, EMRI, added: “The aim of today’s report is to provide investors with relevant insights on the rapid industrialisation of developing nations, and ultimately enable them to participate in thematic investment opportunities in key emerging market growth regions.”
Cities to account for 70% of global population by 2050
In the hundred years between 1950 and 2050 the global population is undergoing an irreversible structural transition in the way we live. Drawn by the superior economic, lifestyle and social opportunities of urban dwelling, the world’s population is migrating from rural areas—accounting for 70% of global population in 1950—to cities—accounting for 70% of global population by 2050 on United Nations projections. In 2009 the percentage of the planet’s population living in urban areas crossed the 50% threshold and by 2037 cities in developing nations will contain half the world’s total population.
Per capita economic activity increases 10% with every 5 percentage point increase in urban population
Urbanization continues to provide one of the most significant drivers of growth for the global economy. Typically, as the share of a country’s urban population rises by 5 percentage points, there is an associated gain in per capita economic activity of 10%. It is critical that governments of rapidly urbanizing countries effectively deliver the necessary policy mix, from urban planning with appropriate levels of investment into infrastructure and affordable housing, through to social programs allowing more balanced income distribution, necessary to ensure that the appropriate level of associated growth potential is unlocked as their populations migrate towards cities.
Investing in the developing markets urbanization theme
Credit Suisse argues that the best opportunities from the emerging markets urbanization theme are those related to countries offering the following characteristics:
(i) large total populations;
(ii) a current urbanization rate in the range 30%-50%;
(iii) a low GINI coefficient;
(iv) uninterrupted access to capital markets, and
(v) preferably low or decreasing levels of corruption.
Globally, these criteria would therefore fit: China, Egypt, India, Indonesia, Nigeria, Pakistan, Philippines, Thailand and Vietnam.
Income growth of urbanizing populations allows for increased consumption
Credit Suisse finds that as countries urbanize there is typically an associated incremental gain in the consumption share of GDP which the bank argues is particularly relevant in the case of China. Moreover, essential for the growth and development of emerging economies is the strong association between rate of urbanization and improved levels of education and productivity which strengthen a nation’s human capital.