Urbanization is nothing new. It’s been going on for centuries, and it helped make Europe and the United States global economic and political powers. But what is different about today’s wave of urbanization is its unprecedented speed and scale — it’s bigger and faster than ever.
In fact, at the current pace of urbanization, the world’s cities will add 65 million inhabitants a year between now and 2025, according to researchers at the McKinsey Global Institute.
The resulting demand for infrastructure will mean that each year, India alone will need to add as much floor space as exists in all of Chicago, and China more than twice that. Around the world, McKinsey estimates $57 trillion needs to be spent by 2030 on infrastructure just to keep pace with economic growth.
History has shown that migration to cities lifts the incomes of individuals, the wealth of nations and the global economy. By 2025, urban consumers are likely to inject about $20 trillion a year in additional spending into the world economy.
“We are quite simply witnessing the biggest economic transformation the world has ever seen as the populations of cities in emerging markets expand and enjoy rising incomes — producing a game-changing new wave of consumers with considerable spending power,” according to McKinsey’s report, Urban World: Cities and the Rise of the Consuming Class.
Portfolio manager Shaw Wagener says infrastructure spending in China, India and other developing countries could provide investors with opportunity, but the pace of change is likely to vary from one country to the next.
“The move toward urbanization in the developing world, particularly China, is not likely to slow down. The government is not emphasizing growth in cities such as Beijing and Shanghai. But they are expected to provide additional incentives for people to move into Chinese cities with smaller populations. So we are expecting greater infrastructure spending in these smaller cities,” Shaw says.
McKinsey reports that while the pace of urbanization has varied historically, “the process has been inexorable and irreversible.” Urbanization isn’t always accompanied by economic advancement. Political and geographic factors, even soil and climate, can affect the transition. But urbanization and growth go together, and no country has ever achieved middle-income status without a population shift into cities.
London–based portfolio manager Chris Thomsen calls the movement a durable trend with significant investment opportunities.
“Despite the recent economic slowdown in emerging markets, I continue to have strong conviction that the evolution of the middle class is one of the most important investment themes of the decade,” Chris says.
A new world is taking shape
- Urbanization, which helped make the United States and Europe global economic powers, is now transforming developing countries.
- Between now and 2025, the world’s cities will add 65 million people a year, mostly in Asia and Africa.
- The evolution of cities and developing countries will require massive investments in infrastructure, creating significant opportunities for companies and investors.