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The Long View

INVESTMENT INSIGHTS  |  August 2015

The Future Is Under Construction

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.

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INVESTMENT INSIGHTS  |  August 2015

Urbanization Is Transforming the World — Again

Per Capita GDP Has Risen in Tandem With Increases in the Urbanization Rate

Source: Exhibit from Urban World: Cities and the Rise of the Consuming Class, June 2012, McKinsey Global Institute, www.mckinsey.com/mgi, © McKinsey & Company. All rights reserved. Reprinted by permission. Urbanization is the increasing number of people living in cities as populations shift from rural to urban areas; the definition of urbanization varies by country. Pre-1950 data for the United Kingdom are estimated. Historical per capita GDP is expressed in 1990 Geary-Khamis dollars, which reflect purchasing power parity (PPP) that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency’s purchasing power. PPP helps determine the exchange rate adjustment so that identical goods and/or services in different countries have the same price when expressed in the same currency.

The wealth of nations soars when societies shift from rural to urban

Urbanization isn’t a modern phenomenon. In centuries gone by, the shift to living in cities underpinned the industrial revolutions of Europe and the United States and the rise of those regions to global economic and political power.

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2014 Was the “Tallest Year Ever,” With the Completion of a Record 97 Buildings Above 200 Meters

Sources: CTBUH Year in Review: Tall Trends of 2014, and Forecasts for 2015, Council on Tall Buildings and Urban Habitat; KONE Primer, CS European Capital Goods, May 2015, Credit Suisse. The total number of buildings completed for each year includes tall (600+ feet/200+ meters), supertall (900+ feet/300+ meters) and megatall (1,900+ feet/600+ meters) buildings; projected data for 2015 and 2016 represent expected, not possible, completions. The data for elevators and escalators are Credit Suisse estimates, based on company data as of fiscal year 2014, for new installations and maintenance.

The 3,281–foot Kingdom Tower in Saudi Arabia will be the world’s first kilometer–tall building

Elisha Otis founded The Otis Elevator Company in 1853, but it was the company’s 1903 innovation called the gearless traction elevator that set in motion a remarkable change in the urban landscape.

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INVESTMENT INSIGHTS  |  August 2015

A $57 Trillion Bill for Infrastructure Is Coming Due

Global Investment (Trillions), 2013–2030

Source: Exhibit from Infrastructure Productivity: How to Save $1 Trillion a Year, January 2013, McKinsey Global Institute, www.mckinsey.com/mgi, © McKinsey & Company. All rights reserved. Reprinted by permission. McKinsey calculated the estimate of
$57 trillion, or 3.5% of global gross domestic product, for global infrastructure need through 2030 by compiling projections of demand in the different infrastructure categories shown. The estimate for telecom covers only those members of the Organisation for Economic Co-operation and Development, plus Brazil, China and India. The estimated investment amounts, expressed in constant 2010 dollars, may not sum due to rounding. The constant dollar is an adjusted value of currency used to compare dollar values from one period to another.

The world faces a massive construction project just to keep up with projected growth

Some countries need infrastructure that simply meets basic human needs, such as safe drinking water. Another may want to modernize its transportation network, and still others may be trying to lay the groundwork for future global competitiveness by building a national broadband network.

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INVESTMENT INSIGHTS  |  August 2015

The Secret to Keeping People in the Air? Groundwork

Airport Construction Projects Worldwide and Investment Amount (in Billions)*

*As of January 2015

Source: CAPA - Centre for Aviation, Premium Airports Database, centreforaviation.com/data/airports. Data are for existing airports with projects either in progress or planned for and with a good chance of completion.

Globally, $543 billion worth of airport construction projects are in progress

China started working on a new airport near Beijing on December 26, 2014. The airport, which is being designed by Netherlands Airport Consultants, is expected to be completed in 2018 and cost about 
$14 billion. Upon completion, the 7.5 million square foot terminal will accommodate about 45 million people per year.

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Sources: 2014 State of the Industry: Mobile Financial Services for the Unbanked, March 2015, Groupe Speciale Mobile Association (GSMA); “Banks Vie for a Piece of Africa’s Mobile Banking Market,” August 15, 2014, The Wall Street Journal; Safaricom Limited FY15 Presentation. The GSMA Mobile Money report is available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014. The data for mobile financial accounts per 100,000 adults are as of June 2013. The total M-Pesa transactional value of $45 billion is for the fiscal year ended March 31, 2015.

Technological advances can allow countries to skip building out traditional infrastructure

Africa provides one of the classic examples of technology trumping traditional infrastructure. The introduction of mobile phones has allowed millions of Africans to receive the social and economic benefits of telephone networks without the sunk cost of massive landline infrastructure.

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