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Capital cities have tended to grab all the attention and attract the lion's share of investment but now smaller Tier 2 cities are coming into their own, as fDi reveals. Courtney Fingar looks at a logical evolution.

“If you’re not first, you’re last” – so goes the catchphrase of a swaggering racecar driver portrayed by comedian Will Ferrell in the Hollywood comedy Talladega Nights.

The epithet might be true of Nascar races, but not necessarily of the race to attract investment. While much attention has been focused on the world’s major cities as FDI champions – and not without merit – some smaller but more nimble competitors have come screeching round the bend. Many are already winning investment projects from their national capitals or bigger rivals, as our cover story reveals.

The Tier 2 cities concept is perhaps best established in Europe, which is why we have focused here on this region’s secondary cities. Data from our crossborder greenfield investment monitor fDi Markets shows that while EU capital cities have as a group seen a rise in FDI projects since 2010, their expansion has been uneven and many have suffered a decline in their share of national FDI between 2014 and 2018. Companies are waking up to the attractions of Tier 2 cities, as FDI inflows indicate; but such cities remain both under-appreciated and under-utilised, especially when considering their contributions to national GDP, which outweigh their share of national FDI inflows.

But the situation is changing fast and the shift to secondary cities is obvious and logical. The world's major economic hubs are increasingly overcrowded, overpolluted and oversaturated as the global 'hunt for yields' rages on – especially in real estate – as well as the 'war on talent' within tech and the inexorable march of urbanisation. Thus, investors and companies are diversifying beyond the obvious markets, turning their attention more and more towards strategic T2 cities. 

fDi's special supplement on Braga highlights this point. As Lisbon and Porto fill up and price up, Portugal's young and talented are moving towards the country's 'third city', Braga, as are companies. Tourists too, are seeking out smaller cities such as Braga, as regional and 'experiential' tourism grows, and hotspots such as Barcelona and London become overcrowded and overpriced.

The field of contenders among Tier 2 cities is crowded too. We have identified our ‘Super Sixty’ secondary cities that have the makings to compete strongly with larger peers; many them are already doing just that. The Dutch city of Utrecht, which tops the list, has seen its share of national GDP double between 2014 and 2018 and its share of national FDI increase from 1.6% to 4% in the same period. The Greek city of Thessaloniki, meanwhile, captured more than 14% of inbound FDI into Greece last year. The list of small but powerful FDI cities is long and growing. We will be keeping a keen eye on them as they continue to assert themselves.

Courtney Fingar is editor-in-chief at fDi Magazine. Email: courtney.fingar@ft.com 

This article is sourced from fDi Magazine
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