Urban is the future. Today, cities host 54% of the world’s population, and this figure is set to rise to at least 66% by 2050. Megacities, those with a population of 10 million or more, are home to 12% of these urban residents – 28 megacities exist today, but by 2030 the UN predicts that this number will rise to 41. Cities and their governments face huge challenges in terms of economic, environmental and infrastructural planning to keep up with this unprecedented rate of growth and provide a safe and sustainable standard of living for their respective populations.
Megacities are booming not only in the population stakes, but also when it comes to investment. Emerging market cities in particular are witnessing growth in domestic wealth, leading to greater opportunities in property investment and purchasing power. By 2025, emerging markets will account for 60% of global construction activity, and infrastructure spending is projected to more than double from current levels to $9000bn annually, according to consultancy firm PwC. In its Megatrends 2014 report, PwC predicts that these megacities will grow in both size and number, claiming: “Many analysts believe that their power will rival that of national governments due to the sheer size of their constituencies.”
“Put simply, the key issue is how megacities absorb and accommodate strong demographic and population growth,” says Jeremy Kelly, director of global research at real estate advisory firm JLL. Housing costs have increased significantly since the 2008 financial crisis, and many cities are suffering from social inequality, overcrowding, congestion and environmental degradation, all of which are intensifying at a faster pace than their governments are able to keep up with.
Almost 90% of the projected increase in urban populations in the next 35 years will take place in Africa and Asia, according to the UN’s World Urbanization Prospects 2014 report. China, India and Nigeria are predicted to see the largest urban growth, but they are by no means equal in their levels of preparedness.
Asia on the move
“While Chinese cities have many challenges, of all the emerging megacities, they probably have the best capability to make the necessary structural adjustments over the medium term,” says Mr Kelly. Asia’s most developed megacities, according to David Green-Morgan, head of capital markets research at JLL, are Tokyo – the world’s largest city, with 38 million inhabitants – and Seoul, the South Korean capital, whose successes are largely due to heavy tech investment and efficient, transparent governance. However, China is also proving very efficient in planning for its growing population.
Of the Chinese megacities, Shanghai stands out, according to Mr Kelly at JLL. “We believe that Shanghai has the greatest potential to join the quartet of ‘super cities’ of New York, London, Tokyo and Paris – the world’s most attractive spots for real estate investment – over the medium to long term,” he says. This is largely due to the central government’s commitment to making the city a hub of international trade and finance, its evolving infrastructure and commercial real estate stock, and its location as the hub of a dynamic megacity region – the Yangtze River Delta – which has a population of more than 40 million.
Improving transparency and financial deregulation has promoted further investment and dynamism in Shanghai, while it was ranked the top city in China for quality of living in a survey by Mercer Human Resource Consulting, coming 103rd out of 350 cities globally.
“Beijing and Shanghai are on the rise and should experience rapid improvements in quality of living in the coming years,” says Slagin Parakatil, a senior researcher at Mercer. “This is mainly due to greater international investment driven by the availability and lower cost of manufacturing expertise.”
Among China’s other megacities – there are six, according to the UN – the biggest challenges include clean water provision and air pollution. “However, advances in the telecommunications and consumer sectors have had some positive offsetting effects on their ranking,” the Mercer survey reports.
“At the other end of the spectrum,” says Mr Kelly, “the south Asian and sub-Saharan African megacities – such as Karachi, Dhaka and Kinshasa – require the greatest reforms and development.” Pollution, underdeveloped infrastructure and inefficient governance significantly undermine advancement efforts in most south Asian and African cities. The traditional Indian business centres of Mumbai and New Delhi have fallen behind in quality of life rankings due to rapid population increases, according to the Mercer survey, “which have exacerbated existing problems, including access to clean water, air pollution, and traffic congestion.”
Room for reform
Lagos in Nigeria, with a metropolitan population of 21 million, is emerging as a regional tech and finance hub. “As Africa’s second fastest growing city, Lagos is home to Nigeria’s banks and financial institutions, as well as corporate headquarters,” says Paul Philipp Hermann, the managing director of online real estate platform Lamudi Global. “It is one of the fastest urbanising cities in the world, and has consequently become a hub of hi-tech innovation and development, which are increasingly alluring to investors and entrepreneurs.” Ranked 136th out of 177 countries in Transparency International’s 2014 Corruption Perception Index, and 170th out of 189 countries in the World Bank’s most recent Ease of Doing Business survey, however, Nigeria still has work to do.
Lagos, along with megacities such as Delhi, Jakarta, Cairo and Dhaka suffer from low ICT maturity levels as well as social, economic and environmental challenges, according to telecom provider Ericsson’s Networked Society City Index 2014. The index does, however, reveal year-on-year improvements in the ratings of all the cities in terms of infrastructure, affordability and usage.
A critical priority for these fast-growing cities is disaster relief and mitigation, which goes hand in hand with environmental policy. In Asia alone, 750 million people will be at risk of flooding in 2025 compared with 548 million today, according to Asian Development Bank (ADB) statistics. Asian cities also use up to 80% of the region’s energy and generate 75% of its carbon emissions.
Indeed, these cities are coming under increasing pressure to implement serious changes to remain sustainable and liveable, a challenge that PwC says could be solved by the 'smart city' concept, which uses digital technologies to improve performance and wellbeing and reduce costs and resource consumption. This presents an opportunity for global telecoms providers and governments to work together efficiently. The ADB has also launched its Green Cities Initiative to assist national and city governments to promote local land use and transportation patterns that encourage the development of zero or low-carbon transport and energy-efficient infrastructure.
Looking ahead, providing the right framework for development is crucial, according to Mr Green-Morgan. “A government’s role is to make it as easy as possible for private sector money to come into the city to help establish the infrastructure and the housing stock to support the continued migration of people. It’s about creating the right environment for the private sector to work with governments to make that city a success,” he says.
“The most attractive infrastructure opportunities lie in projects that will generate long-terms incomes – hospitals, schools, toll roads, bridges, power stations – projects with a 25- to 30-year lifespan,” he adds.
Megacities in emerging as well as developed markets need radically new infrastructure and policies centred on sustainable living and consumption. Governments must prioritise affordable housing, efficient transport networks, smart infrastructure development, access to public services, and safety and sanitation to their residents, and must welcome the advice and assistance of the private sector in doing so. These paradigm shifts are set to leave a long-lasting impact on urban development for generations to come.