Mumbai, Delhi, Dhaka: According to an extrapolation by the Global Cities Institute, these three cities in India and Bangladesh will be the largest in the world by 2050. Each of them will have over 35 million inhabitants, a population almost as large as all of Canada or Poland today. Urbanisation is not a new phenomenon, but the trend is unrelenting. The United Nations reports that more than 4.2 billion people already live in cities and suburban areas. By mid-century, that number is expected to rise dramatically, increasing from a 55% proportion of the world’s population to more than two thirds of the total.
More than 90% of this growth in the urban population will take place in developing countries, mainly in Africa and Asia. Whilst the amount of constructed urban space is growing noticeably in the emerging nations, pre-existing structures in the industrialised world need to be used more efficiently. The challenges facing city administrations therefore vary greatly from country to country.
In 2050, the number of urbanites will have increased by some 50%. UN forecasts predict that this development will cause the urban sprawl to more than double over the next 30 years to some 2.7 million square kilometres. This will not only put an extreme strain on resource procurement, but also make its distribution a Herculean task. The related environmental and ecological burdens will require a total rethink in terms of resource management. According to UN Environmental Programme (UNEP) calculations, cities are accountable for three-quarters of the world’s consumption of raw materials and 70% of global CO2 emissions. Moreover, a World Bank evaluation reveals that air and water pollution in Chinese cities takes a 6% toll on the country’s annual gross domestic product (GDP). Environmental aspects, together with social challenges, limit the growth potential of cities. For modern metropolises, environmental sustainability and resource efficiency go hand in hand with digital transformation, which helps to improve urban management.
Digitalisation is the driving force behind the “Smart City” concept, on which many cities are already working intensively. The aim is, to digitalise all aspects of urban life – from traffic monitoring and control, to energy supply, healthcare and security. Rapid, trouble-free data transmission and networking across all aspects of the needs of a city and its inhabitants are a basic prerequisite for future concepts pertaining to work, education and mobility, as well as to security and water/power supply.
Cities are enormously important for society and its development – not only as cultural and economic centres, but also as centres of innovation. Measured in terms of gross domestic product, cities are responsible for 85% of global economic output. Tokyo alone generates greater value added, i.e. GDP, than Canada as a whole (see chart at left). Moreover, nowhere else do so many technological trends emerge. In the past ten years alone, groundbreaking business models have been invented that are particularly useful in large cities, such as sharing services, delivery services for online orders, and electric motorised micro-mobility.
This economic significance, in combination with the enormous growth of the urban population will vastly change metropolitan regions. In the course of this evolution, the following four strategic theme facets are of particular importance and thus interesting from an investor standpoint:
Digital Transformation is the catalyst and source of concepts for modern urban development. However, this requires comprehensive, seamlessly networked data communication, the storage of enormous amounts of data and intelligent information evaluation. Consulting firm PWC estimates that the development of “smart” applications alone has growth potential of around 20% per year through 2025.
The growth of the world population, environmental challenges, and the increasing scarcity of crucial resources are forcing businesses and politicians to reorient their strategies for the future. This applies in particular to urban areas. The complexities and resulting tensions can be clearly seen against the backdrop of the current health crisis. The COVID-19 pandemic has not only drawn a great deal of attention and financial support to the healthcare system, it also adds momentum to the digital transformation trend. Digitalisation is the key to solving the challenges tomorrow’s cities will face, even as it represents promising investment opportunities for sustainability-oriented investors.
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