East to house global mega cities by 2025: McKinsey & Co report

Global management consultancy McKinsey & Co says over the next 15 years, the centre of gravity of the urban world will be heading South in general, and to the Eastern regions in particular.

Today, 600 cities, mainly in the North and the West, generate about 60 percent of the economic output or gross domestic product. In 2025, the number of cities will remain same and will continue to account for the same share of global GDP, but this group of 600 cities will have a very different membership, says McKinsey Global Institute (MGI)- business and economics research arm of McKinsey & Co - in its report 'Urban world: Mapping economic power of cities'

In 2007, half of global GDP came from 380 cities in the developed world, with 190 North American cities alone contributing over 20 percent, while the 220 largest cities in the developing world contributed just 10 percent, report says.

"But by 2025, one-third of these developed market cities will no longer make the top 600 cities. Instead, 136 new cities are expected to enter the top 600, all of them from the developing world and overwhelmingly 100 new cities from China and 13 from India, including Hyderabad and Surat," it says.

The MGI has developed forecasts of demographic and economic data for over 2,000 of the leading metropolitan areas. The resulting database builds on MGI urbanisation research on China, India, and Latin America and is one of the largest if its kind. Called the MGI Cityscope, it covers cities with population over 200,000 in emerging market nations and cities with population of over 150,000 in the US and Western Europe. In India, this global large city database includes the 177 largest cities.

"Given how radically the profile of the urban world is changing, there's a pressing need for companies to look at the world's urban growth at a deeper level to identify where their most promising markets are likely to be," MGI director Richard Dobbs says.

Stating that contrary to popular belief, the world's largest cities are not driving global growth today, the report says in fact, most megacities have not grown faster than their host economies, and MGI expects this trend to continue.

Today's 23 megacities, including Mumbai, Kolkata, and Delhi with populations of 10 million or more will contribute just over 10% of global growth by 2025, below their 14% share of global GDP, says the report, adding in contrast, "577 middleweights-cities with populations of between 150,000 and 10 million, will contribute half of global growth by 2025, gaining share from today's megacities."

Across the world, 407 emerging middleweight cities are contributing nearly 40% of global growth--more than the entire developed world and emerging markets megacities combined. Further, by 2025, 13 middleweights are likely to become megacities, 12 of which are in emerging markets-seven in China; and including Chennai from India.

Report also estimates that population of these top 600 cities will grow 1.6 times faster than the population of the world as a whole.

"By 2025, the top 600 cities will be home to an estimated 310 million more people of working age, which will be almost 35% of the potential global workforce expansion, and two-thirds of this is likely to be from the leading Chinese and Indian cities alone," says the report.

By 2025, there are also likely to be about 13 million more under-15 children in these 600 cities. Accordingly, Mumbai will have 4.8 million children by 2025, while Delhi will be home to 4.4 million kids.

Stating that ageing will not just be a developed country problem, report says by 2025, Mumbai will be home to around 3.5 million elderly, while Delhi will have around 2.2 million.

The three cities that will witness the highest growth in housing demand will be Beijing, Shanghai, and Tokyo.

There will be more middle-class urban households in emerging market cities than in the developed ones with an estimated 235 million households earning over $20,000 a year from the developing region cities, compared to 210 million in the developed region cities.

To help companies looking for growth, policymakers must manage the increasing complexity of larger cities more effectively, the report says. "Particularly, in India, the government must build urban infrastructure to meet the needs of its surging urban population or the country's economic growth could be at risk," says McKinsey & Co director, Shirish Sankhe.

In per capita terms, India's annual capital spend on infra is only USD 17, which is just 15 % trillion in terms of capital expenditure in its cities over the next 20 years or $134 per capita," Sankhe concludes.