The next BRICs are Cities – Introducing The Five CAILA Axes

Shanghai

Forget about BRICs. The next wave of development is coming from a cluster of major cities in developing countries – the “Five CAILA Axes” around which the world’s economic progress until 2030 will spin. Each axis has a political and economic power center, but these are not mutually exclusive and there is some political and economic spill over:

·         China Axis – Beijing-Shanghai

·         ASEAN Axis – Jakarta-Bangkok

·         India Axis – Delhi-Mumbai

·         Latin Axis – Mexico City-Sao Paulo

·         Arab Axis – Cairo-Istanbul

Beijing

The world’s top 100 cities produce half of the world’s total economic output. From 1950 to 1970, 65% of the growth of these megacities was in the developing world. Fastforward to 2000 to 2013 and the developing world constitutes 90% of this growth. Not only that, the world’s biggest cities carry political weight, facilitate global integration, and are innovation hubs. Economic progress is a function of population growth, human capital and productivity enhancements. By 2025, emerging market cities will have more higher-end and middle-income households than developed cities. For example if we take China as a microcosm for the world. We see there are 13 cities with populations over five million and these 13 cities are responsible for 25% of China’s total GDP. What the drivers of this contribution? Their ability to attract the highest quantity and quality of talent, the most investment, and the city network effects all feed growth and stimulate innovation. For example, Shanghai has access to 100,000 more university graduates each year so that 28% of its labour force is university educated. There are also 500,000 expats living in Shanghai. The functions of economic development are all happening fastest in the “Five CAILA Axes”.

The “Five CAILA Axes” were chosen due to a variety of factors. Above all however these cities are reaching hegemonic proportions in their parts of the world as well as globally due to their economic strength and business activity, aided by political clout. It is anticipated that strong economic and business activity will have a positive knock-on effect for development in other dimensions such as human capital, culture and other social factors (though these are also taken into account). The factors measured are:

·         Economic aspects include the gross domestic product, GDP per capita, cost of living, efficiency of city transportation and communication infrastructure, and provision of international financial services.

·         Business activity includes aspects such as the value of a city’s capital markets, the flow of goods through ports and airports, and the presence and strength of multinational corporations.

Bangkok

·         Human capital evaluates a city’s ability to attract talent based on the size of its foreign-born population, the number of residents with university education, the quality of universities, number of quality hospitals, and number of international schools.

·         Cultural factors include the number of major sporting events, number of museums, number of international travellers, number of world heritage sites, number of skyscrapers, and a measure of the diverse range of social activities and attractions.

·         Political engagement examines the influence a city has on global policy, the number of embassies and consulates and international organizations, and the amount of political conferences hosted within the city.

Jakarta

The most promising Axis of the “Five CAILA Axes” is the China lever, consisting of the power center Beijing and the financial hub Shanghai. They are already ranked 6^th and 7^th respectively for business activity globally and both cities place in the top 15 in the world for innovation. Notably, Shanghai currently has the 9^th highest GDP of any city in the world at US$460 billion and Beijing follows closely at 12^th with US$359 billion. By 2025, Shanghai will have the third highest GDP, after New York and Tokyo, whilst Beijing will have the fifth highest GDP in the world. Moreover from now until 2025, Shanghai and Beijing will record the two highest GDP growth rates of any cities in the world at around CAGR 6.6%. On the population front both cities have grown significantly in the past years with Beijing growing by 50% to reach 18.25 million people and Shanghai growing 41% to reach 21.77 million. By 2025, Shanghai and Beijing will have populations approximating 30 million people making them the third and fourth most populous cities globally. Their people meanwhile enjoy GDP per capita roughly double China’s national average at US$13,848 for Shanghai and US$13,447 for Beijing. Come 2025, Shanghai and Beijing will have the 4^th and 5^th highest number of households with annual income over US$20,000 (roughly 6 million households each), only after Tokyo, New York and London. Thus by 2025, this part of the Axes will command roughly 65 million people, US$2.5 trillion GDP, and 12 million high-income households.

Delhi

Moving down to South-East Asia, the ASEAN association of 10 nations will go live in 2015. Taken together, they are the world’s 8^th largest economy. The free trade area will provide impetus to both Jakarta as a political center for the region due to ASEAN’s headquarters being located there and Bangkok as a financial/service hub for the neighbouring regions due to its strategic location. Currently Bangkok has the 36^th highest GDP worldwide with US$280 billion whilst Jakarta has the 42^nd highest with US$221 billion. They have both also experienced rapid population growth with Jakarta swelling 35% over the past decade to reach 26.75 million people and Bangkok experiencing a 45% increase to 14.54 million. Their residents also boast GDP per capita three times their nation’s average with Bangkok’s at US$14,301 and Jakarta’s at US$11,409. By 2025, Jakarta will be the world’s 8^th most populous city, backed by the second largest increase in the middle-class that will take place outside China, and Bangkok will be the 40^th largest. Corresponding to this growth will be Jakarta’s 1.3 million households with an annual income above US$20,000 whilst Bangkok will have 1 million of these households. This is another Axis by 2025 that will wield around 60 million people, US$1 trillion GDP, and 2.3 million high-income households.

Mumbai

If the 21^st century belongs to China, then the 22^nd century may belong to India. Its two premier cities are Delhi (the political hub) and Mumbai (the financial and cultural center). In fact, Mumbai is the fastest growing megacity in the world in terms of its business activity, a characteristic that will continue through this century. Both cities are behemoths with Delhi’s population growing 40% since 2003 to 22.83 million people and Mumbai’s population at 20 million currently. GDP is high with Mumbai placing 41^st among cities worldwide with US$227 billion whilst Delhi places 43^rd with US$211 billion. However, size also poses challenges with GDP per capita quite low in both cities, US$2,800 in Mumbai and US$2,000 in Delhi. Yet come 2025 and Mumbai and Delhi will be the second and fifth most populous cities in the world, with a collective population of 75 million people consisting of 2.9 million households with annual income above US$20,000 in Mumbai and 2.4 million such households in Delhi. Furthermore, by 2025 Mumbai (4^th) and Delhi (7^th) will have some of the highest number of children below the age of 15 within the cities, signalling a potentially large workforce in the coming years after. Thus the Indian Axis will encompass 75 million people, US$1 trillion GDP, and 5.3 million high-income households.

Mexico City

The Latin world is split between the Spanish and the Portuguese speakers. Financially Sao Paulo is ascending, whilst Mexico City’s proximity to the USA lends it political supremacy. Economically, Sao Paulo has the 10^th highest GDP of all cities worldwide at US$401 billion, followed by Mexico City at US$340 billion in 14^th place. Population-wise, Mexico City boasts 21 million compared to Sao Paulo’s 11.32 million. The Latin Axis is also quite well-off compared to other Axis with GDP per capita in Mexico City US$25,000 and in Sao Paulo US$17,785. They are also quite innovative internationally with Sao Paulo placing 17^th and Mexico City 23^rd worldwide. Looking at 2025, Sao Paulo and Mexico City will be the eighth and ninth most populous cities in the world, with both approaching 32 million people each. Both Mexico City (8^th) and Sao Paulo (14^th) will also have some of the highest number of children below the age of 15 within the cities. Income-wise, Sao Paulo will have the 10^th highest number of households with annual income over US$20,000, with 2.4 million, whilst Mexico City comes in at 12^th with 1.5 million. The Latin Axis will hold 65 million people, US$1.3 trillion GDP, and nearly 4 million high-income households.

Istanbul

The Arab world has many potential financial centers, yet perhaps the most secular and stable is Istanbul. Meanwhile politically Cairo’s population dwarfs many neighbouring countries (it would be the 5^th largest Arab country) and it is home of the Arab League of Nations. Istanbul’s population has increased by 26% in the past decade to hit 13 million currently whilst Cairo’s population is at 26 million. In fact, Cairo is home to half of Egypt’s hospital beds and university desks, 20% of its buildings were built in the last 10 years, and 60% of the Arab League’s media and publishing outlets are located in Cairo. Currently Istanbul’s GDP is the 28^th highest globally at US$301 billion whilst Cairo places in the top 60 cities with US$128 billion. By 2025, Cairo (12^th) and Istanbul (25^th) will have some of the highest number of children below the age of 15 within the cities. Cairo and Istanbul will be the 6^th and 25^th most populous cities in the world. Cairo will have 2.2 million households with annual income above US$20,000 and Istanbul will have 900,000 such households. Together the Arab Axis will control 60 million people, US$900 billion GDP, and nearly 3 million high-income households.

Cairo

Many of the world’s megacities are showing signs of exhausting their economies of scale and consequently their GDP per capita and population growth have slowed. This trend is expected to continue. However there is no fixed limits beyond which cities cannot grow productively – Tokyo, Osaka and Hong Kong are expected to still be near the top of many rankings. Rather the hurdle to urban growth is the ability to keep pace with and manage their expansion. Megacities are highly complex beasts requiring long planning horizons and extraordinary managerial skills. Of course European and North American megacities will still be major contributors to world economic output and progress, yet is the “Five CAILA Axes” that are best placed to keep pace with change and manage will contribute a majority to economic progress. Together they control 325 million highly-educated people (4.5% of a projected 8 billion world population), US$6.7 trillion (9% of a projected US$80 trillion world output), and 26.6 million high-income households. Watch these various axes flex their levers to aid world economic progress.