A “massive wave of urbanization” sweeping across emerging economies in the East and the South will create one billion new city-dwelling consumers by 2025, said a new report by McKinsey Global Institute (MGI) released on Thursday. From 1990 to 2025, urbanization will have more than tripled the total size of the world’s consuming class to four billion, according to the report. “The shift in economic balance toward the East and the South is happening with unprecedented speed and scale. We are quite simply witnessing the biggest economic transformation the world has ever seen, as the populations of cities in emerging markets expand and enjoy rising incomes—producing a game-changing new wave of consumers with considerable spending power,” the report said.
Notably, 60% of these consumers will be in emerging market cities, where annual consumption is set to rise by $10 trillion by 2025. Contrasting today’s growth pattern to Britain’s industrial revolution in the 19th century, the report said that the impact of urbanization in China alone is happening at 100 times the speed and on 10 times the scale. “Between 2007 and 2010, three more Chinese cities became megacities with populations of 10 million or more—one a year”. Out of the 443 fast-developing cities that the report calls the Emerging 440, 36 are in India.
The new consumers, who are trading up in terms of income and buying power, are expected to boost consumption of goods and services as household incomes are rising faster than both households and individuals among the consuming classes. More people are moving up into higher-income segments, “where the consumption of many goods and services takes off rapidly”, especially in India and China, the report noted.
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But, McKinsey warned, “meeting demand from these new consumers will necessitate an investment boom in buildings and infrastructure”. It predicted that cities will require annual physical capital investment to more than double from nearly $10 trillion today to more than $20 trillion by 2025. Additionally, companies and policymakers will need to be more scientific in their approaches to targeting these markets if they are to harness their potential.
Graphics by Ahmed Raza Khan/Mint