published Mar 23rd 2017, 4:00 pm, by Jeanette Rodrigues

(Bloomberg) —
More people are living in urban areas than rural, making cities the world’s modern battlegrounds.

The urban population is seen rising to 70 percent by 2050 from 55 percent in 2016, and its share of gross domestic product will almost double to $115 trillion by 2030. Getting city development right will be a big factor in eliminating poverty, according to Bank of America Merrill Lynch, and this will need serious money.

“More than 80 percent of the world’s cities show signs of fragility yet the success or failure in meeting the world’s most pressing challenges will be decided in them,” BAML analysts, led by Sarbjit Nahal, London-based head of thematic investing, wrote in a report this month. Infrastructure will need $71 trillion to $78 trillion in investment over the next decade, and the “smart city” market will grow to about $1.6 trillion by 2020 from $1 trillion now, they estimate.

Urbanization helped lift 500 million Chinese out of poverty and the World Bank estimates that a 230 percent increase in a country’s urbanization rate will double per capita income. The OECD suggests that for each doubling in population size, the productivity level of a city increases by 2 percent to 5 percent due to competition, or deeper labor markets and the faster spreading of ideas.

About 700 large cities in China alone will account for $7 trillion, or 30 percent, of global urban consumption growth to 2030. Middleweight emerging-market cities such as India’s Ahmedabad and Kochi may offer the best growth opportunities.

However, there are also challenges. A UN survey identifies poor governance and weak institutions as the No. 1 obstacle to prosperity, followed by corruption, crumbling infrastructure and rising inequality and crime. Cities occupy about 3 percent of the earth’s land mass but consume more than 75 percent of natural resources and account for 50 percent of global waste, roughly 76 percent of both energy use and greenhouse gas emissions.

About 75 percent of the world’s cities have higher levels of income inequality than two decades ago. By the early 2030s, 2 billion people will be living below the poverty line in cities and 1 billion new homes will be needed by 2025.

As governments look to address these issues, the focus is shifting to “smart cities.” These use technology and strong institutions to make the city more connected (services and information easily accessible), integrated (different services such as health and transport can communicate and interoperate), personalized (offer each citizen the best locations and delivery methods) and predictive (such as using current transit patterns to predict future road usage for maintenance and expansion).

BAML collates a variety of sources to offer a glimpse of conditions in the future: 84 percent broadband coverage globally; 5G speeds as much as 100 times faster than 4G; 10 billion connected devices under the Internet of things by 2020; Big Data, with 200 million GB of data/day for a city of 1 million by 2020.

“Companies need to understand how shifting demographics around global cities impact their organization’s footprint,” according to the BAML report. “As cities expand in size and influence — and realize that they often have more in common with one another than their own nation — they are playing an increasingly influential role in reconfiguring global politics and economics.”

To contact the author of this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net To contact the editor responsible for this story: Enda Curran at ecurran8@bloomberg.net

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