The United Nations General Assembly has designated the 31st of October as ‘World Cities Day', with the aim of promoting the international community's interest in global urbanisation and addressing the challenges of sustainable urban development.
The world is constantly changing, and many of these shifts have affected the investment landscape. Whilst some of these changes can be fleeting and temporary, others can be transformative forces that shape society. One of the most powerful trends is urbanisation, or the global migration to cities. The challenges and opportunities that emerge as a result create structural shifts in industries and change the drivers of corporate earnings, presenting investors with a host of attractive opportunities.
Over the next few decades, the large-scale impact of urbanisation is expected to become even more pronounced. Today, 55% of the global population resides in cities, however by 2050, this number is set to increase to 68% which translates into 2.5 billion more people living in cities. This trend is even more prominent in emerging markets with China, India and Nigeria forecast as the top countries for urban population growth.
With billions of new people living in urban areas, the way cities are designed and engineered will have to be seriously reassessed. Going forward, we believe sustainable development will play a key role in urbanisation as society seeks to mitigate the environmental impact of cities. When you consider how 72% of urban energy use comes from fossil fuels, and cities are responsible for 70% of direct CO2 emissions, it is no wonder why The United Nations (UN) have named sustainable urbanisation as one of its 17 Sustainable Development Goals.
One major challenge for the UN revolves around improving the quality of life of urban dwellers, particularly in emerging markets. According to Morgan Stanley's research, 35% of the urban population is not served by municipal waste services and 700 million urban residents live without quality sanitation. Furthermore, should infrastructure needs not be met, by 2030 it is estimated that the number of urbanites living in slum conditions will more than double to reach 2 billion. PWC have estimated that $78trn will be invested in global infrastructure over the next 10 years alone to accommodate requirements, which should provide a boost to the construction sector.
The optimisation of resources is a challenge that accompanies the rapid development of infrastructure. Poor management of resources can contribute to increased air pollution, surface-water contamination, the spread of disease and increased methane production, all of which can cause numerous environmental and health problems. To run efficiently, urban areas need improved energy, water and waste management infrastructure, consequently businesses that help cities manage resources and utilities in sustainable fashion are set to do well.
Urban restructuring has meant cities across the world are seeing a wave of investment into transport infrastructure and mobility. Pollution caused by traffic congestion has a quantifiable, negative impact not only on well-being, but on economic growth. Investors need to look beyond traditional, pure transport players and focus on companies dedicated to decarbonisation and providing communities with sustainable and smart mobility.
Rapid urbanisation requires improved connectivity and wireless leaders are already racing to ramp up capital spending in order to deliver next-generation speeds. One name that stands out is Verizon Communication Inc., America's top telephone carrier which has committed $17bn towards upgrading its network and expanding 5G coverage across the US.
We also expect to see growth return to the semiconductor sector, as demand for smart devices increases and the deployment of new technologies such as autonomous vehicles takes shape. Encouragingly, PWC predict that the market for AI-related semiconductors will grow from a current $6bn in revenues, to more than US$30 billion by 2022.
Additionally, investors would do well to look towards the I.T. services sector as big data technologies and cloud-computing offer the potential to enhance urban operations, functions, services, designs, strategies and policies.
Mass migration to cities will have a wide-ranging impact on global economics, demographics, and society as a whole. Whilst construction, resource management, mobility and connectivity are key themes that investors cannot afford to ignore, as rapid urbanisation and other megatrends collide and feed off each other, there is no doubt that even more thematic investment opportunities will be created in years to come.
Arnaud Du Plessis is manager of CPR Invest - Future Cities