Prosperous Cities: The
key to Latin America’s
success
Jaana Remes
McKinsey Global Institute
April 28, 2014
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 1
Latin America’s cities are the key to
its economic future
Yet the region’s largest cities have run into
constraints to their capacity to sustain growth
The challenge now is to bridge rising consumer
expectations with disappointing income growth
Today’s discussion
McKinsey & Company | 2
1950
Germany
2005
Per capita GDP has risen in parallel with urbanization
and industrialization across regions
30,000
10,000
3,000
1,000
300
Per capita GDP
1990 PPP $ (log scale)
Urban population
%
DO NOT DELETE!
0 10 20 30 40 50 60 70 80 90
1820
United States
2005
1860
United Kingdom
2005
1939
1891
Japan
2005
1920
China
2005
1930
Brazil
2005
1950
South Korea
2005
1950
India
2005 1950
Italy
2005
McKinsey & Company | 3
Cities play a key role in Latin American economy –
80 percent of the population already lives in cities and towns
SOURCE: United Nations Population Division Department of Economic and Social Affairs, World population prospects:
The 2009 revision, March 2010; McKinsey Global Institute analysis
North
America
86
82
Europe
77
73
Africa
47
40
India
37
30
China
59
46
Asia2
53
47
Latin
America
84
79
2009
2025
1 Urban population according to national definitions
2 Excluding China and India
Population living in urban areas,1 2009 and 2025, Percent
McKinsey & Company | 4
Latin America has ~280 large cities with a population of 200,000 or more
SOURCE: McKinsey Global Institute Cityscope 2.0
1 GDP as of 2010, measured at current exchange rates
GDP 2010, $ Millions
>200
50-20020-5010-200-10Monterrey
Caracas
Ciudad de
México
(Mexico
City)
Bogotá
LimaBrasília
São Paulo
Rio de Janeiro
Buenos AiresSantiago
Large cities dominate
the region’s economic
landscape today
▪ ~280 large cities are
home to more than 300
million inhabitants
▪ These cities generate
$3.7 trillion in GDP1,
more than 75% of the
region’s total
McKinsey & Company | 5
The 10 top cities alone generate about a
third of the region’s overall GDP,
a higher share than any other region
SOURCE: McKinsey Global Institute Cityscope 2.0
City name
Pop.
(million)
GDP
(Billion
at RER)
Per capita
GDP (000
at RER)
1 Share of top 10 cities from each one of these regions in world’s GDP.
2 Includes China, Hong Kong, Macau and Taiwan
3 Includes Afghanistan, Bangladesh, India, Pakistan, and Sri Lanka.
Monterrey
4.1 69.4 17.0 Bogotá
8.6 85.0 9.9
Belo Horizonte
5.4 78.5 14.5
Brasilia
3.7 101.6 27.3
Rio de Janeiro
11.8 180.9 15.3
São Paulo
19.7 437.5 22.2
Buenos Aires
13.1 191.7 14.6
Santiago
6.1 93.0 15.2
Lima
9.2 77.3 8.4
Mexico City
20.1 255.1 12.7
GDP 2010, $ RER
>200
50-200
GDP share of the top 10 cities by
region
Percentage
21
21
South Asia3
Africa
Eastern Europe
& Central Asia24
16
China region2 23
Latin America 33
Western Europe 24
U.S. and Canada 29
World1
McKinsey & Company | 6
Latin America’s cities are the key to
its economic future
Yet the region’s largest cities have run into
constraints to their capacity to sustain growth
The challenge now is to bridge rising consumer
expectations with disappointing income growth
Today’s discussion
McKinsey & Company | 7
Most Latin America’s top cities have grown more slowly than
their host economies in the recent past
The relative growth of São Paulo and Rio de
Janeiro have declined in the recent past
1920-70 1970-2008
Period
Most of the top ten cities have grown slower
than their host economy
SOURCE: National and local statistical offices; McKinsey Global Institute Cityscope 1.2
57
93
91
39
89
66
100
100
144
113
Period Indexed GDP growth
São Paulo
Brasília
Santiago1
Lima1
Mexico City
Buenos Aires
Rio de Janeiro
Bogotá1
1999–2008
2000–2009
1998–2008
2000–2009
1999–2008
1993–2003
1999–2008
1996–2006
2001–2009
Monterrey
(1) In cases where GDP data were not available at the city level but the city represented most of the region/province, we used data at this next level
GDP growth
Compound annual growth rate, percent
City GDP growth relative to national average
Index: 100% = country GDP growth, percent
4.4
2.6
3.5
6.8
7.0
São Paulo 10.3
Brazil
Rio de
Janeiro
McKinsey & Company | 8
9
23
17
23
19
Total regional GDP growth 90 10
Small cities and rural areas 10
Small middleweights II
0.2 – 0.75 million inhabitants
Small middleweights I
0.75 – 2 million inhabitants
Mid-size middleweights
2-5 million inhabitants
Large middleweights
5-10 million inhabitants
Megacities
> 10 million inhabitants
Almost 60% of regional GDP growth to 2025 will come
from mid-size and small middleweight cities
# of Cities
2010
%
2025
%
Growth Rate
%, CAGR 07-25
Share of GDPContribution to Latin America GDP growth,
2010-2025
% of regional GDP growth at RER
4
4
16
76
189
–
22.2
14.7
6.9
18.5
14.9
22.8
22.6
16.6
8.0
20.6
15.7
16.4
4.7
5.6
5.4
5.3
4.9
2.2
4.5
SOURCE: McKinsey Global Institute Cityscope 2.0
59%
100 =
USD 4.5 trillion
McKinsey & Company | 9
Growing cities put increasing pressure on city services and infrastructure
1 Containers traffic volume accounts for demand generated in large cities only. TEU stands for “Twenty-foot equivalent unit,” used to describe the
capacity of container ships.
2 Building floor space growth includes floor space replacement.SOURCE: McKinsey Global Institute Cityscope 2.0
24
51 56
7688
76
49 44
2412
100% =
2010 total
Growth, 2010–25
142219140
10.0Compound
annual growth
rate, 2010–25
%
4.5 1.94.0 0.9
Container
volume
Million TEU1
GDP at RER
$ trillion
Building
floor space
Thousand
sq. km.2
Municipal
water demand
Billion cubic
meters
Population
Billion people
Estimated urban market demand in Latin
America, 2025
%
McKinsey & Company | 10
8,501
5705,636
2,124 172
Total
dwelling
demand
2025
10,336
Second
home
demand
289
New
house-
holds
2007–25
2,864
Current
gap
550
Dwelling
stock
2007
6,632
1,7243233,892
132 6,072
1,304 155 3,760
1,931 370
New
house-
holds
2007–25
156
Current
gap
401 1,60733
Second
home
demand
Total
dwelling
demand
2025
Dwelling
stock
2007
1,017
Demographics will drive strong housing demand
across the region to 2025
SOURCE: McKinsey Global Institute–McKinsey Latin America Model; McKinsey Global Institute analysis
Total housing requirements by 2025
Thousand dwellings
+51%
+56%
+56%
+95%
+58%
Mexico City Rio de Janeiro
Bogotá
Monterrey
São Paulo
Compound annual
growth rate,
2007-25 (Percent)
McKinsey & Company | 11
Cities also need to prepare for energy and resources challenges,
as well risks from environmental hazards
SOURCE: MGI Cityscope; BP Statistical Review; Water Resources Group; World Bank; Global Insights; Center for
Hazards and Risk Research (CHRR); Center for International Earth Science Information Network (CIESIN),
Columbia University; McKinsey analysis
Combined risk of disruption from drought, flood, or cyclone in 2025
High
Medium
Low
McKinsey & Company | 12
Latin America’s cities are the key to
its economic future
Yet the region’s largest cities have run into
constraints to their capacity to sustain growth
The challenge now is to bridge rising consumer
expectations with disappointing income growth
Today’s discussion
McKinsey & Company | 13
1
17
49
19
9
5
13
34
31
11
6
5
20,034 (B2)
82,852 (A)
36,333 (B1)
5,093 (D)
2,784 (E)
9,338 (C)
Struggling
consumers
“Belly of
the
market”
Global
consumer
0.6
2.1
-3.9
-3.3
12.4
5.3
1 Based on the average exchange rate of 2010 of US$ 1 = R$ 1.767.
SOURCE: Target; Oanda
Progress in poverty reduction is creating a new
consuming class with rising expectations – Brazil example
Average annual
household
income (class)
USD
Urban households
2000
100% = 33.9 million
2010
100% = 47.2 million
Change in number of
households, 2000–10
Million
McKinsey & Company | 14
Yet the region’s growth has been disappointingly low: Mexico has
not raised its productivity in 30 years, despite NAFTA and reforms
SOURCE: Conference Board Total Economy Database 2013; McKinsey Global Institute analysis
201209029570601950 8981
+3.3% p.a.
-0.1% p.a.
Desarrollo
estabilizador
GDP per hour worked
2012 PPP dollars
7
8
9
10
11
12
13
14
15
16
17
18
19
6
Excess
boom
Lost
decade
NAFTA
+0.8% p.a.
McKinsey & Company | 15
The gap between modern and traditional
segments is widening – Mexico example
SOURCE: Censos Económicos 1999, Censos Económicos 2009, Instituto Nacional de Estadística y Geografía; McKinsey
Global Institute analysis
Value added per occupied person
$ thousand, constant 2003 $
25
13
7
44
14
4
≤10 11–500 >500Number of employees
-6.5
+1.0
+5.8
1999
2009
Compound annual
growth rate,
1999–2009 (%)
Share of employment, %
1999
2009 42
39
38
41
20
20
McKinsey & Company | 16
The challenge for Latin American cities is to address ‘pressure points’
so that they don’t lead to tension in the civil society
- Land
- Water
- Energy
Natural
resources
Infrastructure
Economic
opportunities
- Physical
- Social
- Virtual
- Job creation
- Income growth
- Inequality
Large cities can be
the source of
economic prosperity
in their nations…
… and LatAm cities
have proven their
capacity to solve
problems with
innovative solutions
McKinsey & Company | 17
Thank you
These reports and other MGI
research are available at:
www.mckinsey.com/MGI
@McKinsey_MGI
@JaanaRemes