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As people stream into the cities, South Africa is likely to get richer. Cities provide a geographically concentrated market, which means they generate economies of scale and more job opportunities than smaller settlements.
Census 2011 data, released last week, do not include figures on cities. But migration between provinces is an indication of the country’s rapidly urbanising trend. More than a million people flowed into Gauteng between 2001 and 2011. And 303 000 migrated to the Western Cape. The figures are net: inflows vs outflows. Between 2007 and last year, Gauteng’s population rose 15 percent and the Western Cape’s 10.3 percent.
The pattern points to a wave of urbanisation that could be a powerful engine of growth. A recent report from the McKinsey Global Institute said: “The move to urban living is lifting the incomes of millions of people around the world. In cities, 1 billion people will enter the global ‘consuming class’ by 2025, with incomes high enough to become significant consumers of goods and services.”
Of the 1 billion entrants to the consuming classes, 600 million will live in around 440 cities in emerging markets, including Johannesburg, Cape Town and Durban.
They are among the middle-weight cities, with populations between 200 000 and 10 million. Statistics SA’s 2007 community survey put the population of Johannesburg at 3.9 million, Cape Town at 3.5 million and Durban at just over 500 000.
According to the institute, annual consumption in the emerging 440 cities will rise by $10 trillion (R87.6 trillion) by 2025. And they will contribute $23 trillion or 47 percent of global growth in the period.
An indication of the businesses most likely to benefit come from the experience of the past decade: “Some products take off at lower incomes than others. Purchases of products with low unit costs, such as snacks and bottle drinks, accelerate at a relatively early stage of the income curve, beauty products somewhat later and luxury products, such as fashion and fine wines, later still.
“Services tend to take off at higher income levels. For example travel for leisure and retail banking services for deposits start climbing once per capita income reaches over $18 000 per annum.”
Products also take off at different rates. “Refrigerators have a very steep adoption curve but then experience a sharp slowdown in growth. But spending on clothing, displays sustained growth, fuelled by spending by low-income households.”
Spending tends to rise faster than incomes. An example is in China where per capita sales of electronics and video appliances rose fourfold between 2004 and 2011, while clothing and shoes rose fivefold in real terms, outpacing a 3.4 percent increase in per capita income in the period.
Urbanisation has been taking place for centuries, said the institute. “But what is different about today’s wave of mass urbanisation is its unprecedented speed and scale. By far the most rapid shift in the world’s economic centre of gravity happened between 2000 and 2010.”
This presents opportunities and challenges.
“In the developing world, the task is to manage growth in a way that avoids diseconomies of scale and creates the basis for sustainable economic performance. If cities fail to invest in a way that keeps abreast of the rising needs of their growing populations, they may lock in inefficient, costly practices that will become constraints to sustained growth later on.”
This is a warning that South Africa must get its planned infrastructure programme firmly on track.