Investing in Urbanization
Tags: Migration, Infrastructure, Urbanization

According to the UN, globally three million people move to cities every week.

Talk about the great migration.

And, the trend of people around the world packing up their bags to move to the city isn’t expected to change anytime soon. Current projections anticipate that 60 percent of the world’s population will be living in urban areas by 2030, according to Euromonitor.

As more and more people have turned in their rural lifestyles in exchange for crowded urban spaces and better opportunities, the massive number of people moving to cities has had a major impact on what the world looks like… not just sitting in traffic, but also from outer space.

A megacity is an urban area with a population of at least ten million people. In 1990 there were only 10 megacities, which were home to 7 percent of the world’s total urban population. As of 2018, there are now 33 according to a 2018 white paper from Euromonitor titled Megacities: Developing Country Domination. This multiplication of megacities all over the globe has had major implications on the environment.

Urbanization as a megatrend is not lost on investors. With changes happening at hyper speed, a host of opportunities for new and emerging high-growth business models are ripe for investment.

What is urbanization?

To say the least, urbanization at such a massive scale makes city-living much more complicated.

While increased urbanization is linked to more economic development in the form of new jobs and better productivity, it does not directly cause it: urbanization only spurs economic development in the presence of other factors including the availability of non-farm jobs, infrastructure, and public services.

These are no easy check boxes to fix when you consider that pervasive challenges in emerging urban environments include “insufficient infrastructure, inadequate urban services, rising informal settlements, poverty, urban insecurity, increasing inequality and climate change.”

In other words, poor infrastructure paired with a lack of investment in emerging cities can make or break a city’s success.

Not to mention, failure to develop sustainable growth can literally change the face of the planet. According to NASA’s Megacities Carbon Project, megacities are the largest human contribution to climate change.

While cities occupy only 0.5% of the world’s land, they “consume 75% of its natural resources and account for 80% of global greenhouse gas emissions.” When it comes to the planet, environmental implications are not distinct and separate from economic development.

While China’s has been lauded for its economic development, its poor urban air quality and water pollution costs the economy 6% GDP each year according to the World Bank . In the US, the cost is roughly $1 trillion per year.

That’s a lot of money lost, but not without notice.

The big problems that urbanization presents are being met with big investment, first in the public sector. For example, on the pollution front, NASA has a Megacities Carbon Project that develops, tests, and improves “robust methods for assessing carbon emissions and monitoring the atmospheric trends of carbon attributed to the world’s largest cities.”

The private sector is also eyeing changes and spending big money.

In 2016, PriceWaterhouseCoopers anticipated that private companies would invest $78 trillion in global infrastructure over the next ten years to support the growth of cities. Where will that money go? To smart solutions.

Why invest in urbanization?

More and more, notable investment firms are calling for balance as a means to long-term, sustainable urban growth. In other words, new digital and data-driven solutions should improve livability, productivity, and value, spurring further economic development.

According to global investment firm BlackRock, urbanization will usher in new infrastructure, alternatives to car ownership, new healthcare solutions, increased personal security, and more “smart” applications.

In an interview with telecrunch, Niko Bonatsos, a managing director at the venture firm General Catalyst Partners, describes two buckets when it comes to investment and urbanization: “The first is in helping cities to run more efficiently, and this is anything that’s happening in the background that you don’t notice until it breaks down — water management, parking, safety, energy stuff. The second bucket is more consumer-facing, meaning products and services that make life better, easier, and more convenient for inhabitants of dense cities.”

In other words, for investors, urbanization is a catalyst for new business models across the board-from delivering public services to planning urban environments. Examples of smart solutions include e-hailing for shared vehicles, smart metering, e-government, and digital payments for real-time services… just to name a few.

As the world’s population moves at an unprecedented rate, so are the solutions that are helping to make urbanization more sustainable. Together, urbanization and investment is an equation for economic growth.

How to invest in urbanization

Naturally, in something as broad and multinational as urbanization, investing isn’t as simple as choosing a few companies. In order to reach the full scope of this trend it’s important to invest broadly in all of the different sectors and niches that are shaping and being reshaped by this shift toward urban living. Fortunately, a search on Magnifi suggests that there are a number of ETFs and mutual funds that cover urbanization.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]