Cities are increasingly important for economic growth, and this is a situation with enormous potential for Latin America, given that it’s the most urbanized region in the world.
Balboa Avenue skyline, Panamá City, Panamá. Photo: Sergi Reboredo / VWPics/Newscom
By Álvaro Moreno
Latin America is the most urbanized region on the planet. More than 82 percent of its population lives in cities, a level close to that of the United States and well above the world average of 50 percent. By 2050, it’s expected that 90 percent of Latin Americans will be city-dwellers. At the same time, migration from the countryside to the city, which has been occurring in most of the region in recent decades, has contributed enormously to economic growth thanks to the synergies that have translated into productivity increases in the cities and cost reductions in delivering basic benefits to their citizens.
Cities on the rise
Latin America has 200 cities with populations of more than 200,000, and they generate more than 60 percent of Latin America’s Gross Domestic Product (GDP). What’s more, the 10 largest cities (México City, São Paulo, Buenos Aires, Rio de Janeiro, Lima, Bogotá, Santiago de Chile, Belo Horizonte, Guadalajara and Caracas) produce 30 percent of the region’s GDP, on par with what happens in their counterparts in the more developed regions of the world, and far above the share of the 10 largest cities in wealth generation of the rest of the developing world.
The cities’ contribution to their national economies varies. Argentina is by far the economy in which the largest cities are the most important. Buenos Aires is home to about 30 percent of Argentina’s population and generates more than 50 percent of its GDP, while 17 other large Argentine cities together represent about 25 percent.
Meanwhile, Colombia has 24 large cities clustered in the Andean and Caribbean regions, with Bogotá at the head of the list. It has about 20 percent of the nation’s population and accounts for more than 25 percent of the GDP, while the other 23 cities together represent 40 percent of the population and more than 45 percent of GDP.
In Perú and Uruguay, the large cities also concentrate a sizable share of GDP. In Perú, Lima is home to almost 30 percent of the nation’s population and produces half of its GDP, while the other 10 large cities represent about 15 percent of the population and 20 percent of the GDP. In Uruguay, Montevideo is the only city with a population of more than 200,000, with about 45 percent of the nation’s population and 70 percent of its GDP.
Chile has eight large cities that house almost 55 percent of the population and represent 65 percent of the national economy. Santiago, Gran Concepción and Viña del Mar-Valparaiso represent more than 45 percent of Chile’s population and more than 55 percent of its GDP.
In Brazil and México, the region’s two largest economies and largest cities contribute about 60 percent of national GDP. Brazil has 34 large cities that represent 45 percent of the nation’s population and 60 percent of its GDP. Just two mega-cities, São Paulo and Río de Janeiro, represent 15 percent of the Brazil’s population and one-quarter of its GDP. México has 20 large cities scattered throughout the country, but México City dominates the urban profile with a population of 20 million people and more than 20 percent of national GDP.
In fact, the cities of more than 10 million people, or mega-cities, have become the focal points of Latin American development. These play a key role in innovation, concentration of specialized labor, development of dynamic economic activities and provision of education, cultural and recreation services.
However, most Latin American cities face tremendous challenges today in terms of poverty, criminal activity, mobility and housing shortages, to name a few of the symptoms that offset the potential of the positive economies of scale of the urban agglomeration. As well, the accelerated growth of these urban centers imposes important challenges of environmental and social sustainability: high levels of inequality, unemployment, insecurity, environmental pollution and inadequate public services.
Addressing the challenges
The cities’ rapid expansion has systematically exceeded the capacity of local governments to provide services and infrastructure to the standards spelled out in the urban plans for all of the territory of a city. For example, in transportation, it’s expected that by 2025, Latin America’s cities will have about 140 million automobiles, 80 million more than at present, but plans for managing this enormous traffic flow are lacking in the entire region.
Extreme climatic events are increasingly common and the vulnerability of the cities is also increasing, especially for the poorest citizens. Meanwhile, Latin America has become one of the most dangerous regions of the world, with murder rates that are three times the world average.
The early gains in the urbanization process have been capitalized on in almost all of the region’s great cities, but there is a huge potential for development among them that unfortunately might not be harvested if today’s bottlenecks are not dealt with soon.
The main responsibility for success in carrying out this process rests with those in charge of making public policy, the political leaders at the national and local level and the business elites. These are the groups called upon to act decisively to improve the yield of the region’s cities so that they can enjoy the advantages that a large, mainly young population brings to them.
Latin American lags in four areas
A recent study from McKinsey Global Institute (MGI) pointed out that many of Latin America’s great cities lag behind their counterparts in other parts of the world in the four dimensions that comprise what it identifies as the Urban Performance Index. These dimensions are: economic performance, social conditions, sustainable use of resources, and governance and financing.
Despite emphasizing that Latin America’s urban economies must pay attention to these four dimensions if they want to continue being the engines of regional growth, the MGI researchers stressed that each city has its own challenges and needs. They added that, based on their experience, by adopting effective policies, it’s possible to change a city’s fortunes in just 10 years.
Such is the case of urban infrastructure and provision of public services that depend on, two issues that play a fundamental role in improving the quality of life, equality and social inclusion in Latin America’s cities. With an adequate urban infrastructure, people can have access to a steady flow of clean water, electricity without blackouts, public street lighting, less environmental pollution, efficient transportation, and sport and recreation services.
Similarly, the lack of adequate housing in Latin America and the Caribbean is a widely-debated theme these days among academics, politicians and non-governmental organizations and occupies a prominent place in those discussions. According to United Nations estimates, of 130 million urban housing units in Latin America, five million house more than one family, three million are beyond repair, and 34 million lack property titles, access to water or sanitary installations, adequate flooring or sufficient space. In other words, about 40 percent of Latin American homes, or about 60 million families, face these conditions.
Worse, calculations from the Inter-American Development Bank (IDB) show that by 2015, those numbers will have increased by 10 percent. Meanwhile, the demand for improved housing by poor families has remained constant and represents a relatively stable proportion of total incomes in this segment of the population. Nonetheless, the offer of innovative housing solutions continues to be limited, and the IDB says this can only be overcome by investment in the order of $310 billion, or about 7.8 percent of the region’s GDP.
Informal urban settlements
One of the region’s most serious problems in terms of housing is that of informal urban settlements. The physical and social integration of those settlements in the city would transform their occupants into citizens, with all of the rights and obligations that go with it. They would obtain sanitation and potable water services. It would increase the opportunities of the inhabitants for joining the labor markets and gaining access to public goods in other areas of the city. Those who live in the informal sections of the city would thus have better access to health, education and recreation services, and this in turn would enable them to maintain and increase their human capital. As for legalizing land ownership, in addition to giving them a formal address in the city, it would grant the owners legal security and increase the value of their properties.
The road to making a reality of this proposition for capitalizing on the potential that cities represent for Latin America’s development is not a simple task. That’s why it’s necessary to insist on the need to think, formulate and move forward with public policies and management tools. It will be essential to have a legal framework in which the public interest prevails over the private and leadership from autonomous local governments It will mean being proactive in the execution of urban policies that encourage the development of cities in a purposeful manner, better territorial planning in all of Latin America’s urban zones, and the involvement of the private sector as a fundamental partner in the process.
Álvaro Moreno reported from Miami.