Growing urbanisation brings business risks
13 January 2010
The growing drift of people into cities from rural areas has been a key factor in the increasing modernisation of developing countries. But although urbanisation is crucial to a nation’s economic growth and development, it also brings with it increasing risks to businesses.
Between 2007 and 2050, the world population is expected to grow by 2.5 billion, according to data from the United Nations’ Population Division. During that time, the number of people living in urban areas is forecast to increase by 3.1 billion.
Most of the expected population growth will be in conurbations in less developed regions. Asia is set to see its urban population grow by 1.8 billion, Africa by nearly 1 billion and Latin America and the Caribbean by 200 million.
“Population growth is therefore becoming largely an urban phenomenon concentrated in the developing world,” the United Nations said in a 2007 paper.
The issue will be particularly acute in China and India. Between 2007 and 2025, these two countries are predicted to account for over a third of the increase in the urban population.
Much of this growth will be in coastal cities, whose growing affluence and development act as a magnet to migrants. But the effects of climate change are set to put these cities at growing risk from natural disasters.
There is increasing scientific evidence that global warming will cause sea levels to rise and will bring more frequent and more severe natural disasters, such as hurricanes, typhoons and extreme rainstorms.
By 2070, India and China will have five of the ten cities most exposed to coastal flooding. Their rapid economic development coupled with urbanisation and climate change, will mean Guangzhou, Calcutta, Shanghai, Bombay and Tianjin will be among those cities most vulnerable, both in terms of the number of people exposed and the value of assets at risk, according to a 2007 report by the OECD and RMS.
In China, growing trade and commerce, often supported by government incentives, are still attracting people to the coast. Between 1995 and 2000, around 17 million people moved to the coastal provinces of China, many of which are in low-lying regions at high risk from rising sea levels.
Other large Asian cities deemed by the OECD to be at high risk from flooding in the future include: Bangkok, Rangoon (Myanmar), Dhaka, Ho Chi Minh City and Hai Phong.
Bangladesh, Indonesia, Pakistan and the Philippines are among the other countries expected to contribute strongly to growing urbanisation. All are prone to natural disasters.
OTHER RISKS
Climate change is likely to contribute to the trend of urbanisation. Heat waves are forecast to become more frequent in hotter climes, which may turn what was fertile farmland into dustbowls, leaving rural communities with little choice but to head to already-crowded cities.
This migration will be as likely to be across national borders as within them, creating further risks to businesses, says Lloyd’s 360 Risk Insight report Climate Change and Security.
If swathes of farmland in Mexico become arid due to global warming, the displaced people may be more likely to look to cross the border into the US than to move to the teeming barrios of Mexico City. This would likely trigger rising social, political and security tensions both within and between the two nations, the report says.
The growth of sprawling mega-cities creates other risks. Large migrant populations living in slums with poor sanitation and inadequate healthcare mean the threat of outbreaks of disease and pandemics may rise and be more difficult to contain.
Population growth and urbanisation are also set to increase pressure on supplies of food and fresh water at a time when climate change will make it harder to grow food crops in some regions. Already in 2008, riots flared in cities across the world when rice and corn supplies ran low as food production failed to keep pace with the world’s growing population.
All of these potential implications of urbanisation present challenges to businesses that may already operate in these cities, or look to do so in the future.
Urbanisation will present both threats and opportunities to international companies. Rural migration to cities will increase the pool of labour from which a business can choose. But social tensions between city dwellers and migrants for scarce resources and jobs could become an increasing problem, leading to political and religious extremism that could result in violence and terrorism.
The key for businesses will be to understand these demographic shifts so that they may be able to better plan a response to them should they occur. In the same way as insurers must plan for the worst no matter how remote that prospect is, it would make sense for corporates to formulate their business plans on the assumption that at least some of these situations may become reality. It is vital they develop robust risk management strategies for these situations as well as test them and update them regularly as the social landscape changes.
Last updated on 18 Feb 2010
