Report Summary

Hot spots is an Economist Intelligence Unit research programme, commissioned by Citigroup, which ranks the competitiveness of 120 of the world’s major cities. The Economist Intelligence Unit bears sole responsibility for the content of this report. The Economist Intelligence Unit’s editorial team built the Index, conducted the analysis and wrote the report. The findings and views expressed in this report do not necessarily reflect the views of the sponsor.

Well over half of the world’s population now lives in cities, generating more than 80% of global GDP. Already, global business is beginning to plan strategy from a city, rather than a country, perspective.

Given the rapid growth and development of many cities, particularly in emerging markets such as China and India, competition between them for business, investment and talent will only get fiercer.

Size alone does not determine a city’s growth potential. While some megacities, such as New York and Tokyo, are immensely influential, there are smaller ones, such as Hong Kong and Singapore, which have established themselves as globally competitive centres in recent years. Meanwhile, emerging market cities such as Ahmedabad and Tianjin are witnessing double-digit economic growth and have the potential to grow even faster.

Competitiveness, however, is a holistic concept. While economic size and growth are important and necessary, several other factors determine a city’s overall competitiveness, including its business and regulatory environment, the quality of human capital and indeed the quality of life. These factors not only help a city sustain a high economic growth rate, but also create a stable and harmonious business and social environment.   

With this in mind, the Economist Intelligence Unit was commissioned by Citigroup to develop a “Global City Competitiveness Index” to rank cities according to their demonstrated ability to attract capital, businesses, talent and visitors. Overall rankings and the Index methodology are summarised at the end of this chapter (see page 7 for a table of the final scores and the appendix for a full explanation of the methodology).

To put the results of the index in context, the Economist Intelligence Unit interviewed experts around the world and reviewed existing research on the topic of city competitiveness for this briefing paper. Among the key findings of the research are as follows:

• US and European cities are the world’s most competitive today, despite concerns over ageing infrastructure and large budget deficits. While there is much concern in the West about the impact of the financial crisis, which has slowed plans for urban renewal, this has not reduced the ability of US and European cities to attract capital, businesses, talent and tourists, which is ultimately what this index seeks to measure. New York (1st) and London (2nd) are rated as the world’s two most competitive cities, while cities from the United States and Western Europe account for 24 of the top 30 cities. All these cities perform relatively well across all eight pillars of competitiveness measured in the index, making them good all-round performers. Although many Western countries have sombre growth outlooks over the next decade, some of their leading cities may be able to harness their legacy advantages and global connectivity to continue to compete and succeed against fast-growing emerging market cities.

• Asia’s economic rise is reflected in the economic competitiveness of its cities. Asian cities dominate the “economic strength” category of the competitiveness Index—the most highly weighted category. All but five of the top 20 cities on this measure are Asian. Tianjin, Shenzhen and Dalian top the list, while nine other Chinese cities rank in the top 20. Singapore (15th), Bangalore (16th), Ahmedabad (19th) and Hanoi (joint 20th) round off the list. The top 32 Asian cities are all forecast to grow by at least 5% annually between now and 2016. Twelve of them will grow by at least 10%. This is in stark contrast to the low single-digit growth of most developed market cities in Europe and the United States.

• A “middle tier” of mid-size cities is emerging as a key driver of global growth. Although most firms target a combination of advanced economies and emerging market megacities, the fastest overall growth is found in a middle tier of mid-sized cities with populations of 2m-5m. Just nine of the 23 megacities (those with populations of at least 10m) tracked in this index ranked among the top 30 cities on economic strength, for example. Indeed, mid-sized cities—ranging from Hanoi to Houston—dominate the growth rankings. They are collectively forecast to grow by 8.7% annually over the next five years, ahead of the megacities on which many firms focus.

• The most significant advantage that developed country cities hold is their ability to develop and attract the world’s top talent. European and American cities dominate the human capital category of the index. This stems primarily from the quality of their educational systems and the entrepreneurial mindset of their citizens (the two largest indicators within the category). But other factors bolster their performance too, such as cultural activities and a generally good quality of life. New York Mayor Michael Bloomberg says such factors are a key part of maintaining competitiveness: “I’ve always believed that talent attracts capital more effectively and consistently than capital attracts talent.” 

• Infrastructure investments will drive emerging market growth, but more will be needed to secure their attractiveness to tomorrow's talent. One of the most pressing challenges for emerging market cities in the decades ahead will be whether they can focus their development not just on skyscrapers, rail links and other infrastructure, but also on the softer aspects that will be crucial to their ability to attract and develop tomorrow's talent—including education, quality of life, and personal freedoms, among other things. Another, more basic factor will be the ability, especially within China's cities, to grapple with the pollution challenges that threaten the health of their citizens.

• Cities of all sizes can be competitive, but density is a factor in the competitiveness of larger cities. The top ten most competitive cities in this ranking range from the world’s biggest (Tokyo’s estimated 36.7m people) to some of its smallest (Zurich’s estimated 1.2m). Indeed, there is no correlation seen between size and competiveness in the index. While bigger cities offer a greater pool of labour and higher demand, as well as potential economies of scale, if they are not planned correctly congestion and other issues can actively impede their competitiveness. Urban density is clearly linked to higher productivity: Hong Kong’s efficient density is one reason it performs far better in the index than, say, Mexico City’s inefficient urban sprawl.

• African and Latin American cities lag most on competitiveness. All regions have leaders and laggards in terms of competitive cities.
  But while most regions host at least some competitive cities, Latin America in particular performs relatively poorly across most categories, with particularly poor results in physical capital (its best city, Santiago, is joint 66th) and institutional effectiveness (Panama City tops the list at 53rd). Just one city, Buenos Aires (60th), makes the top half of the Index. Africa lags further, with South Africa providing the only decent contenders, such as Johannesburg (67th) and Cape Town (73rd). Nevertheless, the economies of several African and Latin American cities are set to expand rapidly in 2010-16. For instance, Lagos (6.8% cumulative average annual growth), Lima (6.3%), Bogotá (5.4%), Medellin (5.4%) and Nairobi (5.2%) are expected to be among the world’s 40 fastest-growing cities over this period. With concomitant improvement in some other aspects of competitiveness—such as the quality of infrastructure and their regulatory environments—these cities could rise up the Index rankings quickly.