SA cities rank high in global emerging markets index

The index provides insights into the 65 leading cities driving growth within more than 30 emerging markets. Cities are generally considered to be leading indicators for national economies, making the study an important barometer of larger global economic trends and growth potential over time.

Johannesburg was ranked #11 among the 65 cities included in the index, while Cape Town and Durban ranked #33 and #37, respectively.

Strong showing

The strong showing by the three of SA's major cities, combined with the good placement of other African cities (Tunis #40, Cairo #44, Casablanca #53, Nairobi #63 and Dakar #65), signals the African continent's growing importance in the global economy.

“Given the current economic climate, MasterCard is focused on providing valuable insights that assist our customers in identifying new market opportunities for the future. The Emerging Markets Index is key to that commitment,” says Anthony West, GM, MasterCard Africa. “By evaluating 65 emerging market cities and their increasingly important roles in global commerce, the index offers companies a roadmap for where commerce is headed next.”

The index - developed by a research panel of nine independent experts from the fields of economics, sociology and urban studies - is part of the broader MasterCard Worldwide Centres of Commerce programme, an ongoing initiative aimed at examining the role of cities in facilitating global commerce.

The panel first identified the 65 leading emerging market cities globally and then ranked them according to eight analytic dimensions. These include: “economic and commercial environment,” “economic growth and development,” “business environment,” “financial services environment,” “commercial connectivity,” education and IT connectivity,” “quality of urban life” and “risk and security.”

Dimensions and indicators

The dimensions and indicators were selected based on their importance in emerging markets and their ability to reflect the realities of those markets. These dimensions were based on 65 indicators and 89 sub-indicators.

Topping the index - rather unsurprisingly, considering China's economic growth - is Shanghai. It is accompanied by an additional 15 Chinese cities, all of which are ranked in the top 30, and four of which are ranked in the top 10, making China the index's best-represented country. The second most represented country is India, with eight of its cities making the index.

Rounding out the top 10 cities are Beijing, Budapest, Kuala Lumpur, Santiago, Guangzhou, Mexico City, Warsaw, Bangkok, and Shenzhen.

The index highlights the role of the BRIC (Brazil, Russia, India and China) economies in propelling global economic growth, with the largest concentration of cities identified in the study coming from this economic grouping.

Significantly, with all three of its major urban centres not just making the list, but also scoring well, SA is the index's best-represented country outside of the BRIC economies.

“Affirms SA's regional pre-eminence”

“This affirms SA's regional pre-eminence, as all three of its cities rank well above the other African cities listed,” says Mike Schüssler, senior economist at T-Sec. “Johannesburg, in particular, even edged out acclaimed emerging cities in Europe and Asia.”

“This, coupled with the access that Johannesburg, Cape Town and Durban provide to the broader African market, really heralds SA's ascendancy as an engine of future economic growth,” he continues.

Particularly noteworthy is SA's performance on the study's “business environment” dimension. This dimension, which assesses the business environment facing companies looking to operate in each of the 65 cities, was identified by the research panel as the most critical dimension defining the commercial importance of an emerging market city.

Largely a country-level dimension, it consists of eight indicators and 26 sub-indicators that cover areas such as: “ease of starting a business”; “ease of employing workers”; “ease of getting credit”; “ease of entering/leaving the country”; and “corporate tax burden”. In this key dimension, the three SA cities shared the #1 ranking.

“Well-respected legal system”

“The performance of the SA cities on this dimension has much to do with the country's well-respected legal system, especially the aspect that regulates businesses and their operations,” says Schüssler. For example, SA ranked well in investor protection, which measures the strength of the legal protections afforded to minority shareholders against the misuse of corporate assets by the directors.

“The ease with which business can obtain credit is also a real strong point for SA, as, again, the laws governing credit extensions here are quite sophisticated and make both the extension and obtainment of credit relatively hassle free,” he continues.

Overall, Johannesburg ranked #11 on the index. In addition to its performance in the “business environment” dimension, Johannesburg was buoyed by the strength of its performance in the “financial services environment” dimension.

Based on a total of six indicators - ranging from “total value of equities trading” to “banking services and currency exchange regulations” - this dimension assessed the maturity and sophistication of each city's financial services sector. Here, Johannesburg ranked #3, outranked only by Mumbai and Shanghai.

Other dimensions in which one or more of SA's cities fared well were the “quality of urban life” and “risk and security” dimensions.

Ranked near bottom

Despite its performance in the key “business environment” dimension, SA did not score as well in the dimension for “economic growth and development.” This dimension measured the broad economic health and growth of the national economy. Here, the Chinese cities dominated the top ranks, while the SA cities ranked near the bottom on several of the dimension's indicators.

“SA growth should be better,” says Schüssler. “We have a lot of positive policies in place, but the magic 6% growth rate still manages to allude us for now. Our cities are the bright lights of Africa and we must make full use of this fact. This means we should focus more on our strengths, like our financial services and transport sectors. We should also be spending more on infrastructure because if we don't, our cities could very well fall from the rankings.

“Still,” Schüssler continues, “the results of the Emerging Markets Index are encouraging. SA may not yet be seeing the levels of foreign direct investment (FDI) that the BRIC nations are attracting, but it does provide one of the highest rates of return on FDI.

“With our strong financial and commercial institutions, as well as the access our cities provide to Africa and international markets, SA is definitely among the top destinations for companies seeking global business growth,” he concludes.

The full report is available at www.mastercardworldwide.com/insights.