By Andres Cadena, Mike Kerlin, Jaana Remes, Alejandra Restrepo, and Henry Ritchie
Fifty years ago next month, John F. Kennedy and a group of Latin American presidents were assessing their early progress when they marked the first anniversary of the signing of the Alliance for Progress. The effort aimed to boost Latin American income, democracy, literacy, land reform, price stability, income equality, and economic and social planning. Over the past five decades, the region made significant progress in some of these areas and struggled in others.
What has changed most in the last 50 years is the playing field: from mostly rural to mostly urban. Latin America’s progress over the coming years and decades will turn on what happens in the region’s cities. It is not a coincidence that the Inter-American Development Bank has launched a Emerging and Sustainable Cities program and that Latin America already absorbs more World Bank urban development lending than any other region.
Back in the early 1960s, less than half of Latin Americans lived in cities. Now, four out of five make their lives in urban settings. That makes Latin America the most urbanized region in the world after North America. Most of the action is taking place in 198 large cities, home to 260 million people and $3.6 trillion in GDP. McKinsey Global Institute research has found that these large cities will only get more important. 65 percent of Latin America’s economic growth to 2025 will occur in those large cities, and they’ll contribute 1.5 times more to global growth than large These trends could easily lead the region’s cities to declare victory.
But the needs, and the opportunities, are immense. We studied eight of Latin America’s ten biggest cities and found dramatic improvement potential in four dimensions—economic performance, quality of life, environmental sustainability, and finance and governance—of an Urban Performance Index (UPI).
The good news is that each dimension of urban performance has its standouts: Monterrey, Mexico in economic performance; Buenos Aires and Bogota in health services; Lima and Bogota in solid waste management; and Sao Paulo in urban planning. To capture their potential as engines of economic growth, each category’s laggards need to catch up, not quite as easy as it sounds.
To boost economic performance, Latin America’s cities will need to team up with federal policymakers. Less restrictive labor policies and lower tariffs on imported inputs will help manufacturers. Service sector companies will gain productivity if more join the formal sector, with the help of lower labor taxes, more compliance monitoring, and other initiatives. And the natural resource sectors can boost their productivity—for example, Latin American mines are only 30 percent as productive as their U.S. counterparts. Productivity growth will also depend on more transparent land ownership and zoning regulation, reliable urban infrastructure, and intercity transportation networks.
Capturing all this economic potential requires improvement on the other dimensions of urban performance. More efficient management of water, energy, and waste will not only reduce greenhouse gas emissions and stave off water crises; it will also boost economic productivity and cut costs. Urban planning, congestion management, accessible housing, efficient public transportation, stronger education and better security will not only improve quality of life, but they will also smooth the way for firms to set up and expand in the region’s cities. And none of these improvements can happen without stronger finance and governance. That means increasing tax collection, managing debt more effectively, and reducing corruption, while not being afraid to expand the planning horizon and invest in critical services like housing, transportation, education, and health care.
Improvement in all of these dimensions can only truly be called progress if it extends to the neediest people in Latin American cities. The region still suffers from some of the starkest inequality in the world, and its cities are no exception. So the agenda next era of progress must be an inclusive agenda.
To achieve a competitive, inclusive future, Latin American cities will require strategic vision, tough decisions and tight management. They will also need to build innovative models of collaboration among city governments, businesses, non-governmental organizations, and universities.
Fifty-one years ago, it was Latin American presidents who signed up for the Alliance for Progress with President Kennedy. Now, the mayors stand at the center of the action, and they’re off to a promising start. They recently joined their peers from around the world in the signing of the Mexico City Pact to reduce urban greenhouse gas emissions. Some have engaged with the Inter-American Development Bank’s Emerging and Sustainable Cities program, focused on excellence in mid-sized cities.
To sustain the momentum, Latin American cities—and all who help shape their fate—must recognize that, in the next five decades, their progress is the region’s progress.
Andres Cadena is a Director in McKinsey & Company’s Bogota, Colombia office and leader of McKinsey’s Public and Social Sector Practice in Latin America. Mike Kerlin is an Associate Principal in McKinsey & Company’s Philadelphia office. Jaana Remes is a Senior Fellow with the McKinsey Global Institute. Alejandra Restrepo is Practice Manager for McKinsey & Company’s Public and Social Sector Practice in Latin America. Henry Ritchie is a Principal in McKinsey & Company’s Rio de Janeiro, Brazil office. The views expressed herein represent their personal views and do not necessarily reflect the perspectives of any organization with which they are affiliated. The McKinsey Global Institute report cited in this post is Building Globally Competitive Cities: The Key to Latin American Growth.