March 31, 2011
Goldman Sachs, FT and OECD join forces with Manchester, Barcelona, Hamburg and Amsterdam for this debate.
Greg Clark is Chairman of the OECD LEED Forum of Development Agencies and Investment Strategies and Senior Fellow of ULI Europe.
MIPIM 2011 provided a rare opportunity for a distinctive conversation about the changing dynamics of growth in the global economy and the implications for city leadership and strategy in Europe. At a lunch organised by Manchester, Barcelona, Amsterdam, and Hamburg in collaboration with the OECD, FT, and Goldman Sachs, the debate over whether Europe’s cities can attract investment in the next cycle was tackled head on.
2011 offers the long-awaited beginning of a new business cycle in Europe and, with it, a new investment cycle in Europe’s cities. Following the crash of 2007/2008 and its prolonged multiple aftermaths, attention has now shifted to the coming cycle and its dynamics.
How will it be different to the last cycle? As the crash still plays itself out in reluctant bank lending, impoverished public sector balance sheets, and property portfolios that are often still over-valued, we know it will be both an uneven and a slower start. Global competition is stronger than before and Europe will have to win the contest for investment by getting its macro-economic house in order and by offering opportunities that are not available elsewhere.
Dan Thomas, FT Property, outlined the key focus for the discussion: how cities can align with the core business of the investment industries in the emerging post-recession global economy. The way the world’s economy is changing has a direct impact not only on the financial reality of cities and the development industry in the next year or two, but also on the underlying prospects for those cities over the whole cycle. This means a focus on how cities can create a fresh value proposition and contribute to the added value of real estate as an assets class for investors.
Jim O’Neil, Chairman of Goldman Sachs Asset Management and creator of the acronym BRICs, gave a brilliant keynote presentation surveying the changing contours of the Global Economy. The emerging economies are now the dominant force, but the US is back, and core Europe, led by Germany, can re-establish leadership positions if solid action is taken. He emphasised that the potential investment source is very large for cities, but that the possibility of bringing in investment depends upon providing a clear offer in terms of attractiveness and return, complemented with risk mitigation and scale of opportunity. Much of the investment capacity available is from the BRICs and the growth markets, so cities need a way to engage beyond traditional investment flows. However, as public investment in cities is likely to be constrained, a new suite of financial tools may be required, including local authority bonds, which are widely used outside the UK but not within it.
From the OECD LEED perspective, these remarks from FT and Goldman Sachs fully reflect work we have done to track the impact of the crisis in cities and the response that cities have made. Our global review of 60 cities since 2008 shows that many have simultaneously undertaken four actions to respond effectively to the crisis:
i. Revise economic strategies to address productivity and growth markets, trade/skills/entrepreneurship, and new niches
ii. Build more pro-active investment plans, focused on new sources of capital and a wider set of investment tools
iii. Drive efficiency into public governance through better co-ordination and costs sharing
iv. Build renewed relationships with national governments based on new flexibilities for cities to optimise investment and returns to national economies
Europe’s cities must present much more distinctive and high-value propositions from the last cycle to attract investment in the context of both lower liquidity and tougher global competition. This means that the leading global cities like London and Paris must continue to bring forward ambitious plans to position themselves as world leaders able to compete with Hong Kong, Shanghai, Seoul, Sao Paulo and New York.
But, for Europe to succeed overall, an additional group of leading European cities must now become globally competitive and attractive for investment. In time, this group will include Istanbul and Moscow, Europe’s other ‘megacities’, but in the next 15 years it must include continued success for smaller but highly internationalised cities such as Manchester, Barcelona, Amsterdam and Hamburg. Along with Zurich, Munich and Milan, these are Europe’s chance to build ‘smart world cities’, which offer a scale of opportunity, specialisation, productivity, and quality of life advantages, without the costs and challenges of becoming large mega cities. They are not established capital cities (or only partially in the case of Amsterdam) like Stockholm, Vienna, Copenhagen, and Madrid (who must also succeed); they must become successful international centres without the benefits of capital city assets and functions. Europe cannot succeed with London and Paris alone.
For Barcelona, Hamburg, Amsterdam and Manchester, becoming a smart world city involves several ingredients. Firstly, economic specialisation in high-value activity is essential. These cities are not large enough to specialise in all aspects of a modern economy, so they must achieve some degree of focus and deliberately encourage certain clusters of activity rather than others. Second, they must be very well connected to large growing markets, both established and emerging, where they can build new patterns of skills and innovation, trade and collaboration. Thirdly, they must be centrally involved in knowledge creation and commercialisation, and the exploitation of knowledge through innovation within existing firms and industries, as well as high levels of knowledge-led business formation, and innovation partnerships with firms and institutions in other markets. This will involve deep and highly entrepreneurial academic and research institutions.
Europe’s smart world cities will have to be places that reverse the trend of population decline in Europe. They must attract talent through strategies to be open to population growth and diversification, and offer a unique quality of life experience not available elsewhere in the world. These ingredients must be underpinned by effective metropolitan co-ordination, successful relationships with national and inter-governmental organisations, and a distinctive identity and presence that promotes their offer and opportunity clearly. They will need leadership that engages with business and investors to form a coalition for success over the whole of this cycle and the next one.
Mr Arthur Van Dijk, Vice Mayor, Amsterdam Metropolitan Area, presented the key new focus of Amsterdam; building a very high-quality business environment and quality of life with attractive tax and regulatory regimes combined with world-class infrastructure, amenities, and human capital. He emphasised that Amsterdam is taking its role in the new global economy very seriously, building again the DNA of Amsterdam as a great trading city.
Mr Mateu Hernandez, CEO of Economic Promotion in Barcelona, described the incredible infrastructure platform that Barcelona has developed in the past 10 years in order to be ready for the huge growth in global trade. He described the formidable growth of Barcelona’s port, airport, high‑speed rail and road network and the development opportunities in has created in unique locations. He also described how the Mediterranean is itself becoming a new trade platform with cargo through the Suez canal at an all-time high.
Dr Herlind Gundelach, Minister of Finance, Urban Development and Science, Hamburg, focused her remarks on the incredible combination of science and urban development in Hamburg, demonstrating the extensive scientific partnerships with globally trading businesses, and the new opportunities for expansion in the huge HafenCity redevelopment area in the old port lands of Hamburg. She explained that the focus of the efforts is to increase Hamburg’s productive scale to that of other world cities (Hamburg is now similar in size to Singapore) and to increase its global reach through commercial and scientific partnerships.
Sir Howard Bernstein, CEO of Manchester City Council, emphasised the increased momentum and determination in Manchester’s economic rejuvenation. He praised the growth of better awareness of Manchester’s role in the growth economics of northern England and noted the sharp increase in investment and use of Manchester airport as the regional hub. He also referred to the importance of the world-class university in serving the skills needs of the growing economies and looked forwards to the completion of the Media City mega project, which will cluster a globally substantial core of talent and firms in broadcasting and digital industries.
The rewards for investing in these cities are potentially very substantial to both external investors and the EU and public sectors. A strategy for Europe to become ‘world-class’ again, during this business cycle, where the global economic leadership is much more dispersed, assumes a very high level of added value can be generated in Europe. Only through having additional cylinders in Europe’s economic engine can this be truly feasible. These four cities, along with a small number of others, provide the scale and scope for Europe’s future competitiveness and the opportunity for investment returns that will not easily be achievable elsewhere.