São Paulo – the future capital of the Southern Hemisphere? - Greg Clark, Senior Fellow, ULI Europe

A focus on Brazil.

São Paulo is leading Brazil’s accelerated entry into the international economy thanks to a remarkable transition into tertiary services, especially professional services, finance, media, education, creative industries, research, and medicine. Consolidated as Latin America’s finance powerhouse and with a rising reputation as an entertainment and fashion centre, the city has huge potential to become the continent’s, and even the Southern Hemisphere’s, reference point. This capability is slowly being reflected in international ranking and benchmark performances, but with a number of challenges remaining.

Prior to the global recession, São Paulo’s was already easily ranked within the top 30 cities by GDP, one of only seven emerging economy cities to do so. The Brazilian city is now the 10th wealthiest globally by total GDP, having rated 19th in 2005. Its hosting of concentrated wealth is indicated by it entering the top 10 for number of billionaires resident in the city, according to Forbes.

São Paulo has recorded strong post-recession performance thanks to its emerging status as a commercial capital. It is ranked 25th of 150 world metropolitan areas for the speed and strength of its economic recovery in 2009-10 by Brookings’ Metro Monitor, behind Buenos Aires but nevertheless clearly in the lead group of high-growth emerging cities. This has catalysed a general upswing in business trips to Latin America. This can be seen in São Paulo’s inclusion at 12th position in the ICCA rankings, the top Latin American city, closely followed by Buenos Aires (=15th). International business is increasingly investing in the city due to its retail strength, with rental prices in the top luxury shopping street, Iguatemi Shopping, rising to the 5th highest in the Americas, notably above the top streets in Chicago and San Francisco. São Paulo is also the subject of a dramatic rise in foreign investment projects, rising to 6th in the world according to IBM from 19th in 2008. It is the fastest growth city in this ranking, which bodes well for the city’s future internationalisation.

São Paulo hosts the majority of Brazil’s private capital, and is the established preferred location for Brazilian headquarters of all major industrial, commercial and financial sectors. The 2008 Cities of Opportunity study found that São Paulo had a higher proportion of its population in finance and business services than Tokyo, Beijing, Shanghai, Mumbai and Dubai. But the city is not yet close to making the breakthrough as a top-level financial services provider, even if it has made small strides in the past three years versus important rivals in its sphere of influence. The city has risen one level in Z/Yen’s Global Financial Centres Index in 2010 from a diversified local operator to an ‘established’ local player (along with Johannesburg), and is closing in on its chief challenger for hosting Latin American firms, Madrid. But overall it remains only 44th in the world rankings, at around the level of mid-sized European providers such as Copenhagen and Milan. Within the Southern Hemisphere, Sydney (10th), Melbourne (23rd) and Wellington (38th) are all rated as superior all-round centres.

São Paulo’s business performance compared to other emerging cities in the past decade suggests it also has some challenges to address to become the pre-eminent urban destination south of the Equator. GaWC’s measure of cities’ immersion in networks of global firms finds São Paulo has slipped from 16th in 2000 to 21st in 2008, overtaken not only by East Asian dynamos of Mumbai (17th), Seoul (13th), Beijing (9th), and Shanghai (8th). The city’s business environment is also responsible for a moderate showing in the Global Power City Index, where it ranks 32nd of 35 cities for economic vitality, and 33rd overall.

São Paulo has a huge and diverse population base, which can in the long term be enormous source of strength, but international measures tend to view its human capital resources as an area where improvements are needed in skills levels. The city ranks outside the top 30 of 65 world cities on this measure in both the 2008 and 2010 AT Kearney Global Cities Index, with comparable scores to much smaller cities such as Berlin. Cities of Opportunity rates São Paulo 18 out of 21 cities for the percentage of the population with higher education, while the Universidade de São Paulo slipped outside the top 250 in QS’ 2010 world rankings. Despite the fact that Sao Paulo remains a very attractive location for international talent, this lack of a highly skilled domestic labour force is a key area for attention, as with many emerging and established world cities.

On the other hand, indications of growing corporate confidence in the city’s talent, productivity and multi-lingualism can be seen in AON’s 2010 People Risk Index. Here, São Paulo rises to 54th globally, just behind Beijing and Shanghai and ahead of struggling European hubs Rome and Athens. And Tholons’ comprehensive study of the global outsourcing industry finds that São Paulo is the 8th most emerging outsourcing city in the world, specialising in animation, product development, infrastructure management services and multilingual call centres.

There are few indexes tracking São Paulo’s image and brand strength, but some positive indications are signalled in the Greater Paris Investment Agency’s Global Attractiveness survey. In it, São Paulo was named by almost twice as many executive respondents as an attractive city for a corporate location decision than Sydney, and almost three times as often as Seoul or Mexico City. Among non-business travellers, São Paulo is not yet an unmissable tourist destination in Latin America, although its destination power is certainly growing. Visitor arrivals grew in 2009, pushing the city up to 69th globally for total arrivals, overtaking Florence, Venice, Johannesburg and Lisbon. Perhaps surprisingly, it is still out-visited by Lima (67th), while it is some way behind neighbours Rio (40th), Mexico City (42nd), Buenos Aires (51st).

São Paulo’s future global image depends considerably on leveraging its vibrant and sophisticated cultural network, which can count São Paulo Fashion Week, the International Biennial festival of Art, a huge annual LGBT parade, and the ‘hedonistic’ Virada Cultural among its gems. Already the city’s cultural reputation is fairly strong, with the city ranked on the periphery of the top 25 globally for cultural experience in the 2010 AT Kearney Global Cities Index. The city’s exceptional nightlife is becoming internationally known, and although not responsible for improvements in more established indexes, has led to the city attaining strong positions in more informal publications such as the AskMen ‘Top 29 cities’ ranking.

São Paulo is one of the largest cities in the world not to have a direct coastline, and it is also at an elevation where the threat of coastal flooding is not thought to be significant in the long-term future. This puts São Paulo is a strong position to develop without commitments or necessities to significantly adapt its behaviour, save for attention to drainage challenges. Nevertheless in terms of environmental credentials, São Paulo has shown clear signs of innovation in energy efficiency. However, the city is famous for congestion, ranking 15th of 20 cities for congestion by IBM in 2010, below both Buenos Aires (13th) and Madrid (12th). And its basic infrastructural shortcomings mean it ranks very poorly in Mercer’s 2010 Eco-City ranking, at 148th alongside African cities such as Dakar and Banjul. Partly related to these problems are issues of recycled waste and green space, two areas where São Paulo is rated weak in the Cities of Opportunity report.

But the city’s involvement in ground-breaking policies, such as a scheme to convert favela waste into electricity and biogas, has begun to lead to regionally competitive environmental ratings. The Siemens Latin American Green City Index in 2010 found São Paulo is a well above average performer in the continent, and the regional leader in carbon emission reduction. This top score is corroborated by Cities of Opportunity, where it also ranks first for low carbon footprint. The Siemens study also sees strong scores awarded to the Brazilian city in land-use, waste and transport. Indeed global environment rankings which focus on pollution and biodiversity find São Paulo performing very encouragingly, such as the Global Power City Index’s 8th place for environment.

Tackling quality of life challenges and improving the business climate with systematic infrastructure investment and improved urban redevelopment is a major focus on the city’s leadership. For the first time, long term thinking is being developed about the city’s future with the inspired Mayor Gilberto Kassab initiating processes of urban redevelopment, skills development, business development policies and long term strategy.

Sao Paulo has many intangible advantages over its competitors to be the Capital of the Southern Hemisphere, that the indexes do not illuminate. The size of population is a weakness when paired with infrastructure deficits, but will be a strength as the skills and infrastructure are built. It’s cosmopolitan nature means that the city is already highly multi-lingual and able to serve global firms for a single location, much more open than its most of Asian world city counterparts, and the city also have brand advantages, both with Brazil and with the Sao Paulo identity that still offer an allure to international investors and visitors. These advantages are about to be supercharged with the imminent World Cup, Olympics Games, and probable Sao Paulo 2020 World EXPO bid. No one should be surprised if Brazil win the world cup and Sao Paulo takes a decisive step towards becoming the business and knowledge capital of the south.

Gilberto Kassab will give his keynote address on Wednesday March 9, 10.00.

Top image credit : Photobank gallery

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