Urbanisation in ASEAN

KL Stories
Urbanisation in ASEAN
November 11, 2016

By 2030, one third of the Malaysian population will be residing in Kuala Lumpur, says a report on ASEAN cities by the Economist Intelligence Unit.

Two-thirds of the country’s total disposable income -- the underlying engine for domestic consumption -- will come from Malaysia’s four major cities, namely Penang, Johor Bahru and Ipoh.

According to the report Stirring the Melting Pot, Kuala Lumpur’s labour force for the next ten years will have the highest proportion of youth group – ages 15 to 35 – compared to the other ASEAN cities.

This is critical, as cities with demographics that can support the demand for labour force, ie. with strong pool of young talent, will have a better chance to sustain higher levels of economic activities and consumer spending growth.

“While high labour participation rates do not automatically translate into high rates of productivity, there is an observed correlation between the two, particularly in emerging markets,” says the report.

Kuala Lumpur falls under the classification of a large city, with a current estimated population of 7.1 million. It is expected to grow to 9.7 million by 2030.

“Driving this growth are persistently high rural-to-urban migration flows despite declining fertility rates.”

“Asean cities are still young and evolving rapidly, and the importance of migration — internal, rural-to-urban and external — cannot be ignored,”

Malaysian cities will continue to drive the country’s economy. While the combined population of Kuala Lumpur, Penang, Johor Bahru and Ipoh adds up to a little over 36% of the national population, it contributes 60% to the total national personal disposable income that will underpin the consumer spending of the country.

By 2030, 40% of Malaysia’s population will live in these cities, making up 66% of the personal disposable income.

The EIU projects the number of middle class households in ASEAN to more than quadruple, rising from more than 38 million in 2015 to 161 million in the next 15 years. It is still a long way to go for ASEAN to become more urban than rural. But the surge in the urban consumer class will translate into increasing strain on infrastructure and a much higher demand for services.

Policy makers need to act swiftly to prepare for the surge in urban population as “failing to do so risks turning these vibrant economic melting pots into centres of stagnation or decay.”