Secondary cities are frequently a non-starter for many investors and companies unfamiliar with developing Latin American countries. Many businesses tend to play it safe and remain in the largest and most developed markets when starting a business or investing in a real estate development, infrastructure project, or other asset. However, those who look beneath the surface will note that secondary markets are abundant with promising yields, whereas Latin America's largest cities are becoming increasingly saturated and costly. houses for sale
Latin America is the world's most urbanized area, with nearly 80% of the population (and growing) residing in cities. In Latin America, over 260 million people live in cities, with another 60 million expected by 2025. The causes are straightforward: improved public services, health care, accessibility, and, most importantly, employment opportunities. This is unsurprising given the enormous difference between the region's most modern cities and the vast, impoverished hinterland.
However, there have been significant changes in the last two decades in terms of where urban migration occurs. Most of the urban development in Latin America's largest megacities during the 1980s and 1990s was concentrated in So Paulo, Rio de Janeiro, Mexico City, Bogotá, Buenos Aires, and Caracas. However, as recent reports from the McKinsey Global Institute and the United Nations show, migration to the largest cities (particularly those with populations exceeding 5 million) is slowing, while migration to secondary cities is speeding up. According to McKinsey, secondary and mid-sized cities will account for roughly 40% of regional GDP growth in Latin America by 2025. In the last few decades, the GDP of So Paulo and Rio has fallen from above the national average to below it. Meanwhile, 45 Mexican mid-sized cities have outpaced Mexico City.
What is the source of this trend? Diseconomies of magnitude are occurring in the largest cities, according to McKinsey. Their failure to handle increasingly increasing populations has resulted in extreme traffic congestion, air pollution, and overworked police forces that are unable to prevent crime and abuse. Overburdening regulatory regimes stifle creativity and grassroots business development, playing into the hands of monopolies and other well-connected and developed businesses. Megacities in developing countries are often unable to generate adequate meaningful jobs for their ever-increasing populations as a result of these issues.
Many issues arise as a result of jurisdictional uncertainty. Megacities' unregulated expansion has swallowed suburban municipalities, posing bureaucratic challenges in delivering public goods. With the city expanding into its suburbs, municipalities are often unable to determine who is responsible for supplying services to peripheral shantytowns, who will clean up the river that forms the city's outer border, or who will fund the final leg of Transmilenio so that it reaches the airport.
Megacities, to be sure, are doing incredible things to conquer these obstacles. However, since secondary markets are smaller and have more nimble bureaucracies and less saturated consumer markets, they are replicating these concepts and, in many cases, doing so better and faster. Since these cities are not obvious investment destinations, they must work harder to attract investment; as a result, many have developed pro-investment organizations to assist new businesses in navigating administrative processes, finding their target market, and recruiting staff. Many universities in secondary markets are able to be more hands-on and successful in helping to solve realistic urban problems because there is less competition between the research, public, and private sectors.
Companies seeking to develop themselves in emerging markets will benefit from lower operating costs in secondary markets. Utilities are frequently cheaper because providers aren't as overworked as they are in megacities. Traffic is much easier to handle, resulting in a lower time cost for people. In secondary markets, property can be purchased or leased for 15 to 50 percent less; top offices in Medelln rent for USD$20 to $25 per square meter per month, while comparable buildings in Bogotá pay USD$40 to 45 per square meter per month.
The following are some examples of Latin American secondary markets that have been proactive in attracting investment and stimulating domestic business clusters:
Tecnologico de Monterrey, a technology cluster in Monterrey, Mexico, has developed into a world-class institution. The campus has spread across the world, connecting academia with more than 80 tech companies. It's one of the reasons Monterrey has the lowest percentage of people living in poverty in Mexico, and why its per capita GDP grew 40 percent faster than the national average between 1999 and 2009.
Guadalajara, Mexico is known as "Mexico's Silicon Valley" due to the influx of IT companies following the passage of the North American Free Trade Agreement. It is now a Latin American high-tech manufacturing center.
Vacationers who rush to the beaches often miss San José, Costa Rica. Businesses, on the other hand, stand to benefit greatly from the city's extensive Free Trade system, which provides tax breaks for high-value-added operations such as manufacturing, utilities, and scientific research. San Jose is home to big operating centers for companies like Intel and HP. It also helps that the beaches are close by.
Thanks to a comprehensive approach to urban redevelopment that includes new lower-middle income housing, downtown reinvestment, elevators in hilly shantytowns, a network of libraries and parks, and a business incubator cluster adjacent to the University of Antioquia, Medelln, Colombia has won praise from municipal leaders all over the world.
Cali, Colombia is emerging as a pioneer in medical education and Pan-American sporting activities in Latin America. The Mio, which is based on the Transmilenio in Bogotá, is considered one of Latin America's most powerful mass transportation systems.
Bucaramanga, Colombia is a rapidly developing city at the heart of the country's oil and gas industry. It has the most educated population and the lowest unemployment rate in the world.
Due to its smaller population, Quito, Ecuador is often overlooked in favor of its larger Andean neighbors, Lima and Bogotá. Ecuador's burgeoning capital, on the other hand, has a rising middle class, strong security, beautiful parks, and world-class hiking and climbing within easy reach.
Valparaiso/Via del Mar, Chile is a metropolitan area that consists of two of Chile's most important cities and is known for offering a high quality of life. It is situated 70 kilometers west of Santiago on the Pacific Ocean. Its thriving economy is built on a thriving port and logistics market.
Curitiba, Brazil, is known for its forward-thinking urban planning and the world's first Bus Rapid Transit system, which is now being replicated around the globe. Public transportation accounts for about 54% of all journeys (about 2.4 million passengers a day).
Florianopolis, Brazil is one of the country's burgeoning tech hubs, and it regularly ranks as one of Latin America's best places to live. It is known as Brazil's Silicon Valley and is a popular vacation destination.
Of course, not everything in Latin America's secondary markets is as rosy as it seems. Since these cities aren't as well-established, there is some risk, and businesses will need to do more due diligence. Finding local providers, as well as an office or storefront to work in, could be more difficult due to a limited supply and availability of space. However, decision-makers should keep in mind that the more developed markets once posed a similar danger, and those who got in early were able to profit from the opportunities.