Over 2010-2015, the GDP of developing countries grew at a compound annual growth rate (CAGR) of 6.3% in constant value terms – nearly double the GDP growth rate of developed countries. While economic expansion has helped fuel household income growth, it did not necessarily help to eradicate poverty and inequality as in many countries high income households (with US$100,000 in annual income) were often the most rapidly growing consumer segment. Urban areas were particularly successful in boosting their high income populations, with such cities as Ashgabat, Tashkent, and Astana in natural resources-rich Central Asian countries, being the world leaders. While questions remain if growth in high income households in those countries will be sustained due to the recent drop in prices of oil and natural gas, the aforementioned emerging cities create new markets for producers of luxury items.

Developing and Emerging Cities with the Fastest Growth in Households Earning Disposable Incomes of US$100,000, 2010-2015

Chart <span class=TextHighLight>Emerging</span> <span class=TextHighLight>Cities</span> <span class=TextHighLight>with</span> <span class=TextHighLight>fastest</span> <span class=TextHighLight>rise</span> <span class=TextHighLight>in</span> <span class=TextHighLight>high</span> <span class=TextHighLight>income</span> <span class=TextHighLight>households</span>

Oil boom feeds economic growth

The oil boom, which saw high oil prices until mid-2014, has been the major instigator for economic growth across the Central Asian countries of Turkmenistan, Uzbekistan, Azerbaijan and Kazakhstan. The capital city of Turkmenistan, Ashgabat, experienced the fastest growth in households earning incomes of more than US$100,000 among key developing and emerging market cities monitored by Euromonitor International, with a CAGR of 46% over 2010-2015 (Figure 2), followed by Tashkent (CAGR of 19%) and Astana (CAGR of 15%). Such stark numbers overshadow the meagre growth reported in major global economic centres such as New York and London, which experienced respectively only a 1.6% and 1% CAGR of households earning more than US$100,000 per annum.

The oil boom has in fact been behind the economic growth of most of the cities in Figure 1 apart from Wuhan, Buenos Aires and Beijing. Chinese cities have become hotbeds for foreign direct investment, with Beijing being home to 52 Fortune 500 companies in 2015— the most of any city in the world, whilst Wuhan has greatly benefited from its manufacturing sector, especially within the automobile industry, and is increasingly turning its focus on high value added production.

Potential markets for luxury goods and services

As earnings have continued to rise in the abovementioned developing cities, consumer expenditure has similarly advanced. Total consumer expenditure over 2010-2015 was rising at a CAGR of 24% in Ashgabat and 12% in Wuhan and Abuja in real terms, compared to the developed countries’ average of only 1.3%. The growth of households earning high incomes is presenting a lucrative market for luxury goods and services, as a significant share of the expenditure in developing countries is channelled towards discretionary goods and services. For example, in Tashkent, the most rapidly rising discretionary expenditure categories of hotels and catering and healthcare exhibited a CAGR of 15% over 2010-2015, compared to a CAGR of 13% per annum across food and non-alcoholic beverages. Conversely, across developed cities such as London and New York, expenditure on hotels and catering only expanded at CAGRs of 2.3% and 0.7% over the same time period, respectively.

Oil price drop and weakening Russian economy

Yet it would be wrong to presume that economic growth will continue to soar over the next couple of years. As a result of lower demand and increased supply, the price of oil plummeted as it hit a record 12-year low of only US$28 per barrel in January 2016, a far cry from the high of US$147 per barrel in the summer of 2008. It will act as a major blow to economies focused mainly on oil and natural gas exports. Another major obstacle to sustained economic growth among central Asian cities in Kazakhstan, Turkmenistan, Azerbaijan and Uzbekistan in particular relates to the weakening of the Russian economy— a key trading partner of the aforementioned countries. For example, according to the IMF, remittances from Russia fell between 25%-50% in the first half of 2015 in the Central Asian and Caucasus (CCA) region. Thus, unless oil prices pick up or economic diversification toward high value-added business services is sought, many of the cities with surging high income households are due to experience a major slide in the near future.

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