KL Global Economy Connectivity

05/10/2020 11:01 AM
Opinions on topical issues from thought leaders, columnists and editors.
By :
Mushtak Parker

LONDON: Kuala Lumpur is the 20th most-connected city with the global economy in the world! This is according to a fascinating new report The World According to GaWC 2020 released recently by the Globalisation & World Cities (GaWC) Research Network, based at the leading Loughborough and Ghent Universities in the UK and Belgium, respectively.

In fact, Asian cities fare very well in the Top 30 GaWC 2020 rankings. Using a unique Global Network Connectivity (GNC) measure based on human geography metrics, the latest data confirms that Hong Kong is the most globally-connected city in Asia (South, South East & East Asia) followed by Singapore, Shanghai, Beijing, Tokyo, Mumbai, Kuala Lumpur, Jakarta and Seoul.

Out of 707 cities ranked according to how integrated they are with the global economy, London is the most-connected city followed by New York, Hong Kong, Singapore, Shanghai, Beijing, Dubai, Paris, Tokyo and Sydney.

With the economic, health and social impact of COVID-19 showing little sign of abating as resurgent spikes of infection are reported across several cities around the world, especially in the US, UK, Europe, Australia, Turkey, Russia, Brazil, South Africa et al, any post-pandemic socio-economic recovery is certainly going to be drawn out. Forecasts and projections by the gatekeepers of the international economy and financial system such as the IMF, OECD, World Bank, and the rating agencies seem to move with the shifting sands of the COVID-19 pandemic.

Global economic recovery

Fitch Ratings, in its September 2020 Global Economic Outlook Forecast, stressed that the initial phase of economic recovery from coronavirus-related lockdowns has been faster than expected. It now forecasts the annual decline in world GDP in 2020 at -4.4 per cent compared with -4.6 per cent in June. Fitch has revised up its 2020 GDP forecasts for China and the US, partly offset by deeper expected declines in the eurozone, the UK and India.

“But with the coronavirus yet to be contained, the pace of the global recovery will slow from 4Q20. Economic growth will turn positive for Asia in 2H20, but the process of fiscal consolidation is set to be more protracted for the region,” added Fitch.

However, the majority of rated sovereigns in the Asia Pacific (APAC), stressed Fitch, “will see a sustained increase in general government (GG) debt as a share of GDP in 2020-2022, reflecting the lingering fiscal impact of the coronavirus pandemic and the efforts to counter it”.

The rating agency expects Malaysia “to make progress on fiscal consolidation throughout 2021-2022, as oil prices rebound, and an economic recovery facilitates the roll-off of temporary stimulus measures implemented to cushion the pandemic’s effects.”

While countries may struggle or contain at the national and macroeconomic level, cities, according to The World According to GaWC 2020 findings, may have a better chance in leveraging their location and geopolitical assets and potential to lead from the front using their connectivity to the global economy to steer towards a faster and more sustained recovery.

“Post-COVID,” explains Michael Hoyler, Reader in Human Geography at Loughborough University and who has been involved in the project since its launch in 2000, “there may be winners and losers, and these may well be unequally distributed globally. In past crises, there has, if anything, been a tendency for cities at the core of the global economy (those higher up in the GNC-ranking) to recover quicker/be more resilient than those that are situated more at the periphery. In terms of GNC, as this is shaped by the location decision of APS firms, it is the actors in these firms who will make strategic decisions about expanding or contracting their office networks. The aggregate decisions will then be reflected in changing GNCs in the future.”

Locational strategies

The GaWC world city network data have been collected regularly since 2000 and provide information on the locational strategies of advanced producer service (APS) firms – in accountancy, finance, corporate law, advertising and management consultancy – across cities worldwide. As such, Asian cities’ pre-eminent positions as a regional and global hub linking Asia with the Middle East, Europe, Africa, the Pacific and the Americas stand them in good stead in leading not only the post-COVID recovery in the region but beyond.

In the ASEAN context, three cities lead the way in the Top 30 rankings – Singapore, Kuala Lumpur and Jakarta – respectively in 4th, 20th and 23rd positions! The ability of these three cities to attract global corporate titans, generating inward FDI, creating jobs, facilitating cyber connectivity, despite the political tensions in the region and the sluggish global economy, is both proven and encouraging.

How to leverage this pole position is the challenge going forward, especially in a post COVID-19 period, and in the case of Hong Kong in a potential sanctions-ridden future in the context of deteriorating US-China trade tensions.

The ranking is used to classify cities into 12 categories, from Alpha++ down to cities with sufficiency of services. London and New York are the only two ranked Alpha++ with Hong Kong, Singapore, Shanghai, Beijing and Tokyo in the next quantile of Alpha + which denotes “a highly integrated city that complements London and New York, largely filling in advanced service needs for the Pacific Asia.”

This is followed by Mumbai, Kuala Lumpur and Jakarta in the Alpha quantile; and Seoul, Bangkok, Guanzhou, Taipei, Delhi, Manila and Bangalore in the Alpha- quantile. These latter two quantiles, according to The World According to GaWC 2020 methodology, denote “very important world cities that link major economic regions and states into the world economy.”

In terms of the Organisation of Islamic Conference (OIC), Dubai, Kuala Lumpur and Jakarta are by far the Islamic countries most-connected to the global economy, which suggests that intra-Islamic and Islamic global connectivity is very much a ‘work in progress’.

World city network

“The data,” maintains Hoyler, “can give us a unique insight into the emergence of a ‘world city network’, the highly integrated circuit of strategically important cities at the centre of the global economy. Collecting these data over two decades has allowed GaWC researchers to monitor and analyse the dynamics of corporate globalisation as it unfolds, and contracts, in cities around the world. Policy makers in cities can use the data to evaluate the position of their city within wider global networks of corporate service provision.”

The GaWC Research Network is the brainchild of the Geography Department at Loughborough University, which focuses upon research into the external relations of world cities. Hitherto, research on global cities was based on the existence of world-wide transactions and commercial contracts and focused on studying the internal structures of individual cities and comparative analyses of the same. This latest report, however, focuses on relations between cities.

Today, the network operates as the leading thinktank on cities in globalisation and has diversified into related subjects where concern for inter-city relations intersects with research on issues concerning, for instance, international business, sustainability, urban policy, and logistics.

According to Hoyler, GNC is a measure that indicates how well a given city is integrated in the office networks of leading APS firms which are a proxy for the myriad of flows that economically link cities but for which global data are not available or commercially restricted (electronic flows, capital flows, inter-personal links etc).

Population size, human capital, transport etc. are not part of the calculation of this measure, as the focus here is on advanced producer services as a key sector enabling economic globalisation. The ranking, he stresses, should therefore be interpreted as one of ‘global service centres’ rather than all-encompassing city-economies. Cities housing many firms with large offices networks will score high, whereas cities with few firms/firms with smaller networks will score lower.

Economic strengths

The rankings of the Asian cities reflect their relative economic strengths. The position of Hong Kong, Singapore and the others in Top 30 rankings, reflects their relative economic strength, with a comparatively strongly developed service sector. Globally connected advanced producer services use these locations as gateways into the Asian economies, and this is reflected in the ranking, with Hong Kong, Singapore, Shanghai, Kuala Lumpur and Bangalore serving as the preferred hubs in general. However, depending on the outcome of the US-China trade tensions, Hong Kong and Chinese cities could suffer in their rankings in the future given the extra-territoriality of US policy and laws.

The World According to GaWC 2020 was compiled by looking at the size and function of offices of large management consultancies, law firms, accountants, financial services and advertisers based in each city. The more firms present in a city, and the more networked they are, the higher the city ranks.

Being home to the headquarters of one of the 175 businesses included in the study, such as Deloitte, Ernst and Young, KPMG, PwC, Epsilon, Experian, Barclays, Capital One, Citi, Deutsche Bank, Goldman Sachs and Merrill Lynch, will also increase a city’s score.

“The longer-term implications of COVID-19, however,” warns Hoyler “are somewhat speculative at this point – while cities are likely to remain key hubs of economic activity, and highly complex APS are likely to continue to require face-to-face contact in their operations, the global office networks may well change, with some cities potentially losing office functions. Future GaWC data collections will provide a unique opportunity to evaluate the impact, using the 2020 data as a baseline.”

Location decision of APS firms

Post-COVID, there may be winners and losers, and these may well be unequally distributed globally. In past crises, there has, if anything, been a tendency for cities at the core of the global economy (those higher up in the GNC-ranking) to recover quicker/be more resilient than those that are situated more at the periphery. In terms of GNC, as this is shaped by the location decision of APS firms, it is the actors in these firms who will make strategic decisions about expanding or contracting their office networks. The aggregate decisions will then be reflected in changing GNCs in the future.

Cities will rise (or fall) if their GNC increases (decreases) relative to other cities, adds Hoyler. The driving factor for this is a city’s attraction as a location for APS firms. If more globally connected APS firms open offices in a city or move more strategic functions to a city (such as regional HQ), then the city’s GNC will increase, and vice versa.

The authors stress that this is a very specific perspective focused on business services. According to Hoyler, GNC can also be calculated for other sectors, or even non-governmental organisations – in a study of the latter, a different set of cities would feature prominently. There is, therefore, no straightforward policy conclusion that can be derived from the APS ranking: urban policymakers in each city need to consider the role of APS firms in the context of their economic profile. Striving to be at the top end of a ranking like this is potentially good for marketing a city but may not be the most appropriate urban development strategy.

Likewise, if a number of offices of firms are being closed in a city (or if other cities increase their connectivity faster), then that city will go down in the list. There is usually more stability at the top end of the list, and more volatility further down (where the location decision of one or two firms carries more weight).

It is important to note, maintains Hoyler, that being further up or down the list is not necessarily good or bad. Cities all have their distinctive characteristics and economic profiles, and some will be more APS-oriented than others. Singapore, Kuala Lumpur and Jakarta’s future as premier globally-connected cities according to the above metrics can only thrive!


Mushtak Parker is a London-based independent economist and writer.

(The views expressed in this article are those of the author(s) and do not reflect the official policy or position of BERNAMA)