Posted by: michaeldavidpower | October 3, 2010

Catching up…

I have been remiss in keeping my blog up to date recently but my travel schedule – and speaking commitments as a part of that – have overwhelmed my previous dedication. Mea culpa! As such this series of posts amounts to a “catch up” adding a series of comments and thoughts I have written down over recent months. In no particular order, they are as follows:

“Of locomotives, oil tankers and coal trucks”

Although the term ‘decoupling’ lost favour as stock indices even in emerging markets tumbled in the wake of the 2008 Credit Crunch, if one looks merely at the macroeconomic performance of the global economy, decoupling is indeed a fair description of what has happened. The world has divided itself broadly into two economic tracks: the fast one led by the locomotives of China and, to a lesser extent, India versus the slow one headed by the Puffing Billies of the US, Europe and Japan.

In 2009, the rest of the world attached themselves to whichever train most dominated their export profile. Nearly every other country could be classified as one of three types of rolling stock: coal trucks (exporting coal, metals and other resources) or oil tankers (oil alone) or passenger cars (net resource importers).

It would be neat but incorrect to conclude that the first two resource-rich categories hitched themselves to the growth engines of Asia in 2009 whilst the passenger cars – epitomised by Mexico and Eastern Europe – had little alternative but to trundle along behind their adjacent locomotives. Yes, the coal trucks went largely with Asia and the passenger cars went mostly with Europe and the US but the latter were – in 2009 at least – joined by the oil tankers too as the West’s energy needs remain more oil-intensive; by contrast, the East’s energy needs were still more coal-based. Since then, as China’s appetite for oil has continued to grow apace, the oil tankers have started to ‘jump tracks’ and hitch themselves more to the Asian locomotive, though they have yet to make the transition completely.

If the New Normal does grasp most of the big Western markets in its icy grip – though less so Germany, it seems, again because of its strong export profile of capital goods to China – then the Western train is set for a long journey at low speed. By contrast, countries that have resources to export to both the hungry Chinese Dragon and the now tap-dancing Indian Elephant have, by coupling themselves to the fast train, already shielded themselves from the so-called “global” slowdown. (Note that Western commentators – and too many of their ilk in South Africa – frequently mislabel what has essentially been a Western phenomenon as a “global” one.)

As China’s resource-intensive growth phase still has a good decade to run and the Indian equivalent has at least three decades to go (not to mention the roles being played by the supporting cast of their smaller but often still heavily populated Asian neighbours like Indonesia at 235m, Vietnam at 86m, and Bangladesh at 165m), the commodity super-cycle still has very long secular legs. This can only be good for the future prospects of resource-rich nations, be they coal trucks or oil tankers, whether they are in emerging or developed markets.

South Africa has, up till now, for the most part chosen to ride the wrong train despite our resource-rich export profile. Partly because there are vested interests defending established traditions – usually practitioners of the dark science of Sandtonomics and its associate school, Constantianomics – who still see us more as South Tuscany than South Africa, our economic orientation has been not been what it should have become: towards the Orient and not the Occident. The sooner we abandon the Old World train and hitch ourselves to the New One – in other words see ourselves for what we in South Africa are and for what we can become rather than some faux-European outpost adrift in the Southern Hemisphere – the better it will be for our collective future.

As the people of the aptly named Mpumalanga (“the place of the dawn”) can surely testify, the sun rises in the East and sets in the West.

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