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Dubai: You can't have missed the furore over Al Gore's Inconvenient Truth: "It's not what you don't know that gets you into trouble. It's what you think you know that ain't so."
Of course, Gore was talking about climate change which had been a subject only swishing around the edges of investment-speak.
This year's must-read first essay in the Barclays Equity Gilt Study 2008 seems to form part of a trend that is linking the investment world into China and India and climate change all in one scoop.
If you thought investments were only about cash, bonds and equities, then the essay is saying "it ain't so-anymore".
The Barclays Study is one of my few annual must-reads. For me it ranks with the Capgemini-Merrill Lynch World Wealth Report as a hardy annual.
First printed in 1956 with a UK bias it has now meandered with globalisation into world macro-economic trends, at least in the first couple of essays.
Essay One entitled: "For richer, for poorer" works on the central theme that as the developing world led by China increases it's consumption of global resources the capacity for the world to satisfy demand is significantly hampered.
Downside results fall into two broad bags. Bag one, increased and unchecked industrialisation has the potential to cause huge environmental damage. Investors would have to take their interests beyond that of the cinema to keep up with the implications.
Bag two is that the world resources can't keep up with forecasted demand meaning that markets will have to price the supply/demand balance into slower usage-or rely on technology to find replacements. Anyone seen the oil price recently?
Need for action
Ultimately, this article bites just as much as Al Gore's first rendering of calamity. Gore's view represented a small school of thought. The Barclays Study suggests a wider audience believing in massive impending change and the need for government action.
The first conclusion is that, "Capitalism, the most successful system for poverty alleviation yet discovered, has finite borders. These boundaries comprise the stock of natural resources and their regenerative capacity." Put another way, Capitalism and its off-shoot of increased prosperity leads to an increase in per head consumption. That consumption has a limit. There are only so many fish in the sea.
Three stand-out themes should be enough either to worry you or cause a review in your portfolio or both. Theme one is the attack on global resources by the consumer. Population increases are not in isolation that much of a shock. Over the last 50 years the planet's population has grown from 2.5 billion to 6.7 billion.
World Bank data indicates that consumption per capita is up 200 per cent. All this, the report says, means a four to five-fold increase in human demand on the world's resources.
The human-attack has led to serious depletions in forestry and fish stocks and calls for government intervention in transport and energy. It's no wonder that Richard Branson has been active in promoting his biofuel driven planes. The last thing an entre-preneur needs is excessive government intervention. Incidentally, the report does attack the air transport industry generally as not seeming to be "paying attention to recent events".
The consumption-factor is demonstrated by the change in diets. As prosperity takes a foothold it seems more people eat meat. In 1990, Asians ate 16.7 kg of meat per head. Its now up 66 per cent to 27.8 per cent. Now add in the McDonald's guzzlers of the wealthier income countries and the meat eaters are up to 93.5kg per head. An average weight centre-half per annum.
Indian demand shock
Theme two might be China, and eventually India. Chinese consumption has put world commodities, the report says, into a "demand shock". How bad a shock? Chinese consumption, the report says, puts the world into a situation where we would seem "to have between one and two decades within which to accommodate the resource demand shock rising from Chinese prosperity. Because Indian resource consumption per capita levels are much lower and growing at a slower pace - we have longer to prepare for the Indian demand shock".
The seriousness of supplying this demand is illustrated by asking the question of: how much oil supply is required if China and India get to the point of matching US consumption? The report states: "The International Energy Agency (IEA) calculates that such an increase would raise the combined Indian and Chin-ese oil consumption by 160 million barrels per day (bpd), almost twice today's global consumption of 85 million bpd. Such an increase would push total world oil demand to 250 million bpd, a pace that would deplete proven reserves in just 15 years".
It is a fairly substantial essay and impossible to grasp all the economics from this quick review. So rather than choosing other economic themes, the final stand-out theme for this review is that of inevitable climate change. The IEA reckons that C02 emissions are projected to grow by 57 per cent up to 2030. This equates to a 4 or 5 degree hike in global temperatures. Possibly a prompt behind Mark Lyna's book Six Degrees with all its doom and gloom environmental consequences.
Yet the Barclays Essays aren't looking for sensationalism. A 4 to 5 degree warming around the earth, according to the economists, could produce mass extinctions, declines in harvests, and an increase in storm intensity. They even use the phrase "an uninhabitable planet". With C02 emissions now led by China, having recently overtaken the US, the issue of controlling global warming is clearly a global issue. East and West need to be in the same camp on this. If not, someone needs to find another planet.
"In summary" says the report, "as the developing world continues to industrialise, natural resources are becoming progressively scarcer due to increased consumption per capita. In the same vein, the current utilisation of the global ecosystem's carrying capacity is greater than its regenerative capabilities. Whilst neither the stock of natural resources nor the planetary ecosystem are prone to immediate exhaustion, the level of negative feedback generated by their depletion is steadily increasing".
The report finishes with the need to focus on technology and innovation to provide solutions: and, "ultimately, the iron logic of resource depletion will drive a second industrial revolution".
- The writer is chairman of Mondial Financial Partners.
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