Partnering for Global Growth – New challenges, new opportunities

Vikas Rambal, CHOGM 2011

 

“Good morning delegates and visitors to Western Australia. I would like to extend a warm welcome to everyone here.

I am pleased to speaking to you in the same session as my distinguished colleagues.

In the short time available it is a challenge to provide a different opinion from such well-informed speakers.

However, I believe I can offer the views of an entrepreneur with investments within the Indian and Asian region.

I will comment on some big picture challenges and opportunities for global growth.// I hope these comments will add to those made by my co-presenters.

My time today is tight.// So I will focus on what I believe are three significant issues for everyone here. They are:

• The role of China and India and the differences between them
• Security, but not in a military sense
• Developing and moving skilled people around the globe

These are difficult times in which to write this speech.// I want to look to the future.//However, we are living in a world that is absorbed with its current problems.

As I travel around the globe I see politicians and business people obsessed with daily events. Many of these have little long-term significance.

For example, the daily movements of international stock markets, the minor details of national politics, and the endless outpouring of economic data.

This focus on short-term information and analysis leaves little time and energy for bigger debates about the future.

I assume Professor Roubini will speak after me about the global economy, so I will not cover the same ground.

However, it is my view, that since 2008 developed nations have received a nasty reminder that they cannot live beyond their means.// The majority of people on earth face this challenge on a daily basis.

It does not matter how each nation looks at the global financial crisis. We cannot ignore the fact that debt is debt is debt – whether it is private or public.

Eventually someone must pay debt back.

This will occur either by using income from growth, tough cost cutting or by default.

One of the world’s current challenges is that many years of debt driven economic activity have been paid up.

In many ways it is regrettable that policymakers did not allow the GFC to run a fuller course.

A sharper initial recession may have been better for all of us.// It may have had a shorter impact than the double dip recession and years of financial re-structuring that lie ahead.

If the major developed economies are not already entering another recession, then it may not be long before they do.

I believe policy-makers in developed countries should allow their nations to take tougher medicine next time. This will help their private and public sectors to emerge much stronger.

To my friends and colleagues in India and Asia, I say watch carefully.// Make sure you absorb the hard lessons of North America and Europe.// Do not follow the same path.

My other brief economic observation is that the myth of the decoupling from the US economy is indeed a myth.

The current drift towards a new recession is more proof that China alone can not support the world economy.

Even the BRIC countries together are not able to support the world economy.

Ultimately, the principal consumers of the world’s manufactured goods and services are in the developed nations.// Based on average incomes in China and India, this will not change for many years.

China and India will continue to grow.// They will continue to lift millions of people out of poverty.//Their economies will become more sophisticated.// They will continue to consume a larger and more varied range of resources.

Yet, even then we will still require strong consumption from developed nations to drive the global growth.

This will not be easy when consumers in those places are debt ridden, with declining assets and fearful about the future.

For this reason, there will be no real decoupling from the United States.

It is impossible to ignore the fact that the US and also Europe, remain the engine rooms of innovation.

Developing nations like China still rely on the US and Europe for the innovations that drive global growth.

First Challenge and Opportunity

It is in the differences between China and India that I see my first major challenge and opportunity.

Governments and businesses need to have a deep understanding of the differences between China and India. They need this for good decision-making and to maximise the opportunities and minimise the challenges.

Many commentators have a very simple view of China and India.

They think that because both nations have a billion people, then both must present huge opportunities. These opportunities are either in supplying raw materials or relocating manufacturing to take advantage of cheaper labour.

I often hear people say that China is more advanced than India in its economic growth trajectory. They believe that this means the same sorts of opportunities will be available in India, just a bit later.

This is poor thinking.

There is an essential difference between the two nations.// It can be described as land-use or land availability.

Land availability will shape the way these heavily populated countries develop.

Land will influence the economies of nations that form deep trading partnerships with China and India.// It will direct the business opportunities that corporations choose to pursue.// It will guide their investment decisions.

China is heavily populated in some regions. But it still has space for new industries and manufacturing centres. It can build cities. It can develop new energy generation from traditional to renewable sources.

It has a political system that makes this happen quickly.

So China wants partnerships with nations that can supply raw materials, because it can supply the land, infrastructure and energy to turn them into products.

This means the best opportunities in China are for nations who are not interested or able to value add to their raw materials.

India is in a very different position.

India is heavily populated over almost its entire land mass. I can fly across India and hardly see any unoccupied land.

India has far less opportunity to build major industrial or manufacturing centres. Less potential to develop new cities. Less room for new large-scale energy generation sources.

It is also a democracy. This means competing interests are more evenly represented, so decision making is slower.// This means development is slower too.

So India needs partnerships with nations that use their own land, infrastructure and energy to transform raw materials.// It does not have to be into the final product, but at least some higher level than the raw material. India can then do the rest.

So China and India present very different opportunities.

The China opportunity lies in nations exporting raw materials. The China challenge lies in using that income to diversify a national economy so it does not rely on one activity.

The India opportunity lies in value adding to raw materials in areas where India is constrained. The India challenge lies in the decision-making required to create a more sophisticated manufacturing and export orientated economy. At least more sophisticated than just exporting raw materials.

One route may be easier but not as beneficial in the long-term. The other may be harder work in the short term but could be a better end result.

I do not see this as an either or decision.// A nation can have the best of both and businesses can also pursue both approaches.

My point is that these differences should be influencing the way resource rich nations in Africa and South America, and Australia, consider the long term opportunities for their economies.

If I am asked to identify a major opportunity for nations in the next 20 years it is this.  Develop the infrastructure, technology, labour rules and energy sources to transform raw materials in your own countries into affordable products for export to India.

Second Challenge and Opportunity

My second opportunity and challenge is in China and India’s growing role as competitors. Both with each other, and the United States and Europe.

I will talk in terms of security.// But  not in terms of military power.

In any foreseeable future China and India will compete to ensure the food, water and energy security of their immense and growing populations.

As these two nations lift tens of millions of people out of poverty, these forms of security will drive all their activities.

The impact of this competition will spill over into the rest of the world.

In Australia we think this competition will be for resources -like iron ore and coal.// We rub our hands in anticipation.

Yet its biggest impacts will be on the basics of life. Think of grains, cereals, petroleum and almost any other raw material.

These impacts are already making themselves felt in developed nations.

Rising input prices for a range of consumer goods – from bread to breakfast cereals – are already hurting many people.

The opportunities and challenges presented by food, water and energy security during the next 50 years are not debated enough.

In Europe and the US, short-term economic issues are absorbing the attention of Governments.

While people living in Australia might think that climate change is actually the principal challenge facing the world.

In most parts of the world, issues like climate change are just background for the daily challenge of providing food, water and energy to millions of hungry and sick people.

Many more people will be die from not having enough food and water in the next few years than will be killed by any event related to climate change.

We must not ignore China and India’s need to provide food, water and energy security to their vast populations. If we do it will be at our own cost.

Our opportunity is for Government and businesses to recognise its importance.// We should all be working in partnership with China and India to solve problems.

Any solutions that assist China and India will benefit all other nations big and small.

The business opportunities are enormous.// Developed nations are best placed to provide the innovations, expertise, technology and skills that will help people in developing nations.

To do otherwise will ensure increased competition between nations with all the tensions and inequalities that result.

Third opportunity and challenge

This brings me to the third great area of opportunity I can see ahead. It is education and the movement of skilled people around the world.

At the start of this speech I said that the US and Europe are still the primary drivers of innovation.

Innovation is the most important element for the future growth of our societies.// Spreading the ability to innovate is a huge challenge and opportunity.

Innovation is largely an outcome of having a pool of educated and skilled people.

Wherever I travel, I hear about the shortage of skilled people. On a planet with seven billion people, the concept of a global skills shortage is strange.

There are many reasons. They include demographic change, the complexity of modern infrastructure and each nation’s ability to invest in education.

In our future, developing educated and skilled people, and encouraging them to move to where they are needed most, will be an important challenge.

This creates an opportunity where the developed world still holds a huge advantage.

Very few people turn down places at Oxford or Harvard to attend a university in China or India.

However, developed nations must be careful not to squander in a short period the leadership in education that it has taken 500 years to build.

Not only must they continue to seize the opportunity provided by education and innovation, they should play the leading role in ensuring those people are mobile and can be deployed where needed.

In some cases skills will be needed in developed nations, as they are the engines of global innovation.// In other cases they will be needed on the ground in developing nations because there are economies to be built and not enough expertise.

Few people disagree that education provides economic opportunities. Many people disagree about how their nation should help skilled people to move around the world.

This issue is essential to business.//  Everyone in this room has a role to play with those Governments to whom they are connected.

To summarise I believe three big areas of opportunity for the future are:

• Understanding and taking advantage of the differences between China and India
• Food, water and energy security
• Education and the movement of skilled people.

I hope these observations have been of interest and I look forward to discussing them with you further.”