While it is impossible to predict where the S&P will be in 10 years (or even
1), one can safely make some assumptions about what the world will look like in
a decade (assuming of course it hasn't blown up by then). It will be hungry, it
will be thirsty, it will demand resources, and it will be crowded (and it will
certainly have lots and lots of wheelbarrows carrying pieces of paper to and fro
the local bakery). Implicitly then, countries which control the production and
export of various key natural resources and commodities channels will become
increasingly more strategic and important. However, for some economies, such as
the Middle East, whose entire export-based welfare is reliant on a core set of
commodities, this export-benefit may be a doubled-edged sword, should it lead to
militant antagonism by one time friends and outright enemies, and/or complacency
leading to lack of revenue stream diversity. In order to determine who the key
resource players in the future will be, we present the below commodity trade
matrix which answers two questions: how important is a commodity to a country,
and how important is a country to a commodity. As GS notes, those on the riskier
side of this equation are economies that are heavily reliant on oil, such as the
Middle East or even Russia (which albeit scores better on other hard
commodities). On the other hand, food exporters enjoy relatively better
diversity in their trade portfolios. We highlight the LatAm economies here,
while Canada and the US also look healthy. Will food (and water) be the oil of
the future, and will the next resource war be not over black, or even yellow,
gold, but, pardon the pun, edible gold?
Some additional observations via Goldman:
Not all countries are blessed with abundant resources, and even among those
that are, some countries have benefitted a great deal more than others as a
result of the quality of their institutions. Indeed, resource wealth can, and
has, tempted institutions to retain the revenues narrowly, rather than
distribute them broadly or develop others parts of the economy. This is the
reason why the presence of resources hasn’t historically guaranteed economic
success. Australia, Canada, Russia, Brazil and South Africa are countries that
have high levels of hard commodities per capita, while Argentina and the US
should be added to the list if soft commodities are included.
But what are the resources of the future? We think it very likely that food,
water and therefore land, will become increasingly important, tilting the
advantage in favour of those capable of feeding the next billion people. As two
of the world’s largest populations industrialise (hence producing less of their
own food) and become wealthier (and hence hungrier), the way food flows around
the world is likely to change significantly. Russia, South Korea, Japan and much
of Western Europe are major food importers currently, while Brazil, Argentina,
the US, Australia, Thailand and Canada sit on the other end of food trade. Here
we have to mention Africa and India as regions with huge potential, but in need
of greater institutional support to deliver it.
The current debate on the resources curse (the potential for resource-rich
countries to become imbalanced) is also important. Being heavily reliant on a
particularly commodity is risky as a result of the possibility of big shifts in
the global economy, innovation-led substitutes or new discoveries. It is not
implausible, for example, to imagine EM consumers extinguishing their demand for
cigarettes just like their health conscious Western brethren did a few decades
ago. This puts tobacco-heavy African economies like Zimbabwe at significant
risk. Above is a commodity trade matrix to answer two entwined questions: how
important is a commodity to a country, and how important is a country to a
commodity? As expected, those on the riskier side of this equation are economies
that are heavily reliant on oil, such as the Middle East or even Russia (which
albeit scores better on other hard commodities). On the other hand, food
exporters enjoy relatively better diversity in their trade portfolios. We
highlight the LatAm economies here, while Canada and the US also look
healthy.
The last question is which countries have succeeded despite resource
deficits? Japan and South Korea stand out here, which cements our argument that
necessity, in this case driven by constraints, is the mother of innovation.
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