Winner Take All

China's Race for Resources and What It Means for the World

Dambisa Moyo

• Publisher: HarperCollins Publishers
• Year: 2012
• Print ISBN:
  9781443407410
• eBook ISBN:
  9781443407427
• Topic: Business
• Subtopic: Business General
• Index: Business

Newspaper headlines and media commentators scream warnings of the impending doom nearly every day—shortages of arable land, clashes over water, and the political Armageddon as global demand for energy in the form of fossil fuels far outstrips any possible supply. The picture painted is bleak, and the possible impact of commodities markets on how we live is far-reaching, but our grasp of the details and the mega shifts in the commodity space remains blurred. There's so much noise surrounding resource scarcity and China's emerging dominance in commodities that we risk complacency.

Overturning our assumptions, bestselling author Dambisa Moyo charts the commodity dynamics that the world will face over the next several decades, and the implications of China's rush for resources across all regions of the world, from Africa to Latin America, from North America to Europe to Australia.

PART I
China’s Rush for Resources

CHAPTER 1
The Drivers of World Commodity Demand

TO UNDERSTAND THE EVENTS of the next fifty years one must first and foremost understand environmental scarcity or “diminishing natural resources.” So penned Robert Kaplan in 1994 in his article titled “The Coming Anarchy: How Scarcity, Crime, Overpopulation, Tribalism, and Disease Are Rapidly Destroying the Social Fabric of Our Planet.” Kaplan offered a chilling vision of the future, foretelling in vivid and painstaking detail how the global scarcity of resources would contribute to worldwide demographic, environmental, and societal stress.

Whether or not we accept Kaplan’s dire vision, it is clear that in order to understand China’s approach to securing global resources, we must set it in the broader context of the global demand for commodities. Ultimately, global commodity supply also matters (this is discussed in the next two chapters), but this chapter considers the evolving demand dynamics: why global demand pressures across the commodity complex—arable land, water, energy, and minerals—are set to increase, and how these demand factors will exacerbate resource scarcity in the decades to come.

The Malthusian Chronicles

Kaplan’s article was not the first to identify a dearth of resources as the catalyst of an impending global cataclysm. As early as 1798 Thomas Malthus in his “Essay on the Principle of Population” argued that population growth generally expands in times and places of plenty, until the size of the population relative to the primary available resources causes distress. In essence, Malthus argued, the limits on the availability of commodities are what keep population growth in check. The Club of Rome’s 1972 report “The Limits to Growth” built on Malthusian theory in modeling the impact of a growing world population against finite (and depleting) resource supplies. The Club’s conclusion: this supply-versus-demand disequilibrium would constrain economic growth and could consign large swathes of the global population to poverty.

Four decades later commodity imbalances continue apace.

The exponential growth of the world’s population and the technology that has accompanied it over the past fifty years have placed unprecedented pressures on commodity demand of all manner of resources—from food and water (itself an input to food) to energy and minerals (as, say, heating and plumbing inputs for a rapidly expanding global population). Even ten years ago few anticipated how many of us would be carrying personal technological devices or the rapidly increasing share of the global population that would be car owners, yet both are a tremendous draw on finite mineral resources.

To be sure, the world economy has largely been bailed out by technological advances that have generated productivity gains, greater efficiencies, and improved utilization of resources. But if they have delayed our day of reckoning, it’s far from clear that they will do so forever. As advancements to boost resource supply stall and global commodity demand skyrockets, a scarier picture is emerging, one in which the resources on which we depend today—many of them nonrenewable—are depleting into nonexistence or are so poorly matched that their demand and supply might never be able to meet. Yet, as we highlight throughout this chapter, China seems to be the only country that’s preparing for this eventuality in a sustainable and deliberately constructive way, by making friends across the globe and systematically and continually investing across the commodities complex.

Driving Resource Demand

Like virtually all goods and services, commodity prices are driven by supply and demand. As canonical economic models suggest, where these two meet, the price of the commodity is set.

As we shall discuss in subsequent chapters, the factors driving the supply of land, water, energy, and minerals are complicated by the fact that there are cross-linkages among the different resources. For example, the supply of food, such as grains and beef, crucially depends on the availability of both arable land and water. So gaining access to these underlying resources matters almost as much as the target commodity itself and ultimately determines the price and availability of the broader spectrum of food products.

In contrast, the factors influencing the demand for soft and hard commodities are broadly the same. At a very basic level the two influential factors are population dynamics (the absolute size of the world’s population and prospects for global population growth) and the increases in wealth that are driven, in particular, by rapid economic growth in emerging economies. Naturally, the implications of these wealth increases on consumption patterns will be considerable.

The Global Population Grows

In just sixty years the global population has exploded—from around 2.5 billion in 1950 to 7 billion in 2011. The chart below tells the story in shorthand: a gentle slope emerging out of the Middle Ages and Renaissance, a slight rise in the incline around 1928 when the Scottish scientist Alexander Fleming stumbled serendipitously upon penicillin, and then the steep Everest-like slope as medical interventions became ever more sophisticated, infant mortality rates nose-dived, and average life expectancy rose. Demographers now forecast that the world’s population will expand by an additional 1.2 billion over the next twenty years, so that by 2050 there will be as many as 10 billion people living on the planet—a 40 percent increase in the world population in a mere forty years.

Figure 1.1. Skyrocketing World Population
Source: Philippe Rekacewicz, “World Population Development,” UNEP/GRID-Arendal, http://www.grida.no/graphicslib/detail/world-population-development_29db\.

The good news is that the pace at which the world population is growing will gradually slow, offering a reprieve on commodity demands. The UN expects women almost everywhere to bear fewer children by the middle of the twenty-first century. Currently the global average is 2.6 children per woman, down from 4.3 in the 1970s; this is expected to decline to just 2 by 2050. The bad news is that in the shorter term the pressures exerted on global resources by the prospects of a global population approaching 10 billion are ominous.¹

To complicate matters further—and the graph also shows this—the greatest population growth is forecast in precisely the regions with the highest prospect for rapid increases in wealth and a concomitant greater demand for resources. According to the US National Intelligence Council publication Global Trends 2025: A Transformed World, nearly all of the population growth over the next twenty years will come from Africa, Asia, and Latin America, with less than 3 percent from the developed West. More developed countries like the United States still register population growth, but at a slowing rate. For instance, according to the US Census Bureau, the US population grew by around 2.8 million people between April 2010 and July 2011, from both immigration and increased births.

However, it’s not just that there will be more people on the planet. The global population in its entirety is getting wealthier, and it is this newfound wealth that could put pressure on resource demand and ultimately wreak havoc on the supply-demand balance across the commodity complex.

The World’s Population Gets Wealthier

In 2001 Goldman Sachs economists came up with an acronym to capture what they saw as the amazing economic growth prospects of the leading emerging economies—Brazil, Russia, India, and China, known as BRICs. Their now well-known BRIC estimates projected that by 2050 these countries would be four of the top five largest economies in the world.

The following year, in 2002, Goldman Sachs calculated that the increase in China’s dollar GDP had been effectively the same as creating two new Indias, a new Italy, and nearly a new France or UK. The economists at Goldman Sachs have since revised their estimates upward as the BRICs have posted greater economic gains in a shorter period of time than originally expected. By 2010, for example, China’s GDP had grown by almost US$4 trillion since 2000—meaning China has, in fact, created another seven Indias (at its 2001 size), nearly three Italys, and more than two Frances. Simply put, more economic growth means more wealth means more commodity demand.

In the past two decades China has had the world’s fastest-growing economy, overtaking Japan to become the world’s number-two economy after the United States in 2010. If China continues on this trajectory, it is poised to become the world’s biggest economy by 2025. But even if it hits a temporary roadblock, the fundamental path of economic improvement points to only higher levels of commodity demand, even if at a slower rate of change. The tremendous economic progress around the world and the global wealth that it has unleashed has far-reaching and untold effects on the global demand for commodities. A richer average population will demand more and better quality foodstuffs, goods, and services—all of which require more resources.

If China is this century’s biggest growth story, it is not the only one. India—home to some 1.2 billion people, around 17 percent of the global population—has followed closely behind China in this relentless economic march forward. Conservative estimates put the Indian subcontinent’s growth rate over the last several decades at an average of nearly 5 percent a year, lower than China’s at 7.5 percent, but still impressive—and remarkably consistent. All told, the combined GDP of the BRIC countries is thought to have risen from US$2.5 trillion at the beginning of 2000 to close to US$9 trillion by 2010. (By comparison, the United States is thought to have added US$4.5 trillion over the same period.) This continuing economic growth across the emerging world—not just among the BRICs—has led forecasters to predict that by 2030 at least 2 billion new people will join the global middle class. Put another way, in less than twenty years we will witness the creation of a middle class of roughly the same size as the current total population of Africa, North America, and Europe.

At one level this is a global success story of remarkable proportions. By the mid-2020s over 200 million people in the BRICs could have incomes over US$15,000. To people living in developed economies this might not seem like much—in the United States, for example, per capita incomes are around US$47,000—but given that many emerging economies had average incomes of around US$1,000 thirty years ago, such income forecasts are astounding.² The tremendous economic progress around the world is, however, a mixed blessing. A richer average populous is certain to demand more and better quality goods and services, all of which require more resources. A small example of how the voracious appetite for commodities of all kinds will expand are forecasts that global demand for food and water will increase by 50 and 30 percent respectively by 2030.

Planes, Trains, and Automobiles

Microdata confirm that the phenomenon of rapidly increasing economic wealth is not just a macroeconomic occurrence. At the end of 2008, for example, China recorded more dollar millionaires than the UK—364,000 versus 362,000 respectively. India—still regarded in many Western eyes as a poor country—has an estimated US$500 billion in private money abroad. Aside from boasting the world’s largest middle class, numbering some 450 million people, India is also home to at least fifty native-grown billionaires.

In less than half a century China alone has managed to transform the livelihoods of some three hundred million of its people, shifting them from abject poverty to economic standards that rival the West—a feat unprecedented in the history of the world. India’s aggregate poverty ratio (defined as the percent of people living on less than US$1.25 a day) has shifted from nearly 60 percent in 1981 to just over 40 percent in 2005. Over the same period China’s poverty statistics have gone from 85 percent to 16 percent. (The closest comparable statistic in the United States has hovered around 15 percent in the same time frame.³)

Both China and India have accomplished amazing feats in improving living standards for their citizens, but such massive increases in wealth and economic power invariably come with increases in demand—for virtually everything. As incomes rise, so does the demand for more protein-based foods like meats and chicken (a substitution pattern in which people replace cheaper wheat and root-based foods like potatoes with more expensive and protein-rich meats⁴); better-quality housing with indoor heating, water, and plumbing; and more efficient transportation and telecommunications in the form of cars and telephones.

By 2010 rapidly emerging economies were already registering double-digit growth in domestic demand—15 percent in China and 10 percent in both India and Brazil—fuelled in large part by demand pressures from their newly arriving and voracious consumers. And China alone ranked first in demand for mobile phones and cars, and second in electricity consumption.

Each of these creature comforts requires commodity inputs—such as metals like copper, gold, lead, nickel, palladium, and aluminum used in the production of the frames, batteries, and circuit boards of computers or mobile phones. To place this demand in context, as of 2010 an estimated 5.3 billion mobile phones were in use worldwide, accounting for approximately 77 percent of the world’s population and fast approaching one cell phone for every man, woman, or child on the planet today.

What does that mean in terms of commodities and resources? A July 2006 fact sheet titled “Recycled Cell Phone—A Treasure Trove of Valuable Metals,” compiled by the US Geological Survey, is revealing. It provided separate breakdowns for the 180 million cell phones then in use in the United States, another 130 million expected to be retired that year, and the 500 million obsolete cell phones sitting in drawers and closets awaiting disposal. In the aggregate, as shown in the table below, those 810 million cell phones contained over thirteen thousand metric tons of metals, with a collective net worth of more than half a billion US dollars. To put it more graphically, the sum total of all phones in use, retired, and out of circulation in the United States in 2005 was equivalent to the amount of metal contained in fifty 747 jumbo jets.⁵ And this is just the United States in just one year at a time when cell phones were in their relative infancy.

One estimate holds that there are now over 327 million cell phones in use in the United States alone—that is, over one phone for each person in the population. China and India, amongst the most rapidly growing economies in the world, together have nearly two billion cell phones in use, close to a billion in China alone. Odds are that both these nations will soon converge to mobile-phone penetration rates similar to or greater than the United States. Add to that the demand pressures from the soaring use of other mobile electronics—iPads, Kindles, laptops, and the like—and it’s easy to see that the demand pressure on metals like copper, gold, and palladium will continue to mount ever higher in the decade ahead.

Table 1.1. The weight and value of metal in US cell phones, 2005

Metal	Metal content for 810 million cell phones in use, retired, or obsolete and awaiting disposal, in metric tons	Value of 810 million cell phones in use, retired, or obsolete and awaiting disposal, in US dollars
Copper	12,900.0	$27.8 million
Silver	288.1	$49.9 million
Gold	27.1	$323.0 million
Palladium	12.1	$101.7 million
Platinum	0.28	$6.3 million
Total	13,227.58	$508.7 million

Source: Adapted from: US Geological Survey (USGS), “Recycled Cell Phones—A Treasure Trove of Valuable Metals,” July 2006, http://pubs.usgs.gov/fs/2006/309...

Table of contents

• Cover
• Title Page
• Epigraph
• Contents
• Introduction
• PART I. CHINA’S RUSH FOR RESOURCES
• PART II. WHAT CHINA’S RESOURCE RUSH MEANS FOR THE WORLD
• List of Tables and Figures
• Acknowledgments
• Bibliography
• Notes
• About the Author
• ALSO BY DAMBISA MOYO
• Credits
• Copyright
• About the Publisher