23 July 2024Old Mutual Wealth Investment Strategist, Izak Odendaal
The shocking assassination attempt on former US president and current Republican presidential candidate, Donald Trump, will no doubt revive an age-old debate among historians.
Does the arc of history depend on such fluke events as a bullet missing its target by a few millimetres, or is it determined by deep structural forces beyond the influence of individuals? The short answer is both, though given our human love of storytelling and our ingrained hindsight bias (everything is obvious after the fact), we probably tend to elevate such historical “hinge moments”.
Structural forces matter, however, even if they are not absolute destiny. One such force is geography. Some countries are in good neighbourhoods, others aren’t. It is safe to say that South Africans don’t think too much about neighbouring countries, unless there is trouble. This is probably a byproduct of our colonial history. We know more about what is happening in UK politics, for instance, than in Botswana. Perhaps southern Africa is not exciting enough, or South Africa’s economy is simply too large, bigger than all its neighbours combined.
But there is another neighbourhood South Africa belongs to, and it holds great promise.
Oceans connect
Arthur C. Clarke famously observed that our planet shouldn’t have been called Earth, but rather “Ocean” since nearly three-quarters of Earth’s surface is covered by sea. And while vast oceans separate the continents, they also connect them in important ways, particularly economically. That is because, given decent ships, it has always been significantly cheaper and easier to move goods by water than over land.
The Mediterranean is sometimes called the Cradle of Civilisations and it lay at the heart of ancient empires. For most of the past three or so centuries, the Atlantic Ocean, particularly the North Atlantic, has been the centre of the global economy. Today, the Pacific has a strong claim to that throne, since it connects the two superpowers, the US and China.
Could it be the Indian Ocean’s turn to take its place as a great economic region? The Indian Ocean and its seas, such as the Red Sea and Gulf of Arabia, are of course already important links in the global economy. The Carnegie Endowment estimates that almost 90,000 vessels, carrying 9.8 billion tons of cargo, travel through the Indian Ocean annually. This includes two of the five busiest shipping channels feeding into it, namely the Suez Canal and the Strait of Malacca.
Map 1: The Indian Ocean Rim
Source: Microsoft
But it is the current rapid economic growth of south and south-east Asia that will really put this region on the map, and fittingly, given the ocean’s name, India is increasingly at the core of this growing economic ecosystem. India is the only large economy forecast by the International Monetary Fund (IMF) to grow by more than 6% per year over the next five years in real terms. However, the likes of Indonesia are not far behind with growth forecast to average 5% over the medium term, while Malaysia is expected to grow around 4%. Notably, however, the IMF projects that East African countries Tanzania and Kenya will also post rapid growth rates of 5% to 6% per year off a low base.
Depending on how you define the Indian Ocean Rim, it is home to a 2.8 billion people. Half of them live in India, but Indonesia is home to 275 million people and Pakistan 230 million. Bangladesh and Egypt are each home to more than 100 million souls. Between them, Kenya, Tanzania and Mozambique are home to another 120 million. These are a lot of potential customers, and a massive potential workforce.
Sparsely populated Western Australia can also connect into this ecosystem, since Perth is closer to Singapore than to Sydney. With a large and sophisticated navy, Australia is a particularly important player in maintaining the security of the region.
India sits at the geographic centre of this region and has unimpeded access into it on its eastern and western coasts, with around 7 500km of coastline and hundreds of ports. This contrasts with China, which despite its massive landmass, faces potentially inhibited access to the Pacific Ocean due to the proximity of US allies Taiwan, Philippines and Japan. As a side note, this again emphasises that the US absolutely won the geo-strategic lottery with free access to the Pacific and Atlantic Oceans. While Australia and Canada are also continent-sized countries with access to two oceans, they are too dry and cold respectively to sustain a large population. Russia has oceans, land mass and population, but its ports tend to freeze over in winter, and its land borders offer little natural protection.
Largely poor
Despite very dynamic economies, the Indian Ocean Rim remains largely a poor region. The Gulf States have oil wealth, Singapore is a trading and financial global hub, Mauritius an emerging offshore financial centre, and Australia is a rich developed country. For the rest, real per capita incomes are mostly below $20,000 (adjusted for living costs).
Click here to read more…