Hamish McRae: African nations have more to learn from China and India than the West

Click to follow
The Independent Online

Our Prime Minister is worrying about the environment and our Chancellor is worrying about Africa.

Our Prime Minister is worrying about the environment and our Chancellor is worrying about Africa.

Now you might, if you were unkind, feel their time were better occupied worrying about the black hole in the UK public accounts, as highlighted by the Institute for Fiscal Studies, which suggested there would have to be a 3p rise in income tax to cover. Neither the environment nor the economic prospects for Africa are within the control of our political masters but they can control taxation and public spending. So you might feel that they ought to be focusing on what they can do and not what they can't.

But of course on any sensible scale of global human values, the level of UK income tax is not as important a matter as the futures of the environment and of the 875 million people in Africa. So it is good to lift our eyes once in a while and focus on these issues.

The environment first. The best starting point here is to note that a generation hence the main burden of economic activity on the environment will come not from the present developed countries (aside from the US) but from the large-population, middle-income ones.

Some 18 months ago the economics team at Goldman Sachs produced a report on the economic prospects of Brazil, Russia, India and China - a group it dubbed the BRICs. It pointed out that if its assumptions were correct, China would become the world's largest economy by 2050, passing the US, while India would be number three, passing Japan. For the first time this year, the BRICs have been invited (by the UK as host) to the 4 February G7 economic meetings, a move that reflects their growing status. The Chinese economy is already larger than Italy's and it is possible that this year will be the moment when China passes the UK in terms of its total GDP, though it may have to wait until 2006.

More recently, the BRIC team looked at some of the implications of this growth, focusing in particular on demand for commodities and consumer goods, as well as the implications of their growing might on the capital markets.

If you take an income of $3,000 (£1,600) per head per year as the entry point to the "middle class", the team calculates that in another 10 years there will be about 800 million people in the four economies that pass that threshold. There are already about 150 million of them in China.

Middle class people buy cars. The left-hand graph is a bit of a stunner, suggesting as it does that in 20 years there will be more cars in China than in the US - nearly 200 million of them. As you can see, Brazil, Russia and India will all have more cars than Japan, while a country like the UK or Italy will be way down the league. The Goldman team reckoned that by about 2035 India would also pass the US to become number two in the car ownership table.

If these projections are anything like correct, this will have huge implications for commodity demand and for the environment. Even were the present progress on increasing fuel efficiency maintained, a world of one billion cars is going to use a lot of oil - if the internal combustion engine remains the main technology. Some estimates for oil demand are shown in the second graph. China already accounts for about 8 per cent of world demand, having passed Japan as the second largest oil importer. That proportion is expected to double in the next 20 years. India, too, will experience rapid growth in oil demand, though that rise is further away.

How should one react to these projections? I suggest that the essential starting point is to recognise that this growth is in all probability both inevitable and unstoppable. It will happen. If you accept that, the environmental burden that growth puts on the world's resources will come not from the present developed nations but from these "new" ones. So what we do or say does not matter much. What will matter will be the attitudes of the leadership of China, India, Russia and Brazil and the economic forces that will drive the economies.

At the moment none of those countries has a particularly enviable record in its environmental practices. That raises the question as to whether greater wealth will bring change. If these nations were to follow the pattern of the mature developed economies, the answer is that it will, but only slowly. There are welcome signs in India of efforts to improve urban air quality by, for example, converting taxis and scooter cabs to natural gas. There are also welcome signs in China that the authorities recognise that the environment has become a major block on the rate of economic growth. But neither country can be happy about its performance - nor indeed can Russia or Brazil.

However, where the leadership may lag behind, the market may race ahead. In key areas of potential pressure, such as the demand for oil, the market will surely have a larger role.

For the surge in demand for oil from China and India may well hit the world markets just about the time that oil supply from present known sources starts to decline. The result will be a much higher oil price, pressure for conservation and the rapid development of substitutes for oil.

Can the Western developed nations influence these countries? It is certainly very much in our self-interest to try to do so because expensive oil slows our growth too. Three of the past four global recessions have been triggered by a sharp rise in the oil price. It is hard to see hectoring being effective but there are perhaps more practical ways the West can help. For example, the new energy-saving technologies will be developed in the present advanced economies because that is where the embedded knowledge lies. The faster we roll out those technologies and adopt them ourselves, the faster they are likely to be grabbed and applied by the BRICs.

There is a further point to be made about the shift in power. About 40 per cent of the incremental growth the world is experiencing is generated by these four economies. They are big success stories. Were one to look at the continent that is finding sustainable growth hardest to achieve - Africa - and then think about where the best models might be, the answer would surely be among the BRICs. Our own experience of pulling up living standards from very low levels is too far away in our past. In both China and India, by contrast, it is not just recent; it is now.

It would be wrong to dismiss Gordon Brown's efforts to assist African economic development, though this is not an area in which he has much experience. But I suspect that China and India have more to teach the African nations than comfortable Western Europe or even more comfortable North America.

Comments