New Zealand business needs to explore opportunities in the Indian Ocean
With Kevin Jenkins
This article was first published in The New Zealand Herald on 14 October 2018.
New Zealand businesses need to pay more attention to what’s happening west of Australia.
The populations and economies of countries around the Indian Ocean are the fastest growing in the world, and they’ve banded together to adopt a radical economic plan.
Before Europe landed in America, the Indian Ocean was often the crossroad of world trade. Cultivated plants spread from Africa to India around 2000 BC, and Indonesians may have been first to settle Madagascar. Innovation doesn’t just rely on smart people, investors or smart policies; geography plays a big part too. Cities developed on rivers and other trade routes, and it was no different for the Indian Ocean.
The rise of China has thrust the Indian Ocean back toward the centre of key trade routes, and now their Belt and Road programme is criss-crossing the region with new infrastructure. The rise of India and the exploding populations of Arab and African countries mean it might just become the most dynamic part of the globe.
One commentator has coined CHIMEA (China, India, the Middle East and Africa) to describe a new emerging economic hub, and one that perhaps has more coherence than BRICS. Others have started to talk about the “Indo-Pacific” as a wider geopolitical and economic zone.
The mighty Indian Ocean
The loss of Malaysian Airline’s MH370 revealed how little we know about the Indian Ocean, even though it’s kind of big at 70 million square kilometres and holding 20 per cent of the world’s water.
The region is rich in natural resources including fisheries, minerals (e.g. 60 per cent of the world’s uranium and 80 per cent of its diamond deposits), and oil and gas.
Of course, there are threats too, like cyclones and tsunamis, the longer term impacts of climate change, pollution, human trafficking, piracy, inter-state conflict and so on.
About two billion people — 30 per cent of the world’s population — live around it. There are high rates of population and economic growth, with regional trade alone growing about 10 per cent per year for five years.
Regional trade increased by over four times from US$ 302 billion in 2003 to US$ 1.2 trillion in 2012.
About 100,000 vessels pass through each year including about one-third of bulk cargoes, half the globe’s container traffic, and about two-thirds of the world’s oil shipments (the route from Arabia to the Malacca Strait is sometimes called the “Iron Highway”).
By 2050, Goldman Sachs projects that India will have the world’s largest economy. In 2016, India announced Project Mausam, referring to the monsoon wind which used to enable trade networks with Arabia, East Africa and Southeast Asia, designed to strengthen cultural ties across the region.
There isn’t room here to talk about the growing military presence, particularly by China, the United States and India, but commentators point to Chinese investment in ports in the region, and a major expansion of the Indian Navy including the possibility of three carrier groups and nuclear-powered submarines.
Prominent US foreign affairs author Robert Kaplan — who wrote a book called Monsoon: The Indian Ocean and The Future of American Power in 2010 — described the decision by the US government in 2007 to maintain a forward position in the Indian Ocean and western Pacific, but not the Atlantic, as a “momentous shift in overall US maritime strategy”.
Denis Venter from the University of Johannesburg reckons “the region is emerging as one of the 21st century’s leading strategic theatres as a stage for the pursuit of global strategic and regional military and security interests”.
The Sinbad Century
The last great expansion of the human population is likely to be around the Indian Ocean, according to Otago University economist Andrew Coleman, and he dubs it “the Sinbad Century” after the mythical sailor.
The expansion will be massive. By 2050, the populations of most countries are expected to stabilise or decline, but Africa’s is likely to increase from 1.1 billion to 2.5 billion (Ethiopia alone will grow from 100 million to 230 million), Arabia from 258 million to 396 million, and South Asia from 1.8 billion to 2.3 billion.
Coleman argues this will drag Australia’s attention west. New Sinbad cities will be built using Australian raw materials. Perth may become the city of choice for young Sinbad citizens, maybe even a new cosmopolitan Los Angeles given it’s likely to have 5 million people by 2015.
More than that though, Australia will pivot to where markets, demand for capital, and surplus labour are growing exponentially.
The Blue Economy
You can tell when a region is gaining in significance when multilateral organisations start multiplying. Perhaps the most interesting here is the Indian Ocean Rim Association (IORA), consisting of 21 littoral states, and
7 dialogue partners.
It was given momentum when Nelson Mandela visited India in 1995, and launched in 1997, with these objectives:
- To promote sustainable growth and balanced development of the region and member states
- To focus on those areas of economic cooperation which provide maximum opportunities for development, shared interest and mutual benefits
- To promote liberalisation, remove impediments and lower barriers towards a freer and enhanced flow of goods, services, investment, and technology within the Indian Ocean rim.
Like APEC, IORA now has its own ecosystem of related bodies, including an Indian Ocean Rim Business Forum.
In 2015 IORA adopted the Blue Economy Declaration, seeking to sustainably harness oceanic and maritime resources to drive innovation, economic growth, and job creation.
The “Blue Economy” is based on a 2004 book by Gunter Pauli which laid out a path to replace scarcity with abundance by using local resources and addressing environmental issues. It has similarities to the circular economy idea, and encourages entrepreneurs to adopt the model by outlining lots of examples of where it has already created economic benefits via job creation, reduced energy use, and more revenue streams, whilst benefiting the communities involved.
The World Bank is right behind the idea “particularly for small island developing states and coastal least developed countries”. Chatham House is straight to the point “People are starting to look towards the large portion of the earth that’s covered by water, that previously seemed inhospitable”, but also that we’ve learnt that it’s perhaps a second chance focus on sustainability.
One Indian writer claimed “The Ocean-Based Blue Economy is the next sunrise issue for development experts”, saying it would catalyse India to become a $10 trillion economy by 2032.
At a series of events over 2017/18 celebrating its 20th anniversary, IORA emphasized “growing the Blue Economy in a sustainable, inclusive and people-centred manner”.
Fish are key, contributing up to 50% of protein intake in some regional countries, and up to 90% of export earnings. Production is increasing from 861,000 tons in 1950s to 11.5 million tons in 2010 and still rising. With signs of overfishing starting to emerge, and with global demand for fish heading to 200 million tons pa, IORA is leading new mechanisms to ensure sustainability.
A good example is its support for aquaculture. I learnt a new word — “mariculture” is aquaculture based on the cultivation of marine species in seawater like kelp or prawns — and it’s a big economic and environmental opportunity.
Oil and gas remains a big regional industry. As well as the obvious reserves in the Middle East, some experts say Myanmar’s offshore potential could match Brazil’s pre-salt basins, the Bay of Bengal currently has the greatest attention from Big Oil, and speculation is that Sub-Saharan and East Africa hold enormous gas reserves.
For its part, IORA is also encouraging its members to look to the ocean for renewable “blue energy” from wind, wave, tidal, thermal and biomass sources. IORA also funds a range of research programmes and feasibility studies e.g. on tourism.
What does it all mean for Aotearoa?
We have a lot to offer Indian Ocean countries, from traditional meat and dairy, to advice around fisheries monitoring and management. We have been successful in building up trade with Asia but we also risk being overly dependent on a handful of key markets.
The Indian Ocean offers what Sinbad might have called “fabulous riches” by creating huge demand for everything we can offer. There’s also a big push factor if Coleman’s prediction materialises and Australia engages less and less with us.
We need to look west.
Kevin Jenkins is managing director of professional services firm MartinJenkins, and a Director of digital automation firm Quanton among other roles. (Kevin.Jenkins@martinjenkins.co.nz)