Empowerment Through Knowledge

We’re used to writing off Japan as a population that is not only aging but shrinking. At the other end of the spectrum, Malaysia, with a fertility rate of 2.58 is supposed to have all the wonderful demographics.

But consider this perspective – economic output is not generated by the size of the population, but by the number of people who are actually in employment or self-employed.

On this score, Malaysia is shockingly deficient.

There are only 13.2m employed people in Malaysia out of a total population of 29.9m or 44%. These figures include the official foreigner population of 2.6m.

In contrast, there are 63.5m employed people in Japan out of a total population of 127.1m or 50%. These figures also include the official foreigner population of 2.1m.

The general view of India is one of a country with a burgeoning and young population (more than 1.25 billion people with a national fertility rate of 2.3), hence the prospects for growth in terms of consumption and production is usually seen as a blue skies scenario.

The devil as usual is in the details.

The fertility rates of 11 states comprising 43% of India’s population is below 2.1 (ie. below replacement rate). The least fertile states are West Bengal (1.6), Punjab (1.7), Himachal Pradesh (1.7) and Tamil Nadu (1.7). Unsurprisingly, these 11 also tend to be the wealthier and more developed states. Their average GDP per capita is nearly 110,000 rupees and literacy rates are generally well above 75%, mainly above 80% and even reaching 94% in the case of Kerala.

The fertility rate in the states holding the other 57% of the population ranges from Haryana (2.2) all the way to Bihar (3.4). And no surprise, their average GDP per capita is well below 70,000 rupees and literacy rates are generally lower, in many cases well below 70%. The major state with the lowest literacy rate is Bihar at 64%.

India’s national literacy rate is around 75%. Contrast that with Vietnam (94%), Indonesia (93%), Philippines (95%) and China (95%).

Human beings are the same all over the world. We move around in search of jobs and business opportunities. We usually go to a new place to make our lives better and this is usually because the destination provides opportunities in terms of jobs, business and personal advancement.

For many years, Japanese people have been leaving Japan. By tabulating the number of Japanese leaving and netting off the numbers returning, over time, it is possible to see the trend of emigration. For most of the past decade, there has been a net exodus of Japanese, usually numbering between 50-100,000 per year.

But in 2014, this reversed. There was a net return of about 12,500 Japanese. The last time there was a net return of Japanese was in 2001. Would they have returned if opportunities in Japan had not been increasing?

The collapse in oil price has taken most people by surprise. Although some attribute it to Saudi Arabia’s openly declared war on shale oil, the truth is crude oil price began falling in June and OPEC’s announcements only began to plague the market several months later.

What I find interesting is every big gyration in oil price that we have seen in the past 30 years has been accompanied by a crisis, usually of a financial or economic nature. See chart below.

The puzzling thing is this most recent gyration hasn’t been accompanied by any big financial or economic crisis that is big enough to significantly affect the world.

At least not yet. I have a feeling that this coming crisis will happen in Russia.

It is well known that Japan faces a shrinking and aging population problem. It is serious, no doubt, but I am writing this essay to point out that the rest of developed Asia is far worse.

Look at the table comparison of fertility rates.

Relative to other developed Asian countries, Japan is booming with babies!

The following chart shows China’s annual cement production compared with the rest of the world. You can see that China is producing TWICE what the rest of the world produces. The thing is cement is a heavy and low value commodity. As such, it is not economical to export cement from one country to another. Common sense would tell anyone that China doesn’t need that much cement.

You can see from the chart that China’s cement production went berserk after the 2009 stimulus. In the 5 years after 2008, China’s production increase was equal to the increase over 16 years prior to 2008.

Thailand and China have roughly the same GDP per capita. Thailand has about 40 million tonnes of capacity in a country of 67 million people whereas China with 1,351 million people has 3 billion tonnes of capacity. If it were behaving like Thailand, it would only need 800 million tonnes!

A similar situation exists for steel.

The chart on the next page shows China’s steel production compared with the rest of the world. China produces nearly as much steel as the rest of the world put together. Post 2008, monthly production has increased by 20 million tonnes, a 50% increase over 2008 levels.

The full report is posted in the Subscriber's Area.

Indonesia joined OPEC in 1962 and left the cartel in 2008 when it realised it was going to become a structural net importer of energy. Funny thing is most people I polled while writing this essay were under the impression that Indonesia is still part of OPEC!

Oil production has been since 2000, from over 1.4 million barrels per day to less than 800,000 by late 2013. There was actually a period from 2007-2010 when production stabilised at just below 1 million bpd but has seen fallen steeply again. See chart below.

The latest data shows that Indonesia crude oil production will continue to plunge. According to Indonesia’s BPPT (Agency for the Assessment and Application of Technology), crude oil production could drop to as low as 124 million barrels by 2030 or about 340,000 barrels per day.

The natural consequence is net imports go up as shown in the next chart.

Actually, Indonesia only became a structural net importer of crude oil in late 2012 but since then, the deficit has accelerated. It is now in the region of 4 million barrels per month or more than US$400 million at current oil prices.

According to BPPT, net imports could reach 408 million barrels by 2030 or 34 million barrels per month. That’s nearly $4 billion per month at current oil prices.

The deficit in oil isn’t coming from the demands of electricity generation. As can be seen from the next graph, oil based electricity generation capacity has been roughly stagnant since 2004. Most of the increase in Indonesia’s electricity generation since 2005 has been from coal and to a lesser extent, natural gas.

The culprit is motor vehicles as shown by the next chart of monthly motor vehicle sales in Indonesia. From 2004-2009, Indonesia’s monthly motor vehicle sales oscillated around the 40,000 level. Prior to this, it was around 25,000. But from 2010 onwards, it grew rapidly and in Sep 2013, was approaching the 120,000 level, almost 3x the level of 2004-2009 average levels.

As we all know, once people own motor vehicles, they drive them around, thus needing ever growing amounts of petrol and diesel. Even if motor vehicle sales fall off from now on, the installed base cannot help but grow ever larger. If current sales levels are maintained, more than 100,000 new vehicles will pour onto Indonesia’s roads every month, adding to the demand for imported oil.