I’m from the future: I have good and bad news.

June 14, 2017

The Next Map of Global Growth: Khanna

This year’s Nor-Shipping was always going to be different; a new director, a new ‘disruptive’ hall and a place in the shipping cycle which suggested that new solutions rather than old approaches would be the order of the day.

This is as true for the Norwegian maritime and offshore industries as for the rest of the world, but the opening conference, while paying the home nation due deference, cast its net far and wide for input.

Chief among the influencers was Dr Parag Khanna, Managing Partner of Hybrid Reality and a Geopolitical Futurist, who set the stage for much that was to follow. He is certainly no catastrophist – in fact he’s pretty bullish on the future of global trade, but that does come with caveats.

In short, he advocates for the concept of ‘liquid borders’ in which a global connectivity revolution connects societies and trading partners in a way that politics and trade barriers are not equipped to block. In fact, the doom and gloom propounded by those who think rising protectionism is going to derail shipping are, he reckons, beating the wrong drum.

The future he defined as akin to the systems of the human body, with a new skeleton of transport, a vascular system of energy pipelines and a nervous system of fibre and satellite communications.

“That one reason is enough to be very optimistic about the future of the world economy; the connectivity allowing our most ancient principle of supply and demand to meet,” he said. “Every region of the world can be an active participant, trading, connecting and investing in every other part of the planet like never before and on increasingly equal terms.”

This bullish assessment is helped by the rebound in global trade in the first half of 2017 – a modest but steady 2% – and he said the main difference is the balance of trade relationships. Though the 20th century the transatlantic relationship was the largest single axis of trade and still accounts for $1trn per annum of goods and services exchanged. The US-China axis gets more attention, but is worth less at $700bn.

The area of interest is Europe and all major Asia economies, a trade relationship that already totals over $1trn before most of the connectivity and infrastructure is built out. “It has also happened before Europe has robust trade agreements in place with many of these countries, so it will grow phenomenally in decades ahead,” he added, presumably to the chagrin of pro-remainers in the UK.

Asia’s trade with all regions of the world is driving greater opportunity and the urbanisation megatrend means significant additional infrastructure investment is needed, promising further growth in the world economy.

China, said Khanna is already the number one trading partner of 120 countries – twice as many as the US. “Even if China’s economy slows by a couple of percentage points, it doesn’t mean this will be negated,” he said. “What happens historically is that trade relationships become investment relationships then become alliances, so if we think ahead when we see the data, the centrality of Asia is more than as an economic zone, it means more for global strategy.”

He didn’t mention how China’s neighbours feel about some of the impacts they are feeling already, but it is clear to the most casual observer that China is projecting hard and soft power in equal measure.

The majority of the world’s population – close to three fifths – lives in the region that the One Belt, One Road project runs through and Khanna believes there is a new trade alliance being forged between Europe’s eastwards expansion and China’s long westward march.

OBOR include a very significant maritime component, not least with the Middle East and Africa and Khanna believes maritime trade will continue to be the dominant driver – even for landlocked countries seeking sea access via ports on the Indian Ocean.

His next assertion is rather less comforting depending on whether you believe the world faces a sustained threat from climate change or whether this, too is something we can somehow manage with more technology.

The Arctic is evolving from an amorphous region to a populated economic zone with investment growing as maritime connections grow and new routes emerge due to climate change. Because temperatures rise fastest at the poles, while sea levels rise fastest at the equator, the Arctic will become a critical passageway for global supply chains as well as a political hotspot, he said.

“What happens to world food production if temperatures rise by four degrees more than the IPCC baseline of 1990? More food will be produced at northern latitudes and the impact on global supply chain, migration and demographics are key to an industry that thinks in generational, decades-long cycles.”

The meat in the sandwich turns out, unsurprisingly to be technology, because of its ability to transcend politics and borders almost simultaneously. The dynamics of world trade and development, have moved from 19th century geo-politics to 20th century geo-economics to a 21st century ‘third leg’ of geo-technology. How economies compete in future depends on the balance of innovation; which ones generate advances that will drive them up the value chain.

“That will be the focus point of competition. Technology leads to economic growth, which leads to geo-political power,” he said.

All three major economic zones, excluding the Arctic, have some advantage here, but flattering his hosts, Khanna pointed out the invisible infrastructure of connectivity is one of Europe’s key differentiators. He was keen too, to reassure the industry that though things will change, they will retain some of their shape, at least for the foreseeable future.

“Shipping is so critical, the absolute driver of trade. The value of the services economy – the bits zapped around the world rather than atoms that are moved – is increasing in value but it’s not going to replace or displace shipping, rather the two are going to fuse together. It’s up to us to have that conversation and how we maximise the opportunities that arise from the global digital economy.”