Multipolarity: Episode 8

The Great Divergence, Chips With Everything, Africa's New Rumble In The Jungle

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[00:02:00] Andrew Collingwood: Coming up this week. 

[00:02:01] Philip Pilkington: The great divergence for the first time in modern economic history. There might be both a recession in the west and an ongoing boom in the east. What are the implications of a two speed planner 

[00:02:11] Andrew Collingwood: when it comes to sanctions?

[00:02:13] Washington is finding that trade, like life tends to find a way. What way will life find now that the semiconductor ban seems to have 

[00:02:21] Philip Pilkington: failed back in Africa? A new scramble might be getting underway. Tony Blair certainly seems to think so. He's arguing The West needs a broader strategy to win back. I. What first, 

[00:02:32] Andrew Collingwood: the great divergence.

[00:02:34] Philip Pilkington: So some people in markets have been looking at an interesting chart that's been doing the rans that shows the yield curve on one axis and the copper price on another. But the yield curve is generally seen as a recession indicator while the copper price is generally seen. As an indicator, an early indicator of economic recovery.

[00:02:54] So usually if you'd see an inverted yield curve, you'd expect a recession. And if you saw a high copper price, you'd assume a recovery. And because of this, the two should happen together. But that's not happening at the moment. What we're seeing is we're seeing a, a very heavily inverted yield curve, which is an extremely exaggerated recession indicator right now.

[00:03:17] And yet at the same time, after a. The copper price has come roaring back. Now, the question that a lot of people have been raising with respect to this is which one is right? They're saying, well, Since in the past these two things gave the same signal and now they're giving different signals. Which one is right?

[00:03:37] Are we getting a recession or are we actually in the middle of a recovery? And I think that that's the wrong question. I think that what we're seeing here is the beginning of a, a divergent multipolar economy. Where the world isn't as, as integrated as a single economy anymore. And so, um, you can have a yield curve that's giving you a recession indicator.

[00:03:58] And what that recession indicator is signaling is a recession in the developed markets while at the same time the copper price is rising. Because it is telling you that a recovery is underway in the emerging markets. This is the beginning of what I've referred to on Twitter as the great divergence for the first time.

[00:04:16] We may see a two-year economy where one half of the world can grow while the other slips into either recession or stagnation, and I think that's a very, very historical event. I think it's the first time it's happened actually in history. This is one 

[00:04:29] Andrew Collingwood: of those occasions I think we at Multipolarity can pat ourselves on the back.

[00:04:35] Sing our praises a little bit because you especially have been talking about this almost since the very first podcast we produce together. Philip, you've consistently said that in your view, what's likely to happen is a divergence between the growth of the emerging economies, but especially the BRICS economies.

[00:04:55] And the western economies, we might call them the G seven economies if you like. And it does appear that this divergence between the US Treasury yield curve, which you know, for listeners who might not be so okay with the market jargon. Basically when the yield I either the kind of a return an investor can expect when he or she buys US treasury bonds, US sovereign debt.

[00:05:23] When that yield goes down, i e, when the return they can expect on their investment decreases. That's an indication of reduced risk tolerance and also reduced inflation expectations, both of which are forward indicators that a recession is coming. And that is very low at the moment. The spreads between the two year bond and the 10 year bond is really very low at the moment, and it's, it's falling precipitously, which is a strong indicator that the US is heading for a recession.

[00:05:55] At the same time, the price of copper on the commodities market is increasing Now for an industrial metal like copper, of course. You know when economies are growing, then that's when you need industrial metals. When they're decreasing, you need much less industrial metals, and this divergence is very important.

[00:06:14] I, I saw very interesting to. To really strengthen your case. I saw that in January the Chinese reported near record, total aggregate financing, which is the amount of kind of credit and liquidity within the the Chinese finance system, which again, is a leading indicator of growth within China. So I think that very much supports your thesis, that what we might be seeing is this historic moment when China decouples from the West and again, I hope listeners don't mind, but again, you've been saying that for some time.

[00:06:45] You said in a recent podcast that China had moved its trade away from it. It had reemphasized its trades toward the emerging economies from the developed markets. You said that there were a lot of signs that China was revamping its economy, and here we go, China's. Escaped from its zero Covid policy.

[00:07:05] It's now got a great deal of finance and liquidity in the system, and it appears that we might be seeing leading indicators like this chart, which shows a divergence between the US Treasury bond deal and the copper price. That there is indeed going to be an economic divergence where China grows even as the US and the, and the rest of the west sinks into a depress.

[00:07:29] Or recession, I should say. Depression might be a little bit too hot, although in Europe's case, perhaps not. Well, let's 

[00:07:35] Philip Pilkington: come back to the depression versus recession discussion in a moment. First of all, I think it's just worth saying that none of this, I think in terms of the Chinese growth picture is very controversial.

[00:07:46] I saw that at the beginning of February, Fitch gave its forecast for China for 2023, clocking in 5% growth. I think that the issue here is twofold. First of all, that people aren't seeing the broader picture here. They're, they're not seeing how unusual it is that we're getting a, a, a substantial recession in the developed part of the world, and we're getting such buoyant growth in China.

[00:08:10] So it's almost like their minds are compartmentalized. They know the. Going to grow fast. But then when they see a chart showing the yield curve and the copper price, they think it's some sort of an error on the part of one of those markets. It's not. They people need to decompartmentalize those two things.

[00:08:25] A very historic thing is about to take place this year, and it's going to have. Extreme long-term consequences. The other aspect, and I think you kind of alluded to it, is that this probably isn't a China alone story. I, I recall when, when I did some work in my previous job on China, I, I did an extensive study on it and after doing that study, we turned and did a study on the other emerging markets economies, and I kind of started calling them internally, China.

[00:08:55] Because most of these economies are far more so tied to China than to the developed markets. I mean, just to give one example, Brazil, right, the bee and the BRICS, most of the economic cycle in Brazil is, is driven by iron ore. Uh, exports. Even the rail, the value of the rail is basically driven by iron ore exports, and those iron ore exports are mainly going to China, which is the world's largest steel producer.

[00:09:21] Obviously, you can say something similar about the market for soybeans in Argentina, but that was even in, in the before time. In a sense, that was before we saw the enormous global. Shifts that we've seen recently since then, China has massively increased its trade with the emerging markets economies. So, um, you mentioned China, uh, Chinese, total aggregate financing that we're seeing a lot of liquidity in that system.

[00:09:46] And of course, that overlaps with this rise in demand for copper and therefore the copper price. I think that Chinese liquidity is going to find its way all over the global economy. And so we'll probably, maybe we won't see, you know, very buoyant growth rates in the, uh, BRICS plus countries in 2023. But it should give it a shot on the arm to get, um, to get those economies moving again.

[00:10:09] And meanwhile, the question around the developed markets economies seems to be, not if there's going to be a recession, but when that recession occurs and how deep it's going to. So I think the divergence is, is really interesting. It's really wild. I think people know this, but they just need to kind of decompartmentalize the two things to think of it 

[00:10:28] Andrew Collingwood: clearly.

[00:10:29] It's one of those things where when something hasn't happened or when there's a certain pattern, it's a historical pattern, it's very difficult then to even when you understand what's happening, to apply that to the new reality. I just wanna ask you though, You mentioned that this is something that's going to have quite broad consequences for the world.

[00:10:54] If there were, you know, if there was going to be a divergence between China and perhaps the broader emerging world, the emerging economies from the Western world, the G seven world, the golden billion, or the economic west, if you like. What sort of consequences might that have in your view? What are the, what would the immediate consequences be, but also some of the longer term consequences of a decoupling?

[00:11:22] I mean, that I, I think that's perhaps a, an unfair question to a certain degree because such. Consequences would be so broad, but I mean, in a nutshell, what, what would you see the immediate and most visceral consequences being? 

[00:11:36] Philip Pilkington: I think the immediate consequence is going to be something that we're already seeing, which is the capital flows are heading to China and they're heading to the emerging markets.

[00:11:46] Everybody is, is fearful in western capital markets right now. They're scared of a decline in stock prices, in home prices, and so, And that money is going to China and to the emerging markets because, you know, capital investment capital isn't patriotic. Let's be honest about it. It goes and it looks for the highest return.

[00:12:05] Now I think that's gonna have a lot of interesting consequences. I mean, one of, one very immediate consequence is that I think many people are expecting a lot of layoffs in the Western financial services sector. And those layoffs could be quite brutal. There's, there's rumors going around about some of the big investment banks eyeing up big cuts.

[00:12:24] Where do all those people go? Do they leave? Do they go to China? Do they go to perhaps slightly less controversial places? Do they go to Brazil to work or, I mean, what, what will it look like when, when the financial sector of one part of the world is roar? And the financial sector on the, in the other part of the world is in a slump.

[00:12:44] Finance people are notoriously mobile. They tend to just follow where the jobs go. There's kind of a, a wage arbitrage between New York and London. It's, it's very well known if the, if the wages go up in New York too much or older to London, London starts losing finance people to New York. Related to that, Or the capital flows themselves.

[00:13:03] I mean, this capital is flowing into places like China and into the BRICS plus countries at the same time as tensions are arising between the developed West and countries like China, how is that going to play out? It's not like we're talking about the potential for absolute sanctions on China in the near future, but sanctions are definitely being ratcheted up on.

[00:13:26] What would happen, for example, if the United States started getting anxious about these capital flows heading abroad? I think that's a very real question to be asked. Now, restricting those capital flows, for example, would have massive consequences because it would a effectively mean that the Western economies were reimposing the capital controls that we had in the post 1945 period.

[00:13:48] And that would mean something very, very different in today's globalized world, a as it meant in 1945. But I think that's also interesting. What, what will the politics surrounding these outward capital flows mean? What will they mean for the West? What will they mean for the Western financial sectors? I think that's the thing to watch in the immediate term, but as you alluded to, on a broader level, these changes are probably just so large.

[00:14:12] That we can't even imagine, uh, 

[00:14:14] Andrew Collingwood: what's gonna happen. Yes. And it strikes me as well that this sort of divergence might be accelerated somewhat because China and also of course India and several other countries that haven't sanctioned Russia are about to get huge manufacturing cost advantages based on the fact they can buy inexpensive Russian crude oil and gas.

[00:14:36] In addition to that, of course, Russia is a significant exporter of a range of other commodities from food to things like nickel, which is crucial for some of the more modern economy. So really it's it. It's going to be interesting to see if this divergence accelerates through means like that as well.

[00:14:57] Chips with everything on the subject of Russia and China. There was also an very interesting chart recently, which showed that in the last year since sanctions were applied on Russia, China and Hong Kong, mainland China, as it, as it as it's referred to, and Hong Kong, have really taken over almost entirely the Russian market for semiconductors.

[00:15:21] Which I think suggests two things. First, that the sanctions on Russia aren't being that effective, but also the US sanctions on China with regard to semiconductors and chips aren't necessarily being so effective either. Yeah, 

[00:15:34] Philip Pilkington: I, I saw a very interesting article in the Wall Street Journal the other day about this.

[00:15:39] The title of it was How Microchips Migrate from China to Russia. It had many of the charts. It showed that these. We're going directly to Russia, Chinese exports to Turkey, were, were going up and then, then seemingly recycled into Russia as well. So there were many circuitous routes through which this happened.

[00:15:56] I thought that the final paragraph in the article was very striking, though I, I won't read it all, but some of it said curtailing sales and shipments of the most advanced chips to China and Russia is one thing, but as western nations are once, Discovering to their chagrin, trying to stifle trade flows of more commoditized items, like basic semiconductors is a different matter now.

[00:16:20] No, don't really wanna brag here, but that's exactly what I said. When many of these sanctions were put in place, and certainly when the, when the chip ban was put in place on China sanctioning, uh, military technology, for example, is one thing, but sanctioning, as they call it, a more commoditized item, by which they mean these things are in everything.

[00:16:40] You, you need semiconductors to build almost any electrical device. That just seems like a completely impossible task. So it is very interesting that the Wall Street Journals kind of caught onto this, but I think beyond the fact that this probably doesn't bode well for the Chinese chip sanctions, and it definitely doesn't bode well for the overall sanctions, I think what you alluded to is true.

[00:17:03] What's really happening here is that we're just allowing China to take over the Russian semiconductor. So we're just allowing the Chinese control over semiconductors worldwide to grow as ours shrink. And of course, that known only has that first order effect of giving China more control over the global semiconductor market, but it has second order effects because if our, if our semiconductor exports are shrinking and China's are increasing, that means more investment will get put into the Chinese semiconductor industry and it'll grow and develop faster.

[00:17:40] So I, I think this whole thing is really showing people, once again, the trade is a very, uh, it's a very, very natural. Um, process. It's not something really that governments can control. I think kind of the more libertarian minded economists who, who like Friedrich von Hayek and stuff, I don't count myself as one of them, but I think they have this right.

[00:18:01] Trade is, is such a, a decentralized operation that trying to control it centrally is, is, is really a fool's errand and only ends up violating the law of unintended consequences. And you tend to get. Unintended consequence. I think the one here is that you've just massively bolstered the Chinese semiconductor industry.

[00:18:20] Andrew Collingwood: Right. A friend of mine always used to say that people trade with other people, not other governments. Right. That's the, that's the key to this. And if you suddenly decide, okay, we're not gonna trade with X country, then somebody will, especially if it's the size of Russia, or in the case of semiconductors, the size of China, these are going to be countries where people trade with them.

[00:18:43] They're huge markets, they're very valuable markets, and they have purchasing power, and they have products that people want to buy. People in fact need from both of those economies. So it, it would be incredibly unusual if the Western nations, you know, seven or 10 nations in, in total were able to cut off the trade entirely with those organizations.

[00:19:10] And I suspect unfortunately, what's going to happen. Is you might increase the cost of trade somewhat in the same way that you would increase the cost of trade. If you increase the cost of Mercedes and BMWs. If you stuck. Massive tariffs on luxury cars. Okay? But that's not gonna stop the trade in total.

[00:19:30] And equally for things like semiconductors in China and other high tech that the US might want to sanction in future, it might for a short period of time, increase the cost of trade, but ultimately, New lines of logistics, new manufacturing hubs, new processes will be set up to slowly reduce that cost of trade and, and, and bring it down over time.

[00:19:52] But in addition to that, even if that doesn't happen, the trade is not going to stop. All that you're doing really is you're facilitating, first of all, competitive advantages for other nations, for instance, China now is going to have a competitive advantage over European and and US manufacturing because it can buy Russian crude oil inexpensively.

[00:20:14] Equally, it's going to have an advantage in the production of certain semiconductors. Maybe not the. Super high end AI chips that Nvidia produces, or maybe the, you know, not the four or five nanometer chips that are produced in Taiwan, but for certain types of semiconductors, China's going to have an advantage because it has a large captive market in Russia and, and, and that provides certain economies.

[00:20:39] The second thing it's going to do, it's going to facilitate the creation of a new powerful trading block, and I think we're already seeing. The beginnings of that, we're seeing increasing amounts of trades between Russia and India, between Russia and China, between Russia and Turkey. And it's only a matter of time before those countries also start trading at an increased level with each other in an increased tempo with each other.

[00:21:05] And as. Regular listeners to Multipolarity will know that's also leading to the use of national currencies in bilateral trade and also investigation into units of economic exchange, whether that be digital currencies or, or, or whether it be something else. Far from, far from facil, far from crushing the Russian economy, you might temporarily increase the cost of trade and, and, and, and through that channel, increase inflation or increase the cost of doing business for Russian companies for a certain period of time.

[00:21:40] And, and likewise in China with regard to the semiconductors. But in the long term, what you're doing is you're providing competitive advantages. You're facilitating the creation of a new trading block, and you are decoupling this. Extraordinarily powerful trading block. I mean, look at the, the size and scope of the Chinese economy and what it provides.

[00:21:59] Look at the commodities power that the Russian Federation brings to the table. Those two countries alone are, would be incredibly powerful in terms of macroeconomic heft between them. But there are gonna be other countries that gravitate toward them as well in places like South America, the Middle East, Asia Minor, and even in Africa.

[00:22:19] So I think this is going to be something that is very much worth watching, and it might be, unfortunately, another occasion where Western Diplomacies punched itself in the.

[00:22:32] Philip Pilkington: Yeah, I'm gonna give the diplomats a pass on this one and actually kind of beat up on the economists for a minute, because this is something I've noticed actually since the lockdowns, to be frank, that the economists. In my opinion, haven't really been doing their job. Economists most of the time have a pretty straightforward job.

[00:22:52] They don't, unless they're working on some specialized field or they're working in some sort of a financial institution where they're trying to take bets on things. The general thing that economists usually do in government or wherever is they convince politicians and policy makers not to meddle in the economy too much.

[00:23:12] Now, some of that I think, is excessive. It can lead to kind of free market absolutism. It can lead to, you know, the notion that you should cut the state to bits, you know, thatcherism, reaganism, stuff like that. I think it can go excessively in that direction. Somebody actually does need to be there. They need to be the person at the table who makes the point that the economy, a market economy is a largely organic entity.

[00:23:40] It, it, it functions by itself. It's very, very hard to metal with the tools that they can be used to steer. This economy are widely known. I think they really constitute stuff like tax incentive systems. Government spending monetary policy, some, some trade negotiations, trade rules, even potentially tariffs when they're done properly.

[00:24:01] But they just, they always have to be reminded that you can't just go around and completely medal with this entity. And I think it's probably since the lockdowns. Economists have really, really fallen down on that job. And I think what happened with these sanctions, not only are they not working, they are actively increasing the strength of rival economies.

[00:24:22] I think what happened was that the kind of foreign policy people came along and, and their whole world is one of conflict. You hit me, I hit you. Who can hit harder? That's just the way they view the world and that's fine for the thing that they do, and they kind of projected this. Mode of framing onto the economy.

[00:24:40] And for some reason, the economists, the vast majority of them didn't stand up and correct them and say, no, wait a minute. This isn't foreign policy. That's not how things work. The economy works completely differently. So I think I'd really hope that economists can kind of get back in their boots and honestly start doing their job again.

[00:25:01] Like go back and. Your policymaker, your politician, or whoever you're advising, but these basic lessons that you learn in microeconomics class in your undergrad. 

[00:25:11] Andrew Collingwood: Well, it seems so very much. Of course, in the meantime, we shouldn't gloss over the fact that there will be for economies like China and Russia and several others as well, there will be negative effect, especially in the short run.

[00:25:24] With regard to trade dislocation, we touched earlier on that it. Increase the cost associate with trade, rather as if a country like the UK stuck up the trade barriers one day, that would also affect the cost of trade and there would be some negative downturns. But in the long term, I think you're absolutely right.

[00:25:42] Economists need to have a good hard talk with politicians because you know, there's a lot of talk, for instance, at the discounts that Russia is having to sell. Its oil. Every time I hear that, I, I think to myself, but hang on a second, that's a discount that somebody else is receiving and those, some people who are receiving it are countries like India and China who are direct competitors in manufacturing.

[00:26:09] With European countries. I mean, not in everything. Of course, Germany does a lot of luxury cars in a way that China and India don't, and Germany also does a lot of high value added capital goods, you know, complex and big machinery from companies like Siemens. And perhaps India doesn't do that to the same degree, but still these are manufacturing competitors and, and giving.

[00:26:32] Economies, a relative shot in the armor, a shot of kind of macro macroeconomic amphetamines in the form of much cheaper energy than their European counterparts is. I mean, the long term effects of that really are quite serious, I would've thought. And that's, you know, before you get to the direct consequences of this to European economies as well.

[00:26:56] So I think from an economist point of view, That is something that they might want to consider. Have you seen any reasonable assessments of the long-term consequence of this? Because you are the, you are the podcast macro 

[00:27:11] Philip Pilkington: economist, Philip, um, I mean that Wall Street Journal article. I, I, I have to say it was kind of heartening to read.

[00:27:16] I'll, I'll just tell you what the last, very last paragraph said. It said, as in the 2018 and 2019, Sino US trade war when tariff laid in Chinese goods, made their way to third countries and overall Chinese exports held up. Washington is finding the trade flows like life tend to find a way. I think that's the, that's the.

[00:27:37] Conventional wisdom. I mean that in a positive way of kind of trade economics, and it's kind of refounding itself in this Wall Street Journal article. So I'm glad that you know, the economics graduates, probably a lot of them at the Wall Street Journal are pointing this out. Again, very disappointed in magazines like the Economists and so on, which seem to have got all in on sanctions, become completely uncritical.

[00:27:58] It's been pretty awful to watch, but I do think the Wall Street Journal's a pretty pivotal publication. Now that they're talking about it, I'm hoping that it'll get broader attention. 

[00:28:08] Andrew Collingwood: Rumble in the jungle, Tony Blair returns to the political scene a, a, a word that will no doubt provoke certain feelings among British listeners.

[00:28:17] He wrote a, a fairly brief opinion piece for the Deadly Telegraph, one of the major broad sheet newspapers in Britain, essentially arguing for continued. And robust western unity against Russia pertaining to the war in Ukraine. However, one of the things that he did mention in that piece was that he felt that it was important for the western world, not only to show a united front with regards to Ukraine, but also to show united front, uh, with Russian aggression elsewhere in the world.

[00:28:53] For instance, in Africa, he said that Russia, Was undertaking a campaign of destabilization. He argued that this involved a disinformation, the malign actions of organizations like the Wagner Group, which has very much coming to the public's eye over the last year. The provision of arms and even the support of Ku de has.

[00:29:14] He said that crucial would be the Sahel, which is the region. It's the kind of the, the transition region between the Sahara Desert and Sub-Saharan Africa. And he argued that this could be the source of the next wave of extremism and migration to Europe. If the West isn't careful in the west, doesn't produce a coherence and unified strategy to deal.

[00:29:36] I thought this was very interesting because just the day before, two days before Rolling Stone Magazine in America released a report that highlighted the fact that there have been no fewer than seven kus Deta in African nations in recent months and years undertaken by US trend forces. And if you actually look at what's been going on in that region in Sub-Saharan, What's really interesting is that the West has had a coherent and unified strategy, the sort of thing that Tony Blair had been calling for, and it's simply failed abysmally.

[00:30:17] So for the past 20 or 30 years, the US has been fighting what's become known as a shadow war. So after the nine 11 attacks, as it went into the Middle Eastern force under to engage in the so-called war on terror. It did exactly the same thing in Sub-Saharan Africa. And in fact, over the last 20 years or so, the US has had armed forces including air attacks, including boots on the ground, including special forces in no fewer than 22 African nations over the last 20 years, which is a remarkable number.

[00:30:53] And in addition to that, 14% of deployments for US special operators. So that's. You know the Navy Seals, that's a Delta. That's the US Army's Green Berets. This sort of force, 14% of their deployments have been to Africa, which is the second largest area of deployment for US Special operators after the Middle East.

[00:31:16] Which is astonishing. And of course you also have French influence there with the, with the West African Frank and the central African Frank, where essentially France controls to a great degree the monetary policy of a large number of west and central African countries. It sets a peg to the Euro, which is set not by those countries themselves, but by the French Treasury and a peg is.

[00:31:40] X number of currency is convertible to y number of another currency at a, at a very specific rate. And usually those pegs are set by the host countries themselves, not by a foreign power. Those two currency unions, those two francs also compel those two countries, those two country groups to hold a certain number of their reserves with the French Treasury as well, which nobody knows exactly what the French do and, and the French, I believe even mint the currency themselves.

[00:32:08] So you've. This significant involvement. Of course, by the way, the French I should mention have also been fighting a war in Mali until last year when they were withdrew under pressure, I believe from the Wagner group. There has been this long-term western plan where there's been significant industrial and economic interests.

[00:32:27] There has been monetary and the financial interests and there's also been a huge war that's gone on really under the radar of the west while we were all concentrating on the Middle East and then perhaps Ukraine as well. We don't realize that there's an extensive war being fought between US forces and counterinsurgency forces, and ultimately a lot of these forces that the US are training on the side are then going on to overthrow some of the governments that the Western nations are trying to support.

[00:32:57] So it's not as if there, there hasn't been Western efforts within Sub-Saharan Africa, it's just that they failed miserably. And now countries like Russia, like China having much more success in making hay. And I think there's a certain panic among the western nations that China and perhaps Russia as well will be able to extract advantages in this new scramble for Africa.

[00:33:20] The Western nations have abjectly failed to in their effort? 

[00:33:24] Philip Pilkington: Yeah. This first came on my radar when I saw a long article in the Financial Times a few weeks ago about the, uh, French pullback, uh, from Mai and from a few other countries, and their effective replacement with, I think, as you say, Wagner, private military troops from Russia.

[00:33:41] Now, Tony Blair is talking about this. Rolling Stoner or, or shining some light on it as well. I, I mean, I guess I'd read that as the West is realizing that there might be an issue there. I guess the question is what this is going to look like. I mean, this is Africa, it seems to me being placed in the middle of the kind of multipolar scramble.

[00:34:01] I think you pointed out to me that, that that's not the first time that Africa's found itself in a similar position, obviously during the Cold War. They certainly did. Um, I guess the question. What, what this struggle looks like is it just continued tit for tad Military chaos. Constant rolling Military COOs.

[00:34:22] Everyone trying to get their favorite leader in power for like a couple of months or a couple of years, or is it something different? Is it something where China especially might come along offering to make these countries richer, to develop them, to bring them up to a more modern standard living and then maybe the west will have to try to compete in that sphere?

[00:34:41] I think the first 

[00:34:42] Andrew Collingwood: thing to say about this is that unfortunately, Africa still suffers from a great deal of instability. It's not like Eastern Europe or even places in South America or in emerging market Asia, where you have stable governments that can be swayed by arguments that can perhaps be replaced by color revolutions.

[00:35:08] It's far more chaotic than that. In any efforts to gain economic advantage or to gain influence, are far more likely there to. Undertaken through the funding of violent insurgent groups and by the fostering and support of Kuta, and that's just the sad fact. In addition to that, Africa does have a great deal of natural resources and I think it's been pointed out many times and we see some really quite heart renting.

[00:35:40] I was gonna say disturbing, and they are disturbing, but they're also heart renting pictures. Of some of the resource extraction methods that are used to things like child labor to extract things like cobalts from Africa, which is a metal that's gonna be increasingly important as the West focuses on the green transition that it hopes at least to make.

[00:36:02] So there is going to be constant interest in Africa. And of course the Chinese have had recent success there. Built a significant amount of infrastructure. They even have a base in Jabuti, and from Russia's perspective, they've also had success providing security for. You know, not exactly rock solid regimes in the area.

[00:36:27] They're always under threats. Or the Russians have had some success providing, uh, security, providing training, providing arms, and, and in exchange gaining economic concessions. So these things are going to happen, and I think that will be a panic for the West, especially for a country like France. Where it has significant interests within the regions.

[00:36:46] A lot of ports in West Africa, for example, are run by a run by a French company, and as I say, they have this, uh, currency union, which really gains the French, a lot of advantages, but the real source of instability in in, in Africa. Is not the absence of Western strategy. The West has had a strategy. It has tried to stabilize the region through military force.

[00:37:11] It has tried to fight and attack extremists like the Islamic State and Boko Haram and other such organizations who operate in the area. It has tried to play an economic role. The instability isn't going to be caused by Chinese introduction to the region. They seem to be focused mainly on economic issues.

[00:37:32] It's not even gonna be caused by the failure of a Western policy. The issue with Africa, of course, is that still has terrible problems with disease because of its climate and you know, just the unfortunate circumstances. And of course the lack of strong healthcare systems. It still has problems with ethnic and national conflict within nations because of the way that the borders, most of the societies are very low trust, which leads to a great deal of clannishness and a difficulty imposing the rule of law.

[00:38:05] And in addition to that, you then, of course have demographic issues. And for that I'd like to. Draw your attention to Nigeria. So Nigeria already has a population of about 230 million people, which is a lot more than most people might imagine, but it's total fertility rate is well over five. Now, to put that into context, in nations are declining because they're well below replacement level, which is 2.1.

[00:38:34] So Nigeria is well above replacement level, and by the end of this century, the expectation is that Nigeria's population will be 550 million people. So over half a billion people will live in Nigeria. Most of them will go to cities like Lagos, which will become mega cities, and it seems improbable that they'll be able to grow their economy rapidly enough to keep up with that growth in population.

[00:39:02] I mean, already. Depending on the statistics that you look at, youth unemployment in Nigeria is running at about 50% and total unemployment at about 30%. So you're gonna have this rapidly growing population, a huge number of young people, as many of us, half of whom can't find employment. That to me sounds like a recipe.

[00:39:24] For instability, for violence, for war, for cos it, it, I'm, I'm not altogether certain that the West can do a great deal to solve that. I'm not sure that it can, that it can go into a country like Nigeria or, or, or other countries in Sub-Saharan Africa, which have problems that are more fundamental than just tweaking macroeconomic policy here or there.

[00:39:49] Subsidizing a bit of investment here and there. I mean these, these issues are really fundamental and unfortunately, it's gonna be a very unstable region. It's going to grow in economic importance because of the size of its population, because of the natural resources that it has. And unfortunately, when you combine those two things 

[00:40:11] Philip Pilkington: together, 

[00:40:12] Andrew Collingwood: The scene is set, I'm afraid to say, for a new scramble for Africa, there 

[00:40:17] Philip Pilkington: is a more optimistic reading of this at the start of the Cold War.

[00:40:22] Certainly the Western attitude toward Africa was slightly different than when, you know, it deteriorated into this constant chaos of cos and Counter cos and so on. I mean, I think the, if memory serves me, the original. For Africa was during the Eisenhower administration when Kwame Kruma was, I think, elected, I hope, elected president of Ghana and he wanted to create this river Project Dam.

[00:40:50] He thought of it as kind of a way to electrify us whole country and bring it into the modern world. And my understanding of it is that Eisenhower, the Eisenhower administration, strongly backed this, backed him to build the dam. I think the dam did eventually get built and that this was seen as kind of the way that America.

[00:41:07] Was going to maintain influence over a developing Africa in the Cold War. Now, of course, that's not ultimately, What came out of it. But I wonder if the balance of forces today, given that the Chinese have their belt and road project and they are willing to go in and actually build things in these countries, whether that might become the competition on the ground there, that rather than backing, you know, another coup or another coup and a counter coup or, or sending in your military, private military contractors to back one group or another.

[00:41:39] That, that people take a bigger picture vision and that they're forced to take that bigger picture vision because there's actual competition in the region. And in that case, maybe something like the, the NAMA electrification dream of Africa could be realized. Again, I, I'm, I'm not saying that will happen, but it could be a potentially positive outcome of more balanced competition within the region.

[00:42:00] I would 

[00:42:00] Andrew Collingwood: love to have that degree of optimism. I think the problem is that, The great powers and especially the United States and, and China, but also likely France and perhaps to a certain degree, great Britain and Russia as well. When they start competing in those regions, they'll compete for influence and economic concessions.

[00:42:20] They'll compete for the natural resources that Africa can provide and in the sort of, uh, political economies that African countries tend to have. The easiest way to say usurp Russia and the Wagner Group from Mai, for example, or the easiest way to usurp the Chinese from one of the countries in which they've built a large amount of infrastructure and in return, they're getting economic concessions and political influence that are useful for them.

[00:42:50] Will simply be, and I think as competition increases and heightens within the region, and especially as the US really starts to intensify its competition with China, it's. It's unlikely that they'll divvy the continent up into areas of influence. I don't see any solid areas of influence that you had in the late colonial days where, you know, the British weren't attacking the French colonies.

[00:43:18] The British didn't go and attack Cameroon, for example. I see none of that. At the moment. I see something more chaotic, unfortunately, and I'm afraid that these countries. Already rife with insurgency. A lot of them run by warlords or, or, or where warlords have a, a large, you know, a large amount of influence.

[00:43:40] Uh, a lot of them have a great deal of open warfare between individual nationalities within countries. We have to remember that the borders of a lot of these countries were drawn with scores and sometimes hundreds of different nationalities, none of which much liked each other within. And without militaries there to really enforce, really enforce order at the, at the point of a bayonet as sadly and tragically happened during the colonial era, then I'm afraid that it's going to be a lot more chaotic than that.

[00:44:14] And I think there's no appetite among Western countries, even the US and, and, and, and China for going into these countries and. Enforcing order at the point of a bayonet. And I think because of that, you're going to have a lot of chaos. You're going to have a lot of overthrows of government. In the Rolling Stone article, even the US said that the Western Sahel has seen a quadrupling of the number of Islamist, uh, so you know, Islamic terrorist events since 2019.

[00:44:49] And the violence has expanded in geographical reach and in scope, and that's while there was, you know, the French had boots on the ground in the area. The Americans had boots on the ground in the area. A host of other African countries also had boots in the ground in the area. This is all getting worse at the moment.

[00:45:07] It's not getting better. And when you inject another cold war between the US and China into that, I'm afraid yet again on this podcast, I, I, I have to be a voice of doom and gloom, Mr. Pilkington. 

[00:45:21] Philip Pilkington: Yeah, I think what you're saying probably makes sense. The one caveat I would make is it could be a very fertile time if strong.

[00:45:30] Well-intentioned African leaders emerged if there was true leadership in African countries, really wanted to make the country better, they may be able to steer these forces to, to their advantage. I mean, I mean, 

[00:45:41] Andrew Collingwood: just to add a point of note, I mean there are, for instance, trade federation or, or, or trading blocks building up within the region and perhaps as, uh, uh, as country.

[00:45:50] I mean, look, a country that is a net oil export. It's going to have a population of more than half a billion people that has other natural resources as well, and has a decent sized coastline as Nigeria will be by the end of the century, that that's going to be a fair old power. I mean, it might be where China was 40 years ago, for example.

[00:46:15] It might be where India was 20 years ago. It might be the next manufacturing hub if it can get things. A city like Lagos might have a population of 50 million by the air 2100 more even. So I think perhaps in the long term, if there is a lot of enlightenment within the region, then there are possibilities.

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