The impetus for change

Date:
30 July 2008

Author
Sheila Moorcroft , Research Director, Shaping Tomorrow

Abstract
It is quite possible that ' we ain't seen nothing yet ', that the combined pain
of rising oil and food prices coupled with falling house prices and ever
tighter financial liquidity will get a whole lot worse before we're done. That
pain may, however, provide the impetus for change on several fronts:

- genuine progress in Africa;

- a shift to ECOnomics;
- change in how we structure work;
- more local food production;
- and rising demand for inner-city, urban living and public transport

What is changing?
No end in sight - In recent weeks, the price of oil has repeatedly hit new highs . Given the current constraints
on production plus increasing demand, the likelihood of a major realignment downward looks low. And, while
oil has grabbed the headlines, other resource prices, such as soya-beans, wheat, platinum or corn, are
showing equally steep trajectories as demand, especially from China and India, continues apace. Water, too, in
the long term, is likely to be in increasingly short supply, adding further impetus for change .
Looking specifically at China . China alone already accounts for half world demand for cement, one third for
steel, one quarter for aluminium. On top of that, its copper imports increased 80% in 2007; iron ore imports
have more than doubled to 375 million tonnes since 2003 - and are forecast to rise to 900 million tonnes by
2014. China's oil imports, meanwhile, are already needed to meet half her current demand of 7 million b/d.
According to the IEA (International Energy Agency), those imports may rise to 13 million b/d by 2030 leaving
only about 3.5 million b/d met by local production. And, to put those imports in perspective, they are
equivalent to more than Saudi Arabia's current total output.
Chinese demand for energy and resources is unlikely to slow for a long while. A recent report sponsored by
Rio Tinto postulated that once per capita income reaches $2000, then demand for resources rises inexorably
until per capita income reaches about $20,000: China's income per capita topped $2000 in 2006. 'The
increase in China's demand for metals during the next two decades may be comparable to the total demand
from the industrialised world today ,' the report concludes.
These figures relate only to China. More rises in demand are likely elsewhere when other emerging economies
follow a similar, if less spectacular, route. As we said, we almost certainly ain't seen nothing yet.

Why is this important?

But is it only a case of gloom and doom? Possibly not. While there is little likelihood of prices dropping
dramatically - even with an economic downturn - the knock-on effects of the new reality of high resource
prices may encourage necessary and effective change.
Africa rising? Significant African development may be one of the major benefits of the rush for resources and
the resulting price hikes. India and China are competing hard for the huge oil and mineral wealth in Africa. On
the back of their investments, trade between the two countries and Africa has surged: Indo-African trade to
between $25 and $30 billion , Sino-African trade to between $55 and $60 billion per annum.
There has been criticism that they, but especially China, are too willing to strike deals without requiring
internal reform. However, it may also be the case that by investing in such countries as Congo - 3 rd poorest
in the world; designated worst place to do business; and placed 168 th out of 179 countries by Transparency
Index - where few others are willing to go, the resulting growth may break the cycle of failure.
Both countries are also beginning to work more closely with the World Bank and United Nations. India has
provided peacekeepers and extended lines of credit valued at $2.5 billion; there are now discussions about
establishing a $10 billion investment fund. China is discussing setting up aid projects in collaboration with
the World Bank. Their actions and investments may also prompt new approaches and investments from western
companies and governments.
But Africa is not the only place where positive change may result. Over the past two years, Shaping Tomorrow
has highlighted a number of areas where rising resource prices are driving and providing opportunities for
innovation.
ECOnomics on the rise - The current price rises will reinforce the move to ECOnomics, the growing emphasis
on effective resource use and more environmentally friendly products and services as the norm. Such resource
saving strategies include those which have reduced Danone's water usage by 30%; or reduce companies' print
and storage costs between 10% and 40% when they shift to digital procedures. They are also behind the
potential use of Florida orange growers' peel waste for biofuel feedstock.
Heralding the virtual workplace - The rising cost of commuting may encourage companies to use the growing
number of tools - such as Google Docs teleconferencing and other cloud computing tools - to develop and
support dispersed and virtual teams; to enable new forms of flexible, remote and local working. It may also
encourage innovation to reduce the 'clunkiness' of getting set up in virtual worlds such as Second Life , so that
they too can be used more widely to create virtual meetings , training and 'events' which can engender a sense
of belonging to an organisation even via a remote team - as was recently demonstrated at a Xerox product
launch.
An additional driver for using the new technologies to solve resource issues and create greater flexibility is
© Shaping Tomorrow Ltd. Page 1
An additional driver for using the new technologies to solve resource issues and create greater flexibility is
the war for talent. As the techno-native Millennials, who have grown up with MySpace, Flickr and the like, enter
the workforce in large numbers they are demanding new ways of working - especially greater flexibility, less
hierarchy, more technology-based solutions.
Greening the suburbs - One of the major appeals of moving to the suburbs, especially in America, is space. If
food prices continue to rise along with concern about food security and food miles, that space may provide
opportunities for local food production. We may see the development of local land banks and community
networks of people willing to provide their gardens to grow the vegetables, in return for free food . Local
employment may also develop. In fact, Permablitz - a small organisation in Australia is already leading the way,
providing weekend garden makeovers and teaching owners how to develop and grow their own food using
permaculture techniques.
Public transport and city dwelling (re)born - In the next few years we are likely to see far greater demand for
public transport, 'walkable' communities and inner city, urban lifestyles for professionals and 'empty nesters'.
Whereas land and house prices in the suburbs are plummeting , in inner city and urban areas often they are
rising. In some communities, such as Stapleton in Denver, new 'walkable' models of community have begun to
emerge, courtesy of developer Forest City, with schools and shops within walking distance and commutes via
public transport; the city has invested some $6.1 billion in public transport. As a result, house prices are felt
to be stable. In contrast, in Maricopa an outlying suburb of Phoenix, a new pubic bus service has been put on
to try to counter the dramatic fall in house prices and the rising cost of commutes. In London, housing
developments with no car parking are encouraging residents to rely on a combination of public transport and
car club schemes for shared access and usership. Even in Los Angeles, perhaps ultimate city of the car, locals
are rediscovering public transport - subway passengers were up 14% in the first three months of 2008. City
planners and developers will need to act fast in order to accommodate these changing expectations and
needs.
And so, while normal service is not likely to be resumed, the current clouds may have a silver lining in the
long term. A case of no gain without pain!

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