Group Scenarios 1998-2020

Volume 2: Regions and Quantification

 

 

 

 

The Group Scenario book is restricted. This means that the information in it can be freely shared with staff in Shell and
Associated Companies, but not?with third parties. You should apply due diligence to prevent access by third parties.
At some time, probably about a year after the publication of this book, certain information contained in these
scenarios may be released for selected dissemination outside the Group, where this would add value. if you are

considering sharing the scenarios with an outside audience, or need any further information, please contact PXG.

 

 

 

Group Scenarios
998 2020
Volume 2:
Regions and
Quantification

Volume 2 is a companion volume to Group Scenarios 1998 2020.
It shows how the two scenarios develop in selected regions of the
world. It also quantifies the global economic and energy

implications of the two scenarios.

Contents

Selected Regions in the Two Scenarios
Africa
Central Asia and the Caucasus
China
Euroland
The Middle East

Russia

Quantification

27

41

47

55

67

 

 WM
ATLANTIC OCEAN 'l SPAIN M554 l" -- If 

aI/?Gibrallar 7 

  

  
   

      
      
     
    
 
  

 
  
 
 

   
  
  

 

 

      
   

 
 

    
  
    
    
 
 
   
   
 

Madeira v/ 
MORIOCCOUNTAINS 
5 M0 I Fl A 
2CJaI-IarylsWestern c? A BAHRAIN. yL 
4 Dssen \9 A Fl A A 
??90 \w a 14 UNITS
- AR
,ap Elana ?c 2421:?? EMIRATE
l? 
. I 
27,2221: 2 a OMAN
7 I 1> 
A

E-ITREA den
ol A
Gul sacolra
I "?l?aall: Caseyr
0
2 
SIERRA HIGHLANDS

   

?f 

"'CiFalmas L7

GULF OF GUINEA 
EQUATORIALGUI, -

saa 3 7 

INDIAN OCEAN

 
 


'1
. gulf/x 
5' \R/c?y
TANZAN lA ls.

I 03170 09?95?10 ?Farquhar ls.
60440305 d'Ambre
)04, Mauritius

A H?uman

I
All
GSIetMaria

Ca 9 or I .
6005 Hope Caps Cape St Francis
Agulhas

Africa

Why Has Africa Failed?

Africa is the victim of its past. The problem lies partly in the geographical,
zoological, and agricultural factors that seem to have given Africans a built?in
disadvantage against Europeans, and partly in the more recent effects of
colonisation and its aftermath. When the Europeans withdrew, power was not
returned to the traditional chiefs and kings from whom it was taken by force, but

to rulers who believed in the superiority of western institutions. These modern

leaders were not interested in learning from their pre?colonial forefathers, feeling
that African history had little to teach the present and future generations. But
neither were they equipped to carry on the European style of governance. When
the Europeans withdrew, they took everything with them their organisational,
financial, and other support, and sometimes even their bath plugs. The incoming
governing bodies were left to build a system from scratch, often without the
necessary expertise or support. The infrastructure supplied and maintained by

the colonialists, from roads to laws, degenerated.

 

Why Did Europe Colonise Africa and not Vice Versa?

Crops and animals domesticated in one part of Africa have traditionally had great
difficulty in moving to other parts, principally because the main axis of Africa is
north-south, across different climatic zones. This is in contrast to Eurasia, where
crops and animals moved easily over thousands of miles, at the same latitudes,
sharing similar climates and day 

Indigenous crops in Ethiopia and West Africa all originated north of the equator.
Southern Africa?s wild plants were not suitable for agriculture, and African domestic
animals, such as the African buffalo, zebra, and rhino, were unsuitable for
domestication, in contrast to the horse and cow in Europe. The slow passage, or
complete halt, of crops and livestock movement along Africa?s north-south axis had
major consequences. The Sahel crops, for example, brought by the Bantu from
north of the equator into Southern Africa, could not grow at the Cape itself, thereby
halting the advance of Bantu agriculture.

The reason Europe colonised Africa, rather than vice versa, no longer seems to
have been the result of differences between European and African people
themselves, as whites have sometimes assumed. Rather, it is related to accidents
of geography in particular, to the continents? different areas, axes, and wild plant
and animal species.

See Jared Diamond, Guns, Germs, and Steel, 1997.

 

 

 

Corruption and authoritarianism were widespread as newly independent
countries struggled to find their feet. Military rulers kept democracy at bay and
dealt brutally with those stepping out of line. The citizens, who had fought and
suffered for independence, were not expecting what they got: repression,
governments that couldn?t afford basic services, corruption, and a steady

deterioration of the conditions of daily life.

Meanwhile, leaders followed a variety of economic models, most of them
imported from the west or the communist bloc, and all of them misguided.
Decades after the end of colonial occupation, Africa still casts about for answers
to the questions of which way to go forward, and of how the continent can
harness its resources. Since independence, Africa has continued to rely on her
former colonial rulers and international financial institutions, such as the IMF and

the World Bank, for guidance on growth strategies.

In the past two decades, African Food Production Per Person

economic performance has been

      
 
  
 
 

Index
worse than that of other regions. In 11:31:100
large parts of the continentAsia (developing)
capita incomes have been falling. .
1 40 Latin America

and Caribbean

During the 19805, per capita GDP

declined by 1.3% per year, a full 5%

 

below the average for all low? Sub-SaharanAfricaincome developing countries. 1961 1967 1973 1979 1985 1991 1997

 

Excludes South Africa
Source: FAOSTAT

During the 19905, the situation has
worsened, both absolutely and
relatively. In 1994, the decline in per capita GDP accelerated to 1.8% per year,
and the gap with the other low-income developing countries widened to 
The capital?output ratio in Africa was lower in 1990 than in 1965. In 1965 it was
half that of East Asia, but by 1990 it was a mere quarter. Since 1979, capital per

worker has declined by nearly 20%.

Many factors a general lack of true The African Shortfall

democracy, poor educational WW 
GDP/capita
standards, tribal and ethnic conflicts 5]
Africa?s shortfall
contribute to Africa?s poor long?term 4? 
growth performance. But a 3 

Contribution of different factors

statistically based study has identified

six factors as the most important

 

 

ones: protectionism and inward- 0-

Lower Less Lower Lack of Resource
savmgs openness market market dependence
rate effucrency access

 

1979- 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
1988

Source: IMF, World Economic Outlook May 1998

looking policies; suppression of private enterprise; lack of clear rules; high taxes; low
savings rates; and adverse structural conditions, including inaccessibility to the sea
(15 of 53 countries are land?locked). These difficulties are compounded by the high
reliance on natural resource exports and by Africa?s anti-market orientation, which
is rooted in a fear that open trade and foreign capital pose a threat to national
sovereignty. As a result, most of Africa is in a largely self-imposed economic exile.
When ?self sufficiency? and ?state leadership? are guidelines for economic
development, potential donor governments and international financial institutions

respond by turning their backs.

A further problem has been the high level of armed conflict. Many of Africa?s
internal wars in the Congo, Ethiopia, and Angola, for example have resulted
directly from the cold war, or, as in Mozambique, were linked to attempts to maintain
South Africa?s apartheid regime. Others, as in Sudan, Rwanda, and Burundi, were the
result of deep ethnic divisions. More recently, in countries such as Liberia, Sierra
Leone, Somalia, and Zaire, the collapse of the state and the resulting absence of law
have led to growing pessimism over Africa?s powers of recovery. Meanwhile, tribal

wars continue to be waged over the main commodity, land.

Positive Signs
In spite of these difficulties, a small number of countries have recovered and grown
quickly. Botswana, for example, has built a successful economy, although some
doubts about long?term sustainability remain. Classified as one of the world?s 20
poorest countries at independence 30 years ago, the country is now a solid member
of the World Bank?s group of middle
Africa and Asia: GDP Growth . . . .
Income countries, boasting Africa?s
I Africa fourth highest per capita GDP. A
Asra
diversified and carefully managed

mining sector is credited with driving

 

 

 

 

 

 

Forecast
nearly two decades of 8% growth.
Mauritius and Namibia are also
A success stories, while Uganda,

Mozambique, and Ghana appear to

be recovering after suffering hard

times. Over the last few years, Africa?s GDP growth, although still behind that of Asia,
has been catching up. The end of the cold war and the demise of apartheid have, to
a large extent, ended the conflict in Southern Africa. Mozambique and Namibia are
at peace, and in Angola the fighting is subsiding. Uganda has recovered, to a degree,
from years of civil war, and, with the encouragement of an enlightened leadership,
democracy is beginning to emerge there. External efforts at peacekeeping are
declining, as, at least until very recently, the US and France have shown benign

disinterest in Africa. it is up to Africa to find a solution.

 

State of Transitions in Africa through 1994

Precluded Blocked Flawed Democratic
Liberia Angola Burkina Faso Benin
Sudan Burundi Cameroon Cape Verde
Chad Comores CAR.
Ethiopia COte d?lvoire Congo
Guinea Djibouti Guinea?Bissau
Nigeria Equatorial Guinea Lesotho
Rwanda Gabon Madagascar
Sierra Leone Kenya Malawi
Somali Mauritania Mali
Tanzania Swaziland Mozambique
Uganda Togo Namibia
Zaire* Zimbabwe Niger
SeycheHes
South Africa
Zambia

In Liberia and the Sudan, civil war and other forms of popular armed resistance
precluded any kind of transition, or gave the rulers an excuse to harden their rule.
In the next category of countries, political reforms were launched but never fully
realised.

Transitions are described as ?flawed? where incumbent strongmen resisted them but
could not fully stop opposition demands for political reform. These politicians used
the power of incumbency to dictate the rules of the political game by manipulating
electoral laws, monopolising campaign resources, and interfering with the polls.
The results are evident in Cameroon, Gabon, Ghana, and Kenya, where dubious
elections returned the incumbent to power.

If we add the16 countries that experienced democratic transitions between 1990
and 1994 to the pre?existing African multi-party regimes, then 45% of African
countries can be said to have achieved minimal attributes of democracy by the end
of 1994. Conspicuously, however, democracy in Africa is restricted mainly to small
states. Out of 21 currently democratic regimes, nine had populations of fewer than
two million in 1989, and four had populations of fewer than one million. Only 25% of
Africans are living under democratic regimes.

*now the Democratic Republic of Congo

Source: Michael Bratton and Nicolas van de Walt, Regime Transitions in Comparative Perspective

 

 

 

Africa is emerging from years of chaos and is beginning to establish itself as
ready for a new start. In a sense, Africa is in year zero its true transformation is
just beginning. It is up to each country in Africa and the combined countries of
regions in Africa to find solutions to their individual challenges that won?t

promote or foster more long?term dependency on outside aid.

Issues for the Scenarios
Africa is regarded by some as a continent of genocide, ethnic wars, drought,
poverty, and a fraying social fabric. Both scenarios address the issues facing
countries as they attempt to recover from this

negative legacy, to meet the challenges of

?Let me State Clearly TINA, and to bring back into the political

and unequivocally that an system such people as the marginalised tribes

electoral victory by any military
in Rwanda, Somalia, Sudan, Sierra Leone,

candidate in the forthcoming

. . . . . . Democratic Re ublic of Con o, and Ni eria. In
presrdentlal elections in Nigeria 8

would be unacceptable addition, many African countries face other

Susan Rice, US Assistant Secretary of State questions: identity (national, communal,

for African Affairs, March 1998 racial, and gender); accountability (sorting out

exclusive patronage networks); education; the
functioning of civil society and institutions;

and the narrowing of the rich?poor gap to create a strong middle class.

The New Game

In The New Game there are early successes as a new brand of leadership brings

liberalisation and democratisation to some countries in the Sub?Saharan region.

 

Leaders in Uganda, South Africa, Namibia, and Mozambique lay the groundwork
for a region of good government and prosperity through Central Africa, linking to
South Africa. Technological and telecommunications revolutions begin as African
governments from Ethiopia to South Africa and Uganda to Senegal end state

monopolies.

TINA drives the countries of Sub-Saharan Africa into a fast?moving world with
a clear set of rules, embracing political, economic, and social reform, and
requiring institutions to guide them. The globalising forces of liberalisation and
technology cannot be avoided, so embracing TINA is not seen as a matter of
choice. The experiments in the pioneering countries help to make their models of
economic development acceptable across ideological boundaries. The short?term
outlook in The New Game is, however, dubious, and instant success is- not
possible. Economic redesign creates new political problems, with new winners
and losers, and a rising demand for accountability and transparency. FDI is
mostly directed towards Southern Africa and oil?producing countries such as
Angola, Gabon, and Nigeria. In addition, it takes some years to rid the continent
of the contagion through which bad news from one country affects perceptions of

Africa in general.

In The New Game, South Africa continues to invest in the Southern African
region. This investment, however, raises fears among poorer countries and those
countries that have just emerged from civil and ethnic wars, that liberalisation
might lead to domination by South Africa and therefore is not in theirinterests.
While South Africa attempts to extend political reform to embrace economic and
social change, the management of the rising expectations of marginalised people
becomes increasingly difficult. South Africa struggles to establish reconciliation
and transformation among all the people, to develop national identity and pride,
and to redefine redistribution and participation in the economy. Economic
efficiency depends on predictability and private sector capital flows, and leaders

recognise that the pace of change needs to be mitigated by these hard realities.

In meeting these aims, the foundations laid in South Africa in the 19905,
through the Truth and Reconciliation Commission, the Human Rights
Commission, and the Poverty Commission, prove to be decisive. In The New
Game, the South African government?s reform programmes aimed at economic
growth, employment, and redistribution, enjoy broad support, including that of
the trade unions. As it becomes friendlier to business, South Africa sets an

example for other southern African countries, laying down a solid basis of rules,

 

and cracking down on the crime syndicates including the hijackers of Shell

tankers that move goods across borders.

 

African Solutions and Economic Recipes

In the mid?19903, several African economies, particularly Uganda, saw relatively
rapid growth for the first time in decades. A fairly simple underlying picture
emerges. The secret to success lies in three factors: absence of war, stable prices,
and open and deregulated markets.

 

Country Environment* Share of African Population Per Capita Output Growth
/nadequate social order 12% 
Inadequate macro-policies 46% - 1.3%
Inadequate resources 12% 

a?oca?on

Minimal adequate environment 23% 3.2%

Already middle income 8% 

in a sense, it does not take much for very poor countries to succeed. Technically, the
required economic policies are simple. ?Do not steal from people, or arbitrarily tax
them? and ?Let people make their own decisions? are the basic maxims, implying
sensible tax systems, open markets, and stable prices. Uganda has used the cash
rule for fiscal management ?Don?t spend when you have no money.? Mauritius has
declared itself to be a free trade zone. The CFA zone in West Africa has renounced
monetary authority by pegging its currency to the French Franc (and soon the Euro),
setting up a currency board to ensure that this happens.

The hard part is to establish social order and to get predatory governments to restrain
themselves. There is no economic recipe for this, but the basics are clear.
Governments are required to maintain peace and basic rules, particularly the
protection of property and contracts. This implies that governments must renounce
discretionary intervention, relying on rules to tie their own hands. Weak governments
are in particular need of such restrictions. For example, when true central bank
independence remains implausible in the face of interference from the President,
countries may choose to give up monetary autonomy. They could do this, for example,
by relying on currency boards to ensure strict control of the money supply, or by
adopting another currency, as in Panama, where the US dollar is used.

Globally, the governments that have adopted stringent rules restricting government
authority are those with a rocky past and the strong desire to break out of it. Key cases
are Argentina, Estonia, Lithuania, Bulgaria, and Hong Kong with currency boards, and
Uganda and Bolivia with the cash?rule for fiscal management. Chile is the
breakthrough performer, shedding public ownership in most of the economy, and
opening the borders to trade following a severe crisis in the early 19703.

Source: Collier and Gunning, Explaining Afr/can Performance, Centre for the Study of African
Economies, Oxford

 

 

 

As the realisation grows that there really is no alternative, countries which are
on the path to democratic transition develop public?private sector partnerships as

the channel of development. Private sector and governments in West, East, and

Southern Africa create Development Centres and a chain of think tanks to help
provide ideas, develop and use technology, and exchange experience. Africa looks
at itself, stops blaming its colonial past, and works to solve its own problems. The
three Development Centres are staffed by well?educated people from all over
Africa, and provide opportunities for connections among ideas, people, and
governments. The Centres deliver political and economic policies for the regions
and address such issues as the accountability of leaders, transparency in
government, checks and balances, adherence to the rule of law, peaceful means
to change leadership, and respect for human rights. Debates about the equitable

distribution of the increasing wealth are also on the agenda.

By 2005, as the Centres become fully?fledged, investors are beginning to show
increasing confidence, and economic growth accelerates in every five-year cycle.
Even those governments propped up by oil realise that in a $lO/bbl world, oil is

not enough, and begin to change their old predatory behaviour.

As the better educated graduates from the Centres enter government, African
countries increasingly follow in the footsteps of Mauritius, Ghana, Uganda, South
Africa, Mozambique, and Gabon, by abandoning the old command economies
and embracing economic liberalisation. They deregulate their economies,
privatise state?owned assets, and seek integration with the world economy. In the
early years, however, prosperity is confined to the cities. The benefits of urban

booms do not truly spread to rural areas until later in the scenario period.

Most of the successful countries institute good learning and information
systems. The continent?s telecommunication services position themselves for a
major revolution. By 2008, the Abidjan?based Regional African Satellite
Communication Organisation (Rascomm) installs half a million solar?powered
telephone stations with international access across the continent, enabling
communication with even the most remote areas. Africa is linked to the rest of
the world through under?water fibre optic cables, removing at a stroke a key

element deterring foreign and domestic investment.

Another issue, which is gradually tackled through the sensible use of focused

 

 

10

institutions, is AIDS. Uganda has set an example of how to manage AIDS through
education and nation-wide campaigns. In The New Game, Uganda?s example is
followed throughout Africa via the AIDS Institute, which, through the support of
governments and businesses, is given the resources to mount local and national
campaigns throughout the continent. The Southern African Development
Community (SADC) and the OAU also place AIDS high on their agendas, thereby

giving the AIDS Institute additional political support.

As more African countries adopt democratic processes, the OAU starts to move
from purely political concerns to governance, investment, and economic growth. By
2005, the OAU is beginning to look rather like the original European Community, its
agenda including common market goals and objectives. As some OAU countries
begin to succeed, other African countries join the OAU club and help to drive the

agenda of investment, trade and currency issues.

The SADC presses ahead with deeper integration. To counter the fears of poorer
countries that liberalisation is not in their best interests, SADC works in parallel with
the Pan African Development Centre to ensure that policies are implemented on
trade, investment and growth. SADC is also involved in peacekeeping efforts in the
Central Lakes area, Burundi, and Rwanda. The private sector is a key partner on all
committees in SADC and eventually SADC is run by a business secretariat, which
is well?poised to help its member countries make progress through trade and other

co?operative agreements.

Although ethnic clashes persist, particularly in Rwanda and Burundi, Eritrea,
Ethiopia, and Sudan, the governments of South Africa, Uganda, Botswana, and
Mozambique develop peace?keeping and diplomatic efforts through regional
initiatives. By 2005, a Central African Peace Force (CAPEF) is set up to maintain

order. Strife?torn countries join the club to maintain peace.

With oil prices of around $IO/bbl, oil?producing countries, such as Nigeria and
Angola, are forced to reform or sink more deeply into the mire. Nigeria itself is
eventually forced to accept the need for reform and liberalisation, as the state is, in

effect, bankrupt.

In People Power, people expect and demand improved education systems, better
quality housing, and jobs and employment for all. Unfortunately, most African

states are incapable of delivering these things.

Although by 2002, economic reform is taking place in countries such as
Botswana, Namibia, South Africa, Uganda, Mozambique, and Mauritius, Africa
still lags several decades behind other nations. The weak rule of law and non?
transparency in government slow economic growth. In addition, Africa is further

burdened by infectious diseases, with malaria an ever-increasing scourge.

In People Power, national governments find it difficult to adjust to the effects of
TINA, fail to apply consistent policies, cannot come to terms with the changing
nature of the state, and in some cases prove unwilling to yield the benefits of
authoritarian power. But the advantages of authority become increasingly hard to
capture. People begin to find their own solutions and are less prepared to accept
bad governance. Governments become weaker as a result, and countries such as

Nigeria, Democratic Republic of

The Range of Ethnicity

Z.
to

2.
9:

Congo, Rwanda, Burundi, Eritrea,
Ethiopia, and Sudan, are unable to
respond to the inevitable series of
shocks, including AIDS and new
infectious viruses. Ethnic unrest on

tribal groups

the fringes of Uganda and Kenya

struggling for
the power of Rival
escalates and profoundly influences vggtiple "hecemm tribaIIgroups
l?l es, 5 arm
none dominant same spagice

the perception of Africa by the rest
of the world. People lose faith in the
existing rules of the land and in the traditional political structures, which have

resulted in weak, rapacious, and predatory governments.

In such times, governments become increasingly irrelevant, and educated and
literate people are encouraged to challenge the regimes. More and more, even die-

hard dictators are obliged to bow to public demand and promote genuine

  
 
 

 
 
 
   
     
      

 

11

 

12

democracy. Many of them find themselves in the position of Hastings Banda in
1994. Banda, the ruler of Malawi, had declared himself a life President and
refused to have any further elections but in spite of his declaration, ill health
and unpopularity forced him out. In a manner reminiscent of events in Indonesia

in 1998, popular demand forces a change of leadership in many key countries.

In countries such as Nigeria, dependent on major natural resources, the main
private sector industry is disconnected from the rest of the economy, and
government is expected to deliver the goods from rents levied on natural
resources. Economies such as Somalia, Rwanda, and Burundi are steered by
leaders whose horizons are narrowed by tribalism. In the countries experimenting
with democratic transitions, the politics of patronage impede economic growth,

democracy, and accountability.

There is a search for an ?African Solution? but not via institutions such as the
World Bank and the IMF, whose conditions seem inadequate to deal with
complexity and diversity. Increasingly, the people themselves drive their own

regimes to change and challenge traditional political structures.

After 2004, the ANC splits from the unions and the Communist Party. In the
short term, the unfulfilled expectations of the have-nots give South Africa a rough
ride, as the unemployment rate increases to 50%, and the government finds itself
unable to deal with crime and other social issues. Interest rates continue to rise,
the rand is further devalued, and the deficit, before borrowing, rises to The
government institutes economic controls and tries to develop a siege economy,
but nothing works. In response to government weakness, corporations, NGOs,
and other stakeholders coalesce to form new alliances in an attempt to tackle
social issues. These developments in South Africa clearly impact on the whole
Southern African region, since South Africa alone accounts for 74% of the

SADC output.

In the short term, Nigeria continues to drift on the fringes of the international

community, with an impoverished hinterland increasingly detached from the still?

functioning oil economy as happened in Angola, which continued to export oil
during its 20?year civil war. A period of severe oil price volatility sparks off civil
unrest, which brings a rather ineffective tightening of military control.
International sanctions restricting oil sales are applied, and the loss of income is

followed by further riots and looting. But in the long term, Nigeria begins to show

 

some signs of success, as people seek economic activity outside the boundaries

and scope of the regime. The robust entrepreneurial tradition manifests itself in a

Flowering of Politics in South Africa

 

 

 

 

National Common
Region 0
611) En lISh
hosa
1998 Parliament: . NdebeleN 
Sotho 
ANC (252) 
. National Party - NP (82) . . Shangaan/Tsongai
. - Lan ua 
+31 lnkata(43) Local .Afr'kaans 9
Freedom Front (9) PoorR' ht Uncommon
. I
Democratic Party - DP (7) Class Unemployed .ronservatlve.
. African Christian . class 
Democratic Front (2) Middle 
l) . 
El?t pa/fw\
l6. . Igld I r/?omrnt?mist
Rich pa Left

thriving underground and semi?legal economy. Towards the end of the scenario
period, a growing number of non-governmental institutions emerge, with the
support of business, to replace inefficient government bodies. As the Southern
Coastal traders thrive across national boundaries, the perception of regional
integration by the smaller West African states changes. Despite the predatory
government in Nigeria, the economy takes off in a non-traditional and non?
conformist way with anarcho?capitalism and entrepreneurial capitalism
flourishing. Little of this activity is recorded in Africa?s official statistics. New
networks develop as people trade with neighbouring countries, and many
Nigerians thrive. The perceived opportunities in the ?West African region outweigh

fears of domination by Nigeria.

13

 

14

Private armies emerge in many countries as striking signals to governments of
the people?s discontent. They are used in Chad, Angola, and Sierra Leone, for
example, where some form organisations like Executive Options. Organisations
and companies in People Power look to these radical arrangements to provide

security of property.

As entrepreneurship booms, local and provincial governments gradually learn to
become more organised as they attempt to participate in the fruits of economic

SUCCESS.

Entrepreneurship as a Development Tool

In South Africa, during the apartheid era, the regime did not provide any bus or train
services to the townships. The private taxi industry, supported by private sector
businesses, tackled this issue and, to a large extent, solved it. Partnerships formed,
in addition, between businesses and corporations to address unemployment and
other infrastructure problems. Enterprising market traders, for example, have used
branded Shell oil drums with African?style stands to display their goods.

In People Power, where governments fail to deliver anti?malaria health care
programmes, businesses and NGOs develop partnerships to manufacture durable
malaria nets for use in urban and rural areas. This entrepreneurial activity, as well
as improving the general level of health, gives a boost to local trade. AIDS gets
addressed through individuals taking more accountability for their own actions.
Condoms become a major growth industry.

The new leaders of the Democratic Republic of Congo, Rwanda, and Burundi
have failed to meet expectations, and civil uprising rooted in tribalism erupts.
Central Africa is in turmoil, with outbreaks of genocide, and mass migration down
to Southern Africa. The Horn of Africa continues to be crippled by drought and
malaria. The ?white spaces? of no government spread through most of the African
countries. Some state boundaries become irrelevant in the face of mass

migration.

Museveni maintains political stability in Uganda, but only until 2005. As
political instability continues in other parts of Central and East Africa, aid is
discontinued. Kenya, which is dependent on aid, struggles to extract itself from

the economic quagmire as tea and coffee prices decline, and horticulture and

tourism are disrupted by uncertain communications and by anti?Kenyan
campaigns in some OECD countries. The weakness of the Kenyan economy

undermines other East African countries.

In some countries, there are small oases of growth and entrepreneurship. In
parts of Angola, for example, after a 20?year civil war, the peace process
gradually succeeds, and the economy becomes open to foreign investment in
natural resources and infrastructure. Similarly, in Cameroon, the educated,
articulate opposition and fiercely independent press are powerful forces for

change, and succeed in making a difference in the region.

In strife?torn countries, strong civic partnerships emerge through alliances with
religious coalitions, NGOs, local businesses, and the media, to express criticism
and political dissent. These coalitions create the awareness that the state needs
to be reconstituted for national revival. In towns and in villages, leaders emerge

as people resort to local solutions.

Civic Partnerships

During the apartheid era, South African extra?parliamentary politics grew,
representing the unheard and disenfranchised people in the country. Partnerships
developed between educational institutions, NGOs, churches, civic organisations,
and businesses, to develop alternative channels for education. Examples of these
are the Joint Education Trust, National Business Initiative, Urban Foundation, and
the Consultative Business Movement. Through these partnerships, the
disenfranchised learned to cope in difficult circumstances.

Gradually, awareness grows of the benefits of sound economic policies,
democracy, openness, and transparency. The successes of the front?runners,
including Mozambique, Ghana, and cote d?Ivoire, spark off more general debate
about political reforms. People at the end of the scenario period begin to cope, as

authentic civic institutions begin to emerge.

Pessimists see little improvement by 2020 in People Power. There are, indeed,
some successes, such as Angola, Cameroon, and Southern Nigeria. But there are

still areas of near anarchy, and governments remain weak even where they are

 

15

 

16

honest. Still, there are signs of progress. Health indices are improving. Given the
prevalence of underground and unrecorded activity, GDP is hard to measure, but
there is evidence that living standards are improving: numbers of cars, computers,
and other appliances are growing very fast. In general, even with the uneven
development of countries in People Power, there is a new spirit of self?reliance, as
Africans seize opportunities and create new networks to help themselves

move forward.

    
  
 

(K

 

SAUDI ARABIA
AF HANI PAKISTAN

Proposed Oil and Gas Pipelines 

 



Central Asia
and
the Caucasus

The Current Miasma

The Caspian region today is clouded in uncertainty. There is the opportunity
for prosperity including major oil prospects in Azerbaijan and Kazakhstan and
gas prospects in Turkmenistan and Uzbekhistan. But there is also suspicion and

the fear of exploitation.

Kazakhstan appears best placed to exploit the opportunity. The current regime

rules with authoritarian panache, but hasn?t yet found a way to balance the

17

 

18

interests of different clans. Kazakhstan?s chosen solution is economic growth;
and, through economic diversification, it has also laid the basis for sustained
reform. Yet while the Kazakh President may mouth the words of globalisation,
whether he appreciates what globalisation will do to long-standing Kazakh ways
and traditions is uncertain. And as Kazakhstan has moved forward, expectations
have risen sharply, exceeding the forward movement. The widening gap between
rich and poor has left many people with a sense of relative decline and a loss of
confidence in reform, which is bogged down by a legacy of unfunded welfare and
pension liabilities. Should the reforms fail to deliver soon, political instability may

follow.

The situation is equally fraught in Uzbekistan and Turkmenistan. In spite of a
heavy?handed pretence at reform, the economies of these two countries remain
closed, while their societies careen towards irreparable fractures. Without firm
leadership, Uzbekistan appears rudderless, drifting without a sense of economic
direction. Turkmenistan, with its enormous gas potential, has cautiously begun a
reform programme, but progress is slow, and the external environment is

uncertain, especially in relation to Russia, Iran, and Afghanistan.

In Azerbaijan, Armenia, and Georgia, localised conflicts destabilise the region as
a whole and threaten to ignite wider conflicts involving outside powers.
Meanwhile, irregular government forays nip at the heels of unorthodox,

freewheeling private businesses.

An integrated approach to energy transport, through pipeline grids, has the
potential to tie the region together. But while individual leaders are aware of this

potential prize, they may not be able to carry their people with them.

The New Game Silk Road into the Desert

In The New Game, Central Asian governments reform, but are undermined by an
international regime of unremittingly low oil prices and declining foreign
investment interest. Uzbekistan emerges as the regional exemplar, in part

because Uzbeks seem to be most committed to keeping the long?term strategic

focus necessary for growth, while at the same time maintaining the balance of
domestic interests necessary for the management of expectations. The Uzbek
example is copied elsewhere in the region, first in Kazakhstan, and then
Turkmenistan, but the low oil price delays vital foreign investment projects,

leading to retrenchment and austerity.

This unsatisfactory situation persists in spite of the Caspian Sea security
agreement of 2000, which provides the security needed by the regional states for
joint exploitation of resources. Russia, crucial to the formation of this agreement,
fully supports it. With Gazprom and Lukoil in various Caspian consortia, an
economically driven policy towards the region is encouraged. Prospects look
good, as the oil price climbs higher early in the century, and foreign companies
rush for concessions. A kick?start for regional economies is provided by this
heightened foreign interest, and Kazakhstan finds that large licence?signature

bonuses help ease its immediate funding concerns.

Uzbeks, however, treat the new largesse with a certain reserve. Ordinary
Uzbeks expect a better life, and government officials fear that meeting those
expectations may be difficult. In 2001, with IMF backing, Uzbekistan begins a
process of reform and gradual market liberalisation, stressing education and
attempting to bring rural populations into a more broad?based development
programme. Although the political system remains authoritarian, it at least sets
a predictable framework for steady growth. In a cautious and understated
manner, Uzbekistan becomes the model for economic reform in the rest of Central
Asia. Turkmenistan follows, exporting in order to survive, and regional co-

operation brings the other players on board.

loint agreement on the Caspian is matched in the same year by an economic
alliance between Kazakhstan, Uzbekistan, and The alliance is
initially intended to co?ordinate gas pipeline routes, but is soon broadened to
include cross?border infrastructure (transport, power, and water) and the

encouragement of regional trade.

 

19,

 

20

The Caspian Sea Security Agreement holds, and the resulting peace in the
region gives Central Asian governments their first breathing space for growth and
reform. As the region takes its first cautious steps towards economic

liberalisation, economies begin to stir, and growth rates rise to 7% by 2002.

Meanwhile, in the South Caucasus, the Organisation for Security Co-operation
in Europe brokers an agreement on Karabakh, raising the profile of the US in the
region as a result, and ushering in a broader stability on that side of the Caspian
as well. Political disputes in the North Caucasus lead Russia to insist on regional
stability, in part because Russian interests are increasingly gas? and oil?driven.
This interest parallels US desires to support stability in the region a conjunction
of interests that increases investment in pipeline routes from the western side of
the Caspian Sea. Baku emerges as the centre of the Caspian oil industry. There
is a raffish tinge, though, to economic development in the South Caucasus, with
various regional mafia providing a murky underbelly to the officially sanctioned

economic players in the formal economy.

Central Asia has a long?standing concern that, despite the structure of regional
co?operation, Russia will seek to force independent states back under its control.
This concern increases the need to develop quickly. But in 2002, as oil prices
begin to fall, foreign companies begin to scale back their investment plans.
Evacuation routes to the north, south, and east are indefinitely postponed. The
US drags its heels on Iran, delaying pipeline projects southwards. As the Asian
crisis continues, dampening Asian energy demand, and with the possibility of
even lower oil prices, the Chinese route also faces funding problems. In spite of
these difficulties, the Caspian Pipeline Consortium (CPC) route opens in 2002, and
the pipeline route from Central Asia across the Caspian through now peaceful
Azerbaijan to Ceyhan becomes fully operational in 2004. Evacuation through the
Russian pipeline system remains the obvious first choice, while a pro-active US

policy backs the opening of the evacuation route through Turkey.

The delays to investment plans put a dampener on regional growth prospects

after 2002. Initially, though, these delays are a blessing in disguise they apply

deflationary brakes and provide a strong incentive to maximise efficiency and
returns from the projects that are in place. By 2005, with the prospect of an
unrelenting low oil price, growth begins to falter, and storm clouds of dissent mass
on the horizon. Resource development has yet to benefit most people, and latent
regional conflicts, particularly between Uzbekistan and are in danger

of flaring up again.

Those political regimes with strong executives respond by clamping down on
dissent, and encouraging a regional nostalgia for the good old Soviet?style days
of order and predictability. This clampdown is encouraged by those who have
benefited from growth and seek to defend their privileges. Outside powers, also,
have much at stake, and back the regimes in power. These regimes are able to
stifle dissent very effectively and to re?establish order. Despite the lack of political
freedom, economic reforms enable a modest but sustainable 4% to 5% per year

GDP growth, beginning in 2010.

But the autocratic regimes that lead this austere style of development lack the
political will to put in place the fundamental changes Central Asia needs if it is to
pull itself up under a low oil?price regime. Even so, by 2015, the economy has
been steered into a position that might allow a relaxation of controls to follow

next.

Meanwhile, on the western side of the Caspian, the South Caucasus has been
enjoying appreciably better growth, in large part because the main thrust of
Caspian oil evacuation has continued westwards after 2005. Around that time,
too, Azerbaijan begins to respond to the forces of TINA, recognising that this is
the only way to connect with world markets and thus to continue growth. The
new president cleans up most of the various regional mafia, in some cases
integrating them into the economy by making their businesses more respectable
and orderly. These newly cleansed ?businessmen? buy their way into the political
process and protect themselves through formal legislative sanctions. As the
process of internal reform takes shape, they form consortia with more respectable

foreign partners (though at a price for the oil majors), and most business activity

 

21

 

22

becomes regularised and more reputable. By 2020, prospects in the South
Caucasus are reasonably promising certainly more so than the prospects offered
by the slow growth and austere politics prevailing on the Kazakh side of the

Caspian.

This story begins as Central Asians and South Caucasians ?plunge into the sea
of commerce.? But the rent-seeking arrivistes who have bubbled to the top fail to
become a genuine propelling force of regional development, and recession

eventually pricks the regional balloon.

The Caspian Region is set alight in 1999 by a series of big energy discoveries,
off? and onshore, in Kazakhstan. Major players jostle to get in on the game.
Meanwhile, in Uzbekistan, Karimov, not wishing to be left out, also encourages

foreign energy participation.

By 2003, Asian economies are recovering, and oil prices are relatively strong.
Outside pressures build to open up evacuation routes all round: southwards
through Iran; eastwards through China to the Pacific coast; and westwards
through to Ceyhan. Turkmenistan also begins work on a line running off the Iran

route to supply the Pakistan and Indian markets.

As money floods in, economic growth races along, with politicians dispensing
favours and Byzantine administrations issuing innumerable authorisations to
individuals in private sector businesses. In Uzbekistan, organised crime funds
government social projects in return for protection. ?Dutch disease? (overvalued
currencies, overdependence on energy resource exploitation for revenues,

excessive expectations) spreads virulently throughout Central Asia.

The regimes in the South Caucasus also pick up. Robber barons emerge as local
heroes, embodying the native entrepreneurial tradition. They swim in an
anarcho-capitalist sea that knows no bounds and set up business consortia with
covert mafia involvement. Returns are stashed away in havens abroad. The oil

majors drag their heels, reluctant to join these webs. But because the oil has to

get out, co?operation is bought using western traders and Russian finance groups

as well as smaller oil companies less squeamish about their alliances.

Capitalist rent?seekers fuel a speculative property?driven boom, marked by
conspicuous consumption and rampant corruption. As the oil revenues flow in,
government officials feel no pressure to embark on fiscal reform. A dark shadow
begins to form as the gulf widens between the winners those with the inside
track to office holders in the ruling regimes and everyone else. Increasingly
widespread poverty in rural areas fuels animosity towards the urban glitz. As the
floating population of migrants in the towns grows larger, violent protests

increase.

A sharp fall in the oil price in 2004 proves catastrophic, deflating the bubble and
threatening to topple ruling regimes throughout Central Asia. Pipeline investors
are left uncomfortably exposed just at the point that the market collapses.
Regional growth plummets from a high of 8-10% per year in 2003?2004, to
nothing in 2005. The region moves from boom to massive bust, and begins to drift
into chaos and fragmentation. ln reaction to the sharp recession, extreme
nationalism rears its head, fracturing the region, as military forces encourage
local conflicts. Central Asian states have long?running disputes with each other
that do not take much to ignite. Nationalist sympathies, squabbles over energy
resources, movements of nomadic people across national borders, Russian and
great powers ?meddling? all these prey like vultures on the increasingly slim
pickings from resource development. Losing patience with what they perceive to
be foreign meddling, the Uzbeks grow aggressively nationalist, replacing their
authoritarian president with a stronger dictator, who closes the borders. The
newly formed military powers of these countries seek to focus attention on
?eXternal threats? and clamp down further; elsewhere, corruption accelerates, and

parts of the region, in effect, become lawless.

As foreign companies retrench, rickety regional governments panic and strike
ruthlessly against domestic dissent, all the while continuing to squeeze the last

drop from foreign investors. Localised conflicts and growing unrest in the regions

 

23

 

24

begin to disrupt export pipelines, especially those under construction. If they wish
to carry on, companies must strike deals with local gangs whose tentacles are
beginning to curl around critical parts of the region. The costs and uncertainties

of evacuation soar.

The South Caucasus turns into a situation of every?man-for?himself. Office
holders with increasingly limited shelf lives, seek to tighten the screws even more
drastically in order to rake in more for themselves during the short time they are
in office. The mental horizons of private businessmen extend no further than their
own shop-fronts. Relations with Russia grow increasingly sour, particularly in
Dagestan, a semi?autonomous Russian province which sits astride the pipeline
route out of Azerbaijan. As strains intensify in Azerbaijan, Russian policy
becomes increasingly interventionist, suppressing Dagestan and moving troops

into Armenia a move that sends a warning signal to Kazakhstan.

Meanwhile, on the eastern side of the Caspian, Uzbekistan, reviving the Greater
Turkestan vision, takes over Tajikistan in 2006. Immediately following the take-
over, however, Uzbekistan becomes embroiled in a long?running feud with
Turkmenistan, a feud that weakens both countries, to the advantage of
Kazakhstan. Here, too, relations with Russia worsen. Safety concerns lead to
stoppages on the Russian section of the CPC pipeline; and in 2007, the Russians
simply decide to close the pipeline. By 2008, the region has stagnated into a
?white space? of no concern to the outside world. In 2010, the President of
Kazakhstan dies unexpectedly, unleashing a bitter internecine struggle for power.
The northern provinces of Kazakhstan, with their larger share of hydrocarbon
resources, seize the moment and declare independence. Russia simply absorbs

the secessionist provinces. Kazakhstan drifts into isolated chaos.

In 2012, a new strong man seizes power in Kazakhstan, openly acknowledging
the country?s straitened circumstances, while using the late President and his
coterie as a convenient peg on which to hang all the regime?s ills. Externally, he
turns to China to counterbalance an increasingly powerful Russia. Internally,

Kazakhstan enters a period of ruthless suppression.

By 2020, Kazakhstan appears to be muddling along, though it is severely
weakened. Uzbekistan has become a more hard?line fundamentalist state, but
remains a key player in the region, though marginalised in the wider world;
additionally, given the problems in Kazakhstan, the nomadic southern Kazakhs

are attracted to Uzbekistan. Turkmenistan survives by selling gas to Turkey,

 

maintaining modest growth, and offering a glimmer of hope to the long?suffering
peoples of the region the hope that if only they can co?ordinate their actions for
their mutual long?term self?interest, there is an alternative to stagnant GDP

growth rates and perhaps something other than a grim, uncertain future.

 

 

Scenario Overview
The Current Miasma
Suspicion of fear of exploitation.

0 Kazakhstan best placed to exploit TINA. But the consensus in favour of reform is
increasingly fragile, and rising expectations threaten to exceed progress achieved.

0 Uzbekistan and Turkmenistan remain closed economies and increasingly divided
societies. Turkmenistan needs to realise its oil and gas potential.

0 The South Caucasus (Azerbaijan, Armenia, Georgia) drifts along with localised conflicts
and Russian interference. But an unorthodox, freewheeling, private business sector is
thriving. The potential exists for an integrated approach to energy transport.

The New Game
0 Early off?shore oil success kick?starts regional growth, in which Russia has a stake.

0 Uzbekistan emerges as the regional exemplar because of its long-term vision; its
authoritarian government sets the framework for gradual reform, and the Uzbek example
is copied by others. Regional economies begin to stir.

0 Economic alliance between Kazakhstan, Uzbekistan, and initially to co?
ordinate gas evacuation, is broadened to cover regional infrastructure and trade.

0 In the South Caucasus, agreement on Karabakh brings together US and Russian
interests in support of regional security, and a westward pull to evacuation of Caspian
energy resources emerges.

0 But falling oil prices from 2002 leads to a cut-back in foreign investment plans.
Evacuation routes to the north, south, and east are indefinitely postponed.

initially, investment cut?backs help to cool overheating economies, to provide an
incentive to maximise returns, and to improve efficiency.

0 But an unrelenting low oil price eventually undermines regional growth. Domestic
dissent begins to rumble, and latent regional conflicts (especially between Uzbekistan
and flare up.

 

25

 

26

 

Autocratic political regimes, with external backing, re-establish order. Modest but
sustained economic growth resumes from 2010.

Meanwhile, the westward thrust to Caspian oil evacuation continues, keeping better
growth prospects for the South Caucasus. Internal reform cleans up the regional
business mafia, and market activity becomes regularised and more reputable.

Big energy discoveries off- and onshore Kazakhstan in 1999 bring a dash for growth.
Outside energy pressures build to open up evacuation routes all round. Money floods
in, encouraging corruption, profligacy, organised crime, and ?Dutch disease?.

Anarcho?capitalism in the South Caucasus robber barons join with western traders and
Russian finance groups.

Fiscal reform delayed; widening gulf between winners (with an inside track to office
holders in government) and losers, and also between urban areas (with a large migrant
population) and rural areas.

A fall in the oil price in 2004 deflates the bubble, leaving investors stranded. Regional
growth falls to zero in 2005. Growing unrest. Boom turns to bust.

Central Asia drifts into chaos and fragmentation with localised conflicts, regional unrest,
disruption of export pipelines, and a squeeze on foreign investors.

Barricades mentality in the South Caucasus; Russia becomes increasingly
interventionist.

Regional feuds in Central Asia (particularly between Uzbekistan, Tajikistan, and
Turkmenistan), and the break-up of Kazakhstan (the northern provinces, with their
hydrocarbon resources, linking with Russia), lead the eastern side of the Caspian to
stagnate into a ?white space? of no concern to the outside world.

As Kazakhstan continues its inexorable decline, Uzbekistan crashes into a
fundamentalist vortex, while Turkmenistan manages to hang together through gas sales
to Turkey.

 

 

China

The Lessons of History

China?s search for modernity over the past century has been marked by
dramatic changes and sharp alternations of policy and governing practice. These
changes are partly the result of China learning to respond to the shocks that have
hit it again and again. Each shock has caused immense pain, propelling the
country in a completely new direction, without any cue from what has gone
before. The collapse of the Qing autocracy resulted in anarchy, followed by a form
of weak republicanism; the Kuomintang revival of the 19305 was succeeded by the
communist regime of 1949; the Great Leap Forward plunged China into mass
famine, eventually corrected by central planning and bureaucratic rule; the mass
movement of the Cultural Revolution was succeeded by structural reforms and the
introduction of capitalist practices; and the challenge of Tiananmen was met with

a burst of economic liberalisation.

27

China: GDP 1949-1995

1987 yuan 1992

 
      
      
 
 

 

 

. DengSt?p
2500 wtheSomh
1958-61
Great
2000 Famine 
1979
1958 1966 Open Door
1500 Great Cultural Policy
Leap RevoM?on
Forward begins
1949
1000- mnhof
PeoMes
Repub1945 1955 1965 1975 1985 1995

Source: Angus Maddison

The Gamble of Reform

This last shift moved China into a
completely unprecedented era of
economic growth which, while
always over?estimated in official
Chinese statistics, is likely to
continue in response to the forces
of TINA. But given China?s
unpredictable lurches in the past,
no predestined path can be mapped

out with certainty

China?s new three?year programme aims explicitly at free market reforms, and

has in its sights the big problems, previously avoided, of reforming state enterprises

and the financial sector and of down?sizing the civil service by closing inefficient

companies and throwing out workers and redundant bureaucrats. This move in

turn is driven by the need to prevent a meltdown of the financial system, itself

grossly overextended by bad loans to state companies which, while demanding a

large chunk of financial resources, earn only 1% of China's total industrial profits.

At the same time, the ruling regime is acutely aware that its legitimacy depends on

China?s Troubled State Sector

Government subsidies
(bln yuan)

1200 -
1995

1000 -
'800 
600 -
400 1990

200;

1985

employees (min)

Source: Far Eastern Economic Review, 12 September 1996?

 

 

28

keeping up the momentum of
growth to at least 8% per year for
the next three years, at a time when
domestic economic downturn
appears to be conspiring with
regional economic crisis to bring
growth below the level at which the
regime feels politically secure. if
growth falters, will the leadership

retain its nerve and stay the course

of economic reform?

Even though China?s new leadership is more open-minded and technocratic

than bureaucratic, there are increasing rumbles of discontent from the

dispossessed. Social security support is practically non?existent. In the past,

banks have been pushed by government to lend to state?owned enterprises, who

were otherwise unable to finance themselves. But now, as economic reforms are

put into place, these enterprises are increasingly uncompetitive. The triangle of

debt formed by inefficient state?owned enterprises, their suppliers, and financial

institutions strapped by non?performing loans to these enterprises, poses an

enormous threat: the collapse of one leg of this three-legged stool would

undermine the entire system. Already, the acknowledged bad debts of banks

amount to 25% of GDP (covered by loan loss reserves of well under 1% of total

loans outstanding); other estimates
of non?performing loans range all
the way up to 70% of GDP. And
state?owned enterprises, for their
part, need a debt write?off equal to
25% of GDP. Compounding this
threat is the danger of a real estate
price collapse (Shanghai is building
in one decade more office space
than Hong Kong built in four), which
involve ?China?s

would over?

Cost of Banking Crises
(Bailing Out Failed Financial Institutions)

China
Argentina
Chile

    
 
    
 
 
 
 
  
  
   
 
 

Range 1 997-

1980-82

1981 -83

Range 1991 -

1 994-95

1 977-85

1 995

Finland
Brazil

Sweden

1 994-95

Colombia
Malaysia
United State . . . .
GDP
Source: World Bank

extended banks and other financial institutions. Will China respond by expanding

the scope of the market? Dr, in the face of problems of such magnitude, will it

revert to the old solution of government support?

China on the Brink

It is possible to paint a dark future for China in which reactionary political

forces feel threatened by change, to the point of cracking down on reform, as they

have before, triggering open confrontation or even political breakdown. But this

is unlikely. Chinese society has a deeply instinctive fear of the (mm, or chaos, that

would result from civil disorder and a collapse of state control.

29

30

%/yr
10 -

 

Under any scenario, however, the current path of development trying to
liberalise the economy without liberalising the political system is unsustainable.
The past two decades of growth have papered over the increasingly pressing
economic problems of inefficient production, idle capacity, and bad debts. These
problems are now surging to the surface, threatening to overwhelm the progress
that has been made and potentially creating dire political consequences. Yet the
government is hesitant to bite the bullet of radical reform, which could throw

millions more redundant employees onto the streets and precipitate social unrest.

China will go in one of two

China: GDP Growth . .
directions: either it Will grasp the

scale of the problems it faces right
TheNewGame

  
  

from the beginning and devise

a broad?based comprehensive

strategy to deal with them (The New
1 Game); or else government will be
sidelined, as quick?moving flexibility

and popular ingenuity drive what

 

I
2000

I I I 
2004 2008 2012 2016 2020 . . .
are, at times, brilliantly successful

spurts of growth (People Power).

In the former case, the point is grasped early on that a rules-based system gives
institutions the ability to anticipate and to adjust relatively smoothly, as events
play out?a story of the maturing of governance and a belated coming to terms
with the challenge of modernisation. In the latter, a rules-based system emerges
after a long time-lag, and almost by default. But at the end of the day, whichever
story we are in, China learns that only a rules-based system can ensure long?term
political and economic stability. These two modes of learning set the logic for our

China scenarios.

The New Game

In The New Game, China?s leadership grasps early on that a rules?based system
gives institutions the ability to anticipate and to adjust relatively smoothly, as
events play out. This is a world in which governance in China matures and at last

comes to terms with the challenge of modernisation.

The challenge posed by The New Game is how to extend economic reform to
embrace political reform and social change while not losing control. China?s
leadership must provide the education, health, and infrastructure investment
necessary for China?s global competitiveness, while also putting in place social
welfare programmes for the unemployed and elderly so as to keep the peace while

society undergoes wrenching change.

The story begins with the implementation of a programme of broad-based
reform. State enterprises are restructured through privatisation and take?overs,
state assets sold off, and the government bureaucracy drastically slimmed down.
Social welfare reforms are also brought in to pick up the casualties of change, the
unemployed, and the elderly, while other government measures encourage the
building of low?cost housing and accelerate worker retraining into new economic
activities, including the rapidly expanding services sector. The banking sector is
reformed, and capital markets are encouraged to expand while still being strictly

regulated.

A whirlwind of change is unleashed, inducing a shake?out in the industrial
sector, with weak firms (overwhelmingly from the state sector) going to the wall,
while the strong prove surprisingly durable. Higher value-added production
survives, and the establishment of lending on a commercial basis also favours the
strong. The ruling regime quickly arrests the present downward economic spiral,
and growth flattens out to a precarious 5% in 1999. But then the economy
returns to a steady, if not spectacular, rate of growth that reaches 8% by 2006.
Central control is maintained, and the regions go along with the agenda unfolded

from the centre. The basis is laid for a resumption of sustained long?term growth.

 

31

 

32

The government?s programme of economic reform is noteworthy in that it
initially targets housing in order to stimulate economic growth, reconfigure the
financial sector, and ?aid the withdrawal of the state from the direct provision of
essential needs. Financial reform requires a costly recapitalisation and
commercialisation of the banking system, which is paid for through raising tax
revenues. But China emerges from this painful process with a sounder financial

sector and a continued high level of domestic savings.

Only the private sector, and not the state?owned enterprises or the more
collectivist township and village enterprises, has the entrepreneurial ability to
create jobs at a rate sufficient to respond to the increasing numbers of
unemployed. But the spread of private ownership and the growth of equity stakes
taken by foreign companies who buy into state privatisations prove to have far?
reaching and unforeseen consequences. The full growth?generating benefits of
entrepreneurship can be secured only if the government protects property rights
with a reliable system of laws and courts. By clearly upholding the legal basis of
private property and private capital, and by keeping arbitrary political
depredations at bay, the new private sector is encouraged to invest over the long?
term, rather than to consume its gains in a frenzy of expense?account dissipation.
As a result, the moral climate also improves, as society sees fewer ?flies coming

in through the open window? of economic liberalisation.

Removing communist party guidance from the legal system eventually results in
a genuine reform that includes an independent process of litigation and the
arbitration of economic disputes. As the judiciary extends its scope, and as party
influence on its workings fades, the rule of law emerges as a consequence of

pressures.

However, these judicial reforms doom the communist system irrevocably, both
as a significant economic influence and as a decisive political actor. The fate of
the PRI in Mexico foreshadows what is to come in China. For the first time in
China, modernisation creates a real economic pluralism. Full legal protection for

property rights secures the rise of entities with independent power bases 

companies and individuals not in any way beholden to the centre, without any
obligation to uphold the official line on any issue, and indeed, with agendas of
their own, including new socio?political and economic demands. The rise of a
private sector, which regards political controls as inimical to the pursuit of profit,
unravels the whole system of social control on which the communist party
secured its political pre?em?inence. The dilemma for the ruling regime is that its
only raison d??tre is to deliver economic success; yet to do so, it grows increasingly

dependent on a society and a private sector with a will of its own.

In an attempt to recover lost ground and to find anew basis of legitimacy,
China?s leadership sponsors a political transition to a more democratic system,
with the understanding that the regime can improve its chances of survival by
giving up a measure of direct control and coercion. The National People?s
Congress (already showing independent tendencies in the late 19905) is given
legislative teeth in 2004, and a full-time Standing Committee is set up to initiate
new legislation. The civil service is increasingly professionalised, and personnel
appointments decentralised, strengthening the move throughout China away from

political favouritism towards a more meritocratic system.

In the rural sector, state institutions, too weak to supervise and regulate the
farmers, can no longer ensure basic grain production. Once again, the
government acts to solve the problem by extending property rights to encourage
farmers to make extensive long?term investments in their land. As a result, output
per hectare grows dramatically, and more land is brought under cultivation,

reversing the previous declining trend.

Meanwhile, China?s foreign policy has been instinctively pragmatic, firmly
grounded in a realpolitik view of the world. Its security concerns are focused
inland as it attempts to preserve control along the Central Asian border in order
to ensure uninterrupted transport of energy resources eastwards to the main
consuming regions. China extends its influence in Central Asia, at the expense of
Russia, while establishing itself as a stabilising force within the north?east Asian

region. Taiwan?s increasingly well?established de facto separation from China, as

 

33

 

34

the island?s politics become more and more responsive to the wishes of its
majority, create concern within the Chinese leadership. And hard?line elements
within that leadership argue from time to time for a ?quick result? against Taiwan.
But China learns that a return to more confrontational policies carries an
economic price, in terms of critical external perceptions and a slowing down of

inward investment and financial flows and the status quo eventually prevails.

But there is another side to the series of reforms initiated in 1998. The official
slogan for state enterprise reform at that time had been ?Retain the big, let go of
the small.? Some of the giant state~controlled conglomerates that were
consequently built up as ?national champions?, in emulation of the Korean
chaebols of the time, began to expand recklessly, without fear of the consequences,
introducing a moral hazard issue in the way they operated. By the beginning of
the new century, it is clear that the top?down approach to development is too
costly for the increasingly globalised economy. In addition, in its anxiety to
establish safety nets to meet potential dissent growing from rising unemployment,
the ruling regime has succumbed to too many pleas for special favours, setting up
a system that is unwieldy, expensive, and ridden with a host of hidden

inefficiencies.

By 2010, these hidden inefficiencies begin to make themselves felt, as the
economy moves into recession. The large state-controlled business groups
become increasingly resented for their privileged access to investment funds and
government contracts. As the inefficiencies of these businesses are exposed,
pressures on government mount. A new administration takes office and begins
relatively quickly to break up the giant financial-industrial groups, opening up
economic space for the new breed of high-technology entrepreneurs to flourish.
It is a measure of how responsive the government is to the pressures within and
without that many of the most successful high-tech firms that benefit from the
new economic measures are those with close links to Taiwanese firms. At the
same time, the government also recognises the many interest groups that have
been spawned by economic and social change. and begins a dialogue with them

as legitimate political actors. By 2020, the state has set the seal on its reform

process by formally repudiating the legacy of Mao, by removing communist party
groups from government, and by acknowledging the debt China owes to the

technocrats for overseeing the growth of the past two decades.

People Power is a world of radical change driven by popular unrest, while
government just muddles along?the time of the ?Muddle Kingdom?, as some
commentators put it. The Millennium Bangs around the turn of the century hit
China hard, weakening government control, but, at the same time, opening up

space for the assertion of popular interests.

The time of the ?Muddle Kingdom? is both the best of times and the worst of
times. There is a genuine fizz of excitement, as many experiments in governance
and economic management are tried; but there is also immense social misery as
the triple hammer blows of social dislocation, burgeoning unemployment, and
economic decline strike home. As government grows weaker, inflation soars to
25%. In 2001, the banking system cracks when an attempt to limit customer
withdrawals backfires, and many customers stop depositing their funds and begin
withdrawing what they can. The Yuan collapses from 8.27 to the dollar in 1998
to 20 by the beginning of 2005. Official Chinese growth figures plummet to zero,
but these figures never quite reliable become increasingly irrelevant, because

they measure only the official economy.

In an attempt to put a lid on soaring unemployment, the government liberalises
the economy by opening up new areas to foreign direct investment and by
shrinking the centralised control of the state. The market begins to flourish as
government downsizes dramatically, withdraws from the direct supply of housing
and other basic goods, and breaks up state monopolies. State?owned enterprises
lay off 60 million workers in three years. Reform thrusts responsibility into the
hands of individuals at the expense of the state, which abdicates accountability.
Educated people, with their latent distrust of government, feel particularly

encouraged to mount political challenges against the ruling regime. Power passes

 

35

 

36

to the people, while the state, by hammering the last nail into the coffin of central

control, unwittingly consigns itself to ultimate irrelevance.

Meanwhile, in the mud of economic turmoil and collapse, the seeds of a native
Chinese entrepreneurial capitalism continue to germinate. This native capitalism
is heterogeneous, not conformist; it is Taoist, Buddhist, and folklore?animated,
rather than Confucian; it is built on closely linked networks, whose strength
derives from a code of strict reciprocity; and it is eminently practical, specific, and
opportunistic. It resurrects within the domestic Chinese context that old network
of Overseas Chinese capitalism that had been such a dynamic force for growth
within the Asian region before becoming corrupted by being brought into the state
structures of regional governments (as business sought special favours and
protection from politicians in return for economic gain in Indonesia and
elsewhere). And it spreads from the southern coastal regions northwards, waxing
as the power of the state wanes. Those parts of China stuffed with redundant
bureaucrats or bankrupt state-owned enterprises are left to wither on the vine,
while other areas, free of these impediments, are up and running. Guangdong
sets the pace, and its maxim ?go on green, speed on yellow, find a way to go
around on red? becomes the unofficial national motto. The gangtai
phenomenon prevails, with the peripheral Greater China regions of Hong Kong

and Taiwan setting the economic and cultural agenda for the rest of the country.

As authoritarianism recedes, and the influence of interfering state and party
organisations (the ?mothers?in?law?) fades, a form of governance by negotiation
and consensus emerges. In this new form??the Asian way? - people deal through
networks with those whom they know, buying and selling favours and receiving
authorisations to carry out particular activities. Local administrations and
provincial authorities get in on the act, and seek to capture the fruits of economic
success for their own communities. This is a market?based system which works

through bargaining, consultation, and persuasion.

Even though it is extremely decentralised, the Chinese state still coheres. The

centre helps to mediate differences among local and provincial administrations,

and political leaders at the centre retain tangible local influence. At the same
time, the growing economy encourages the regions to try to influence the centre
rather than to attempt a break-off. Informal networks of people not only express
criticism and political dissent but also serve to channel it. By 2010, a form of

rough?and?ready democracy has emerged at the local level.

With the ?capitalist?roaders? now in the driver?s seat, China recovers from
recession in spectacular style, and the economy thrives. Yet all is not well in what
seems to many Chinese to be the best of all possible worlds. Ultimately, such a
system of devolved governance fails a series of key tests in reforming agriculture,
as the requirements of industrialisation encroach on arable land; in meeting the
growing demand for energy, which requires the laying of an extensive pipeline
infrastructure reaching from the Pacific coast into Central Asia; and in reducing
environmental pollution (which is rising sharply) where is prevalent.
Large infrastructural and environmental abatement projects prove difficult to put
together. Growing environmental and energy supply problems cloud the bright
economic prospects, unleashing a new series of shocks from 2008 onwards, with
supply bottlenecks intensifying, and air and water pollution causing increasingly
serious and widespread health problems. And some of the old problems continue
to worsen income gaps between rural and urban areas, for instance, have been
growing in spectacular fashion since 1992, accompanied by a tidal wave of urban

crime, which shows no sign of abating.

Awareness grows that the centre needs to be reconstituted in a form that more
directly serves the regions, but without resurrecting the old barriers against
individual enterprise. At the same time, there is a new political awakening a
?Beijing Spring? in which people from all parts of the country, as well as the
leaders themselves, put forth economically based arguments for a broader
democracy. Libertarian ideas are discussed with increasing fervour, initially
within think?tanks in Beijing, then spreading more widely through the news
media. As these arguments grow more coherent and appealing, debate about

political reform becomes more open and more heated.

 

37

 

38

 

 

Beijing Spring, 1998

society that does not recognise that each individual has values of his own which
he is entitled to follow can have no respect for the dignity of the individual and cannot
really know freedom."

Friedrich von Hayek, The Constitution of Liberty

In the spring of 1998, an extraordinary event took place in Beijing. A group of
reformers took advantage of the lifting of the official ban on Hayek?s The
Constitution of Liberty, and met to discuss the previously illicit text. With growing
excitement, they seized on its key message that a government of office-holders
controls society through personal will and command, whereas a government of
laws exercises its authority through a system of general rules. And it is only through
the rule of law which has to be fought for because it is always under threat that
liberty becomes possible.

The timing was propitious. A new regime had taken power, seemingly confident
in its abilities. Premier Zhu Rongji was displaying a refreshingly open political style,
appearing even to endorse the principle of elections. And President Jiang Zemin,
seeing how the wind was now blowing, was quick to condemn Asian governments
as too ?feudal?.

Rather than closet themselves in ivory tower think-tanks, the new independent?
minded scholars have moved to stir the public mood by writing political tracts
aimed at all audiences. They express impatience, even with the new order, which
they see as still possessed of a top-down mind-set. Instead of allowing Zhu to
dictate the pace of change, they want to push for change themselves, beginning
with the individual.

The new ideas are beginning to spread to the mass media across China, and
even to spill over into the public debate. And a movement has been formed ziyou
pai, or the ?Liberal Party? ?that calls for elections, an independent legal system, and
respect for individual rights. These independent thinkers, entering uncharted
waters in China, find in Hayek a set of principles from which to criticise the ancien
regime and to fashion something new. And they empathise with Hayek?s belief that
those who have experienced totalitarian regimes have a far sharper sense of the
conditions and values of a free society than those who are more fortunately born.

?Another colleague had also prepared a paper arguing that the ?middle way? was the
pragmatic path for the Conservative party to take, avoiding the extremes of Left and
Right. Before he had finished speaking to his paper, the new Party Leader reached
into her briefcase and took out a book. It was Friedrich von Hayek?s The Constitution
of Liberty. interrupting our pragmatist, she held the book up for all of us to see.
?This,? she said sternly, ?is what we believe; and banged Hayek down on the table.?

Rane/agh, Thatcher's Peop/e
?The things Hayek talked about are exactly what China is going through now."

Yu Dazhing. Chinese academic. at the 1998 Beijing Conference to discuss Hayek's
The Constitution of Liberty

 

 

In 2012, a convention of the states is called to work out a constitution for the
new Federal Chinese Republic. Taiwan attends in an observer capacity, having
achieved associate status. Federalismjn China emerges as a consequence of an
already devolved power, with regions overwhelmingly dependent on the outside
world, but seeing the need for an effective centre in order for them to hold their
own in the transnational networks in which they are inextricably interlinked. A
rules?based system supporting the rights of the individual is put in place, setting
the order ?n the econonnc recovery thattakes OH and runs Kathe end ofthe

decade.

 

39

40

ARCTIC OCEAN

9mm sv-n

   
    
 
  
        
  
   
 

 

  
 

   
 

 

 


l' 

ATLANTIC f?
nil-I?d, ?1 . 
A All
q.



BELARUS
UKRAINE 429V l: i
Else-y . ?11:35 
ROMANIA ?7?4
A A
7 

TURKEY 3?
MOROCCO i. 
MALTA 
. 5 ,r 
ALGERIA 4 
Europe in 1998 entry EU entry on hold

and EMU outside EMU in progress

Eurolcmd

The New Game

In The New Game, the successful introduction of the Euro in 1999 lays the
foundation for an era of steady, non?inflationary growth and structural reforms.
The disciplines foreseen under the Stability Pact work, and the new European
Central Bank (ECB) manages to establish credibility. Under the new consensus,

labour markets are deregulated, and the welfare system is restructured, resulting

 

41

 

42

in a gradual decline in unemployment levels. Following its general election, the UK

joins the European Monetary Union (EMU) in 2002.

By 2005, Europe is beginning to develop a ?third way' which combines flexible
markets with effective social protection for all. Tax rates decline, although not to
the level of those in the US, and social security systems are restructured so as to
provide stronger incentives to work. 'Blairism' 'capitalism with a heart', or

'socialism with a head' dominates the search for an 'intelligent Social Chapter'.

Throughout the European Union (EU), pressures are at work to create
community-wide rules ranging from taxation to regulation of health, safety,
environment, and privacy. Energy markets are progressively deregulated,

particularly for gas and power.

Around Europe, countries in the East and South try to benefit from trade and
finance with Euroland. A number of countries, including the Baltic states, move
towards formal EU accession. Others establish currency boards tied to the Euro

or join the Euro?bloc itself.

European foreign policy is successful in cementing relations with Russia and
helping it with the transition to a functioning market economy. European help for
Russia during its 2002 currency crisis is much appreciated and leads to closer co-
operation and increased trade. Towards the end of 2009, the Russian currency

begins to be linked to the Euro.

A by?product of the closer European-Russian relationship is the joint approach
taken towards threats arising from radical Mid-Eastern politics. Together, Russia
and the EU tighten controls of arms sales, improve intelligence, and co-operate to
monitor movements of suspected terrorists. In addition, Europe opens itself up to
limited immigration, a move that provides job opportunities for those in various

North African and Middle Eastern countries.

Meanwhile, Europe's population is ageing rapidly. Around the turn of the
century, many predict a pension fund crisis. But the problems are gradually

addressed through a combined approach of raising the retirement age, privatising

pensions, and maintaining tax rates at relatively high levels compared to the US.
The move to defined contribution schemes across Europe reinforces the emerging
equity culture. European equity markets take off. In addition, the world of The New
Game makes it possible for ageing Europeans to invest in emerging markets and
live off the returns of these investments. Europe becomes an active supporter of

free financial flows and open markets world?wide.

The relatively high tax rates that accompany the greying of Europe and
perhaps the greying itself are an incentive for many younger people to study and
seek work outside the continent. With its ageing population, Europe becomes a
bit like Florida, with service workers immigrating from Eastern and Southern
areas around Europe, eager to find work in the newly flexible labour markets of

the continent.

Because Europe cares for its environment and cultural heritage, tourism
becomes even more important as a source of income. Many new theme parks are
constructed, and new forms of entertainment emerge. The first of several Italian
medieval cities is concessioned to a private consortium lof Disney and Lyonnaise

des Eaux. Real estate markets in the sunny parts of Europe continue to boom.

The success of Europe and worries about exchange rate variability vis-a?vis the
dollar lead the ECB and the to move towards harmonisation of monetary
policy. This greater harmonisation, in turn, strengthens the emerging world

system of lender of last resort.

In 1999, the Euro is successfully introduced, but initial optimism fades as the

upturn in the business cycle in European economies turns out to be short-lived.

The 'Millennium Bangs' - the stock market crash in the US, coupled with a
banking crisis in Japan result in currency inflows into Europe and a consequent
rise in European unemployment to 17%. Europe's people are getting older, and
its squabbling politicians seem unable to come up with acceptable solutions to the

lengthening list of problems. State-enterprise employees resist deregulation and

 

43

 

44

privatisation. Governments use 'privatisation' as a form of off-balance-sheet
funding without seriously shifting risk to the private sector and without truly
deregulating markets. Older people support the status quo in an attempt to
preserve their entitlements, but the severe unemployment problems of the young
create friction between age groups. Neo-nazis and other 'antis' create a climate

of unrest.

Meanwhile, growth is lagging because of continuing labour market rigidity and
relatively strong safety nets. High tax rates encourage tax evasion. The black
economy booms. In Germany, this black economy estimated at 15% of GDP in

the late 19905 rises to over 20% by 2005.

What Unfunded Pensions Do to Maastricht By 2010 it is clear that pension reform

 

is impossible. The old do not want to

 

Public debt
ZEEDP give up their entitlements, and the
Luxembourg Belgium y0ung do not want to pay the extra
200? I Germany I
I
taxes required during the to a
Denmark
150 - 'France Ital
2" private pension system. The member
100-
U-K Public debt in states of Euroland continue to increase
I 
50 - It Same, adding . . .
commitmentsfor their public borrowmg. Yet, to
penSIons, 1990
0 . Maastricht criteria
counteract inflationary pressures from

Sourcws?rsmosmn fiscal lax1ty, the ECB tightens monetary

policy in ways reminiscent of the Fed
during the years of Reaganomics. Thus, Europe has barely recovered from the
Millennium Bangs when the ECB policy of high interest rates deflates any hope for
sustained recovery. Unemployment rates shoot up again, reaching a European

average of 19%.

In an age of increasing use of referenda and electronic voting, disenchanted
Europeans support one populist policy after another, abandoning each as it
becomes clear that the policy is not producing quick results. It is an age of
populists and demagogues in politics. France in particular is shaken by repeated
strikes, with truckers especially effective in disrupting European

trade and tourism.

In 2010, under continuous fiscal pressures, EU governments make severe cuts in
defence spending, infrastructure (especially roads), and education in an attempt

to preserve at least a minimum safety net of pensions and health benefits.

In addition, under increasing populist pressure, the ECB allows the money
supply to increase. The Euro weakens, and markets reflect doubt about the future
value of the currency. In an age of easy cross?border transfer of electronic funds,
people shift to more stable currencies. Tax evasion increases, with Russia
becoming a major tax haven and off?shore transaction settlement centre.
Meanwhile, many old people do not receive the entitlements they expected.
Cross?border investment in emerging markets turns out to have been too risky,
and returns in Europe too low. Like Soviet citizens after the fall of communism,

many retirees are forced back into work.

As the ability of traditional authorities to solve core problems seems to fade,
Europe becomes a continent of regions and new communities. Some of the sub?
regions effectively start to opt out of the system. Competing currencies, especially
the dollar, and even some private money, become widespread in many
communities. A number of smaller firms ignore labour market regulation,

especially in regions at the fringes of Europe.

Across the continent, while the vanishing credibility of politicians and their
institutions induces a sense of despair in older people and other vulnerable
groups, another kind of response gathers force. The European education system
still remains perhaps the best in the world, and the highly?qualified young begin
in increasing numbers to take responsibility for their futures, simply ignoring
dysfunctional regulations where necessary. New biotechnology labs spring up
across Europe, networking to analyse the data. The new generation of parallel
processing computers requires highly advanced software techniques, and
mathematically talented and educated entrepreneurs make their fortunes,
beginning to build some of the fastest?growing companies in the world.
Gradually, some of the more enlightened governments begin to learn that their

future depends on the loosening of controls in order to encourage such free

 

45

 

46

spirits. The states around the Baltic Sea, parts of Lombardy and the Rhone Valley,

and regions in northern and southern Germany lead the way.

Towards the end of the scenario period, hope returns to Europe as a result of
these islands of progress, which advance despite gridlock in official institutions.
'Official harmonisation' is seen to have been illusory it stifled progress rather
than supporting it. Without this lid, individual companies, governments, and
entrepreneurs can make progress at their own pace and in their own way. The

road to the future may be bumpy, but at least now it's an open road.

 he
Middle
East

Middle Eastern economies have run into various cul-de?sacs over the years.
Nationalist and socialist experiments such as Nasser?s Egypt have failed.
Regional strongmen of whatever persuasion have not been able to match brutality
with economic success. Islamic regimes have been disappointing. And oil
windfalls have proved to be illusory for sustained economic growth. Even those
oil?rich countries still enjoying a good life are overshadowed by worries about ?life

after oil?.

Hope is now seen to lie in fairly orthodox economic policies, such as the ones
attempted by Egypt, Jordan, Lebanon, Morocco, Tunisia, and Turkey. Lack of
massive amounts of oil is gradually coming to be recognised as a blessing because
it forces people and their governments to work hard and exercise care. In the late
19905 these orthodox economies show higher growth rates than elsewhere in the

region.

47

48

 

'lslamic Fundamentalism'

The term ?lslamic fundamentalism' was coined following the 1979 Iranian revolution
as a way to describe and explain the resurgence of Islam as a political force.
Gradually, it has also become a commonly used journalistic buzzword for terrorism
and extremism. Most Muslims find the term both meaningless and derogatory.
Literally, a fundamentalist in Islam is one who follows religion?s precepts to the letter,
a duty every Muslim is required to perform. In addition, the unitary force suggested
by the term is misleading. The one billion Muslims world-wide, stretching from the
Middle East across Europe and into China, do not form a cohesive entity. Their
outlooks and aims are determined by differing historical, economic, social, and
political forces.

Although in many western eyes, fundamentalism is seen as monolithic and hostile
to modern and western ideas, the strategies, goals, and tactics of Islamic groups
vary greatly. For instance, the Palestinian group Hamas and Lebanon?s Hezbollah?s
ra/son d??tre is to fight Israeli occupation. Islamic groups in Turkey have a
completely different aim to object to what they perceive as the government?s
increasing westernisation at the expense of Turkish and Islamic values. The Islamic
movement in Iran, for example, gathered support as political activity was banned
and the gap between rich and poor widened. This combination bred resentment
and a desire for a return to fundamental values.

The common factor uniting violent Islamic movements is repressive rule, where
freedom is restricted, where the positive aspects of globalisation and change touch
only the minority, and where corrupt regimes make little distinction between the
treasury and private wealth.

At an individual level, Islam?s message of social justice, equality, and unity, coupled
with feelings of loss of identity across the Muslim world, has been a strong catalyst
for an Islamic revival. Islamic groups have been quick to spot the trend and to fill
the vacuum left behind by the fall of communism and the failure of secularism. In
poor areas across the Muslim world, Islamic groups have provided medical care
and schooling in disadvantaged areas neglected by the government.

Economic prosperity has the power to soften the feelings of loss of identity and
provide a way out of poverty and despair. Nevertheless, it is important to note that
no Islamic group at the moment has a sophisticated economic agenda all are
motivated simply by opposition to the government, with Islamic revivalism forming
the one route for the expression of that opposition. Islamic movements are likely to
strengthen as long as the regimes remain mired in conflict and inefficiency.

 

 

 

The Role of Islam

In many ways, Islam should support TINA. For example, Islam has many of the
characteristics of Protestantism, which helped motivate the rise of capitalism in
the west. Like Judaism and unlike early Christianity, Islam has always harnessed
the role of economic activity and wealth creation. Contracts are sacrosanct.

Islamic banking, with its emphasis on risk?taking by all investors, actually

promotes more responsible risk than western financial systems, with their

insurance supports, which offer inducements for investors to take excessive risks.

In the moral dimension, political Islam has been a source of opposition to bad
governance. But this bad governance, or wrongly, has been identified with

things western. That puts the friends of TINA at a disadvantage.

The New Game

The New Game is the story of a struggle between, on the one hand, the ideas of
TINA, with its accompanying pressures of the emerging global system, and, on the
other hand, the reluctance of some governments and groups to change. The
friends of TINA go against many widely and strongly felt views in Middle Eastern
countries. In particular, those who see TINA as the force of westernisation, argue
that it implicitly or explicitly undermines both Islam and traditional culture. This
argument gives leaders a spurious legitimacy in resisting the need for change and

reform.

But there are three sources of pressure in relation to TINA that, in the end, prove

irresistible.

The Force of Example: Countries such as Egypt, Tunisia, and Turkey continue to
do well economically. EU pressure on Greece allows some economic and political
support to be given to Turkey. This support, in turn, provides the EU with leverage
for finding a way through the problems of human rights abuse and Kurdish
separatism. In addition, some small countries, such as Jordan, also do well
enough to give credibility to the view that openness and economic liberalisation

pay dividends.

Global and Regional Pressures: In The New Game, the emerging complex system
of economic and political institutions provides both carrots and sticks to persuade
those outside the game to join in. One area where these pressures play out is the
Arab?Israeli Peace Process. Optimism waxes and wanes as personalities come
and go and as specific pressure groups, whether of Israeli settlers or Islamic

extremists, gain a commanding voice. Yet the logic of the Oslo agreements is

 

49

 

50'.

?It was wrong in the 19805 to

assume

inexorable, and all outside players, including countries such as Iran and Saudi
Arabia, have an interest in maintaining pressure on the Israelis, Palestinians, and
Syrians. On Netanyahu?s departure there is
another surge of progress, and by 2006,
agreement is reached on all issues other than

that one country, .
Jerusalem. On a regional level, the more

namely Saudi Arabia, could

balance the market while all
others stood by. It is equally
wrong to assume that a number

confident EU also plays a part in encouraging
reform and opens markets to its neighbours in

North Africa and the Eastern shores of the

of countries in OPEC with a Mediterranean.

world production share of no

more than 41% are able to do
the same now.?

Hisham Nazer, Saudi Oil Minister

Oil: The Saudi decision to sell oil forward at
$10/bbl brings all the Gulf countries face to
face with reality - that oil alone is insufficient

to create a viable economy and society.

Saudi. Reforms

Perhaps the most dramatic effect of these changes occurs in Saudi Arabia. By
the early let century, following the accession of the first king from the third
generation from Saud, the new Saudi government recognises that long-term
survival is predicated on two basic policies. First, given the implementation of the
Kyoto agreements and the impending introduction of the supercar, the declining
market share for Saudi oil in a global market with little hope for growth spells
doom and must be reversed by raising oil production and letting prices drop to
about $lO/bbl. Second, this strategy, which actually increases expected Saudi
revenues, needs to be complemented by husbanding remaining oil income more
carefully. As part of its aggressive output expansion, Saudi establishes the ?Future
Fund?, which is meant to ensure adequate basic health and education for future

generations that may not benefit from massive oil revenues.

Conservative economic policies help the Saudis survive the very difficult period
of low oil prices as they expand output and drive other producers out of the

market. Economic policies are tightened, and subsidies and hand-outs are

reduced step by step. As a result, more and more citizens are forced to work and
build businesses. Gradually, new businesses flourish that are not built on oil, and

people gain confidence in the new order.

A major challenge for the economically modernising regimes remains, however -
they must find ways to legitimise power and establish systems that can credibly
transfer power to succeeding governments over time without risk of violent
upheaval. Severe upheaval in Morocco after the death of King Hassan II and
memories of the fate of President Suharto of Indonesia persuade key autocratic
rulers to establish less personalised systems of governance. In addition, education
reforms take hold, and work attitudes begin to change. By the end of the first
decade of the new century, several Gulf states, among them Saudi Arabia, take

their first steps towards a constitutional form of monarchy.

The Middle East in 2020

In 2020, many people still see the Middle East as turbulent and unsettled. But
while there are still one or two states embroiled in constant international disputes,
many countries are on the road to solid economic growth and a clearer set of
rules. National Assemblies and Majlis across the region are exercising power.
Sometimes, as in Kuwait in the late I990s, this looks noisy and destabilising but
it is creating the framework for the rule of law, greater macroeconomic stability,

and less predatory government behaviour.

Israel and its neighbours are not friends. Although the right of the existence of
the State of Israel was acknowledged, at least by the Egyptian government, from
Camp David onwards, it has taken twenty years of grudging acceptance and
economic growth in Jordan, Egypt, and Palestine for the rest of the world to feel

that stability is now assured.

By the end of the scenario period, it is clear that there is really only one path to
success to take advantage of productivity improvements in the world under a
framework of orthodox economic policy. Government budgets must be managed

prudently and prices kept stable. Borders must be open so that people can import

 

51

 

52

best practice as well as advanced capital goods. Competition is required to
provide people with incentives to work hard and innovate and falling foul of the

international set of agreements and instructions makes any progress very difficult.

In the world of People Power, successful economic policies are difficult to
sustain. While more and more people recognise that ?there is no alternative? to
the forces of globalisation, liberalisation, and technology, they remain deeply
suspicious about who benefits under any kind of regime. Incipient progress in
countries like Egypt and Morocco is seen to benefit mostly cronies of the ruling
elites. The result of TINA is seen in the ostentatious displays of new wealth for
example, in large parties in the posh hotels of Cairo, Beirut, and Damascus.
Revelations of the extent of private wealth of Hassan II after his death trigger
widespread protests organised by the Muslim brotherhood and bring Morocco to

the brink of civil war.

Governments in the oil?rich Gulf States remain paralysed as they see their share
of world oil markets steadily eroding. At the same time, they are incapable of
overhauling their domestic patronage systems. Saudi Arabia, in particular,
experiences repeated current account and fiscal deficits whenever prices fall
below $20/bbl. From time to time, prices lurch up again, and governments gain
breathing space but that space just as quickly disappears when prices drop
again in the volatile international oil markets. By 2005, net Saudi foreign assets

are clearly negative. Government debt exceeds 100% of GDP.

In 2005, the drop in oil prices, combined with a succession crisis of the Saudi
monarchy, triggers massive capital outflows. A currency crisis engulfs Saudi
Arabia, and an Islamic opposition group takes over the government, appointing a
member of the royal family to act as a figurehead king. Frightened rulers around
the Gulf try to shore up their power in a variety of ways, ranging from
strengthening their repressive machinery to introducing more democratic

forms of government.

Where new Islamic regimes take the place of despised autocracies and
tyrannies, they benefit initially from widespread popular support. Yet the mere
replacement of the previous regimes does little for economic growth. Popular
expectations in the new regimes are often disappointed. Initial populist measures
sometimes worsen the crises, driving inflation up and undermining the climate for
investment. Political escape valves, such as support for the fight against Israel,
and the backing of all sorts of terrorist factions, increase instability in the region
and create mounting disputes with Europe and the US. At the same time, more
and more people try to find jobs in Europe, and the informal economy, including

drugs, flourishes.

Populations are expanding very rapidly in many areas of the Middle East, faster
even than in Africa. Growing numbers of young people are exposed to a
contradictory mix of messages, from their schools, their mosques, their TV
screens, and the internet. But the very multiplicity of these messages, together

with more education, leads people to think more and more for themselves.

This kind of pressure, for example, was already visible in Iran in the late 19905.
Popular pressure for greater personal and economic freedom led to the election of
President Khatami, who presided over the gradual opening up of Iran and its
eventual integration into the new global economy. By the end of the 19905, Iran
was engulfed in quite radical debate that although always under the banner of
Islam ultimately led to the adoption of orthodox economic policies driven by
popular demands for greater opportunity and freedom. As a result of these
policies, very slowly, over the years the new Islamic regimes face up to economic

reality and abandon some of their radical and extravagant policies and promises.

By 2017 most Middle Eastern countries have adopted a democratic form of
government and embraced the advantages of the global economy. Islam has
proven its flexibility. As an old religion of merchant societies, it proves its value
for commerce. The original openness of Islam to the pursuit of science re?
emerges as people shed the attitude that all things western are despicable. This,

combined with a growing variety of interpretations and applications of Islam, and

 

53

 

54

in the absence of a dominating institutionalised clergy, encourages the

experimentation, innovation, and economic growth that leads to modernisation.

The destruction of the old oil-based autocracies has also undermined their
patronage systems at a time when oil revenues are running out. This
transformation enables people in countries like Saudi Arabia to start from a fresh
slate and to build their own post-oil economy on hard work and innovation. In
People Power, the people of the Middle East are increasingly self?reliant and regard
most government activities as irrelevant. To the surprise of the west, Iran with
its separation of powers, open debate, and sensible macro?economic policies 

becomes the model for the Middle East.

Russia

Russia Today

Official statistics reflect the old, dying Soviet society. Two economies exist, as well
as two societies. Tax rates are excessively high, so economic activity is hidden. For
those Russians who are able to take advantage of an environment with few rules and
weak enforcement of those rules, the new economy offers tremendous
opportunities. Wealth, travel, and new experiences are open to those with drive,

money, or connections. For some, Moscow is one of the most exciting cities on earth.

 

The Spirit of Enterprise

Tombstone advertisements currently abound in St. Petersburg. A dramatic rise in
the death rate, caused by difficult economic and social conditions, has followed the
collapse of the old order. But the situation also raises a business opportunity, now
open to private entrepreneurs and one with 250% profit growth in 1998.

?Soviet society is dead but not buried. The corpse is present and decaying and new
Russia grows from these rotten conditions. Decay of the corpse and growth of the
new exist side by side.?

Ftussian business consultant, age 28 former/y Head of the Department of Price
Dynamics in the Ministry of Economy

 

 

 

55

For many others, who have survived a decade of severe economic shock, a sense
of new optimism is emerging because they have seen family or friends improve
their standards of living in recent years. New jobs are opening up, and those who
are willing to take the chance of moving see the possibilities of a better life. The
past decade has also shown that there is little that governments can do to respond
to economic problems. What is really needed are political leaders who will clean
up corruption, make the streets safe, provide basic social support, and let people

get on with life.

But for the quarter of the population living on pensions and the half living below
the poverty line, the new world offers only hardship, with very little hope for

Income Distribution Comparisons improvement. The poor and the

pensioned have obsolete skills and

Mexico .

 

no connections, and they are unable
to move to new jobs. Their only
hopes are to keep their current jobs

until they retire, or that someone in

 

the family will support them. If they

 

GINI coef?ciew could vote the corrupt bastards out

A GINI value of 0 means total equality and 100 means total inequality of power, they would, but their vote

Source: World Bank, 1997; Milanovic, Income, Inequality and Poverty
during the Transition from Planned to Market Economy, 1998

seems to count for so little.

The New Game

After yet another false start to the promised economic recovery, Russian

political and business leaders recognise that a new approach is required to

 

complete the transition from command to market economy. Inside deals and
close ties to the political leadership have allowed favoured individuals to assemble
massive holdings of former state assets at very low prices, while tax and legal
breaks have helped businesses survive during a period of economic and social
turmoil. But now that choice assets have been privatised, and property rights are
subject to the whims of new, and potentially hostile, politicians, key business
leaders push for the establishment of a rules-based economy to create a more

secure foundation for their wealth.

56

With the unprecedented and politically motivated shift in economic control
largely complete, the new economy must now deliver tangible benefits more
widely, or risk severe backlash from an increasingly impatient population.

Following the shocks of 1997-98,

Non-State Em lo ment
when low oil prices threatened to 

. . 
undermine the economy, pride

1001
begins to give way to a consensus on

the need to attract inward 75?
investment into the broader 50_
economy and to break the

dependence on natural resources. 25?
The consumer booms in Moscow 0

 

 


1991 1992 1993 1994 1995
and St. Petersburg have been

Source: Enterprise Restructuring and Economic Policy in Russia, World Bank, 1996

exposed as little more than bubbles

based on high oil prices.

Russian leaders also recognise that to participate in, and benefit from, The New
Game, Russia must lock itself into the international economy through membership
of institutions such as the WTO and, eventually, the EU. This policy is needed,
particularly, to secure agreements on large?scale energy exports to Europe and

Asia, and to support the global aspirations of Russian businesses.

New Rules

The government elected in 2000 works hard with a new Duma to complete the
?reform? agenda, including the completion of the passage of the long?delayed
comprehensive tax code, new legislation allowing land ownership, and sweeping
administrative reforms. The new government also negotiates a consensus with
the regions over how to deal with revenue sharing and economic control. A
pragmatic spirit of co?operation emerges to break the logjams that have stifled

investment.

In exchange for these reforms, the new President agrees to strengthen social

safety nets, clear pension arrears, exert greater control over the revenues from


1996


1997

 

57

 

58



-4J

GDP Growth Following Economic Stabilisation

0/04, 

 

Source: 1998

major industries, and enforce harsh punishment for tax avoidance. Taxes on
resource production remain high to help government finances. The new market

economy is pledged, finally, ?to deliver benefits for all and not just a few.?

Between Theory and Practice

But to understand the game, including the passage of new legislation, is only a
first step. To play well also requires effective implementation. Russia needs new
institutions and officials with new skills to enforce these rules. Effective tax and
legal administration is weak in the
early years, particularly when it
comes to complex resource

Poland agreements. Foreign firms are

M298)



H38 

 
 

especially disadvantaged. The new

     

tax code overrides previous

 

Brazil

(1989-96)
Czech Re ublic Production Sharing Agreements for
(1993-58resource development, resulting in

Years followingstabilisation . . . . .
Significant conquion until the laws

can be harmonised. Just as Eastern
Europe and other countries
emerging from major economic restructuring have discovered, many years are
required to create a credible policy environment to sUpport stable economic

growth.

Rocky Road to The New Game

The new government inherits an economy where tax and wage arrears and
other unfunded liabilities are equivalent to one third of economic output and
where almost half of all industrial enterprises are losing money. Many firms have
survived by not paying wages supporting their workers, instead, through the
provision of food and housing. in the past, the government turned a blind 
when these companies did not pay their taxes, but now, such firms are left to fail.
The government recognises that to break the vicious cycle of barter and non?

payments, hard budgets must finally be enforced.

Tyumen Oil is pushed into TheVicious Circle of Non-Payments

bankruptcy in 2001 for non?


 

a ment of taxes a test case for flowshortage 
Industry
Government non-payment
the new bankruptcy law, which is nompayments onaxes 
used to hasten the demise of ?value? I Government
a borrowing and
destr . . t. d. Government or ?n high interestrates
oying in us ria inosaurs. revenue 
shortfall r. 2
Some high?profile tax debtors are Limitedcapital
. . Tax evasion investment
tried and imprisoned, and there IS a through barter H. nd Government 
uhgstaable EUPPOS kir-
major shakeout of the financial taxrates wa'mg'n ??68

sector. Over half of Russia?s fifteen
hundred banks fail during a three?
year period. But this necessary restructuring is completed, without serious
disruption to the capital markets, through government co?ordinated mergers with

stronger banks.

Many of the failing industrial firms are in one?industry towns. The new safety
net is wide enough to care for only the most needy, and in the wake of these
shocks, social unrest begins to flare up. Internal migration creates large strains in
cities such as Moscow, with periodic outbreaks of violence between residents and
newcomers. But this unrest never spreads beyond localised outbreaks, in part
because the growing middle class is more interested in taking advantage of the

new opportunities than in organising protests.

The new legal and tax framework spurs a boom in domestic and foreign
investment. Thousands of new businesses are created, particularly in consumer
goods and manufacturing. These new opportunities encourage workers to risk
changing jobs. The black economy declines from over 25% of total output to
around 15%, a proportion similar to Italy?s in 1998. Economic growth climbs to
5% in 2002 - the first year of strong growth in almost two decades. The difficult
hurdle of resuming foreign debt repayment in 2002, after five years of grace, is

overcome without problems.

59

 

60

%/yr
10-

-10 

 

-15-

But this first period of economic recovery is almost derailed by the collapse in
oil prices in 2003 and 2004. The decision by Saudi Arabia to expand production
and increase market share, partly as a result of anticipated oil production
Russia: GDP Growth expansion in Russia and Central

Asia, drives the oil price below
$10/bbl. A number of Russian oil
companies default on international

AA bank loans, and oil and gas activity

I I drops substantially, leading to

1995 2000 2005 2010 2015 2020

dramatic decreases in export
receipts and government revenues.
With help from the EU in the form
of a stabilisation fund, the
government manages a staged
devaluation of the rouble, which provides a boost to the emerging consumer

goods industry. Economic growth resumes, but remains volatile and uneven.

Broad-based Growth

Persistent low oil prices highlight the danger of over?reliance on the resource
sector for economic growth. The government embarks on a programme of
encouraging industry and services in order to diversify the economy. The
government also finds that new rules and institutions are insufficient to ensure
that the economy moves onto a steady growth path. The entrenched power of
large Financial Industrial Groups (Fle), with control over half the economy, is
hindering competition in key sectors. In 2004, the Ministry of Finance succeeds in
pushing through a restructuring programme to break up the electricity sector.
This paves the way for the forced divestiture of assets of major companies, such
as Gazprom, to their competitors. The strengthened Anti?Monopoly Commission
takes action tohalt and, in some instances, reverse the process of consolidation
in the oil and industrial sectors. After merging with Sidanco, Lukoil is forced to

sell off parts of its business.

Weak oil prices and shareholder pressure finally force Russian resource firms to
restructure, a process which takes a number of years, but which is generally
successful. In 2006, Lukoil becomes the first Russian company to be listed on the
New York Stock Exchange. With their domestic house in order, the major Russian
resource companies turn their attention to spearheading oil, and particularly gas,

export projects to Asia.

In 2008, Russia joins the GCC, the successor to the WTO. From 2009, the roublre
is increasingly linked to the Euro, in preparation for full membership of the EU.
With almost a decade of experience implementing the new tax and legal structure,
foreign investment grows strongly after 2010, helping to drive a period of modest

but steady growth in an ever?broadening economy.

In People Power, consensus on how the economy should be run, who should
collect and keep tax revenues, and Russia?s role in the world, is just not possible.
After seven decades of enforced uniformity, individuals and different regions have
no intention of bowing to a single vision from Moscow. Each region considers
itself unique and pushes hard for control over its own economic, political, and
social affairs. People resist efforts to create new rules and institutions - efforts
that often look like thinly disguised means of solidifying control for the privileged.
The Russians? nose for conspiracies keeps political debate fractious and

fragmented.

In the election of 2000, a charismatic, populist President is chosen, who
promises to eliminate corruption and the mafia, restore the power of Russian
industry, and ?re?establish? close relations with Russia?s neighbours. He will
ensure that Russia never has to go cap in hand again to the IMF or to 25?year?old

bankers.

The new government expresses interest in foreign investment but is unwilling to

push through laws, such as enabling legislation for Production Sharing

 

61

 

62

Agreements, partly because of a backlash against foreigners, whom many
Russians now view as competitors. The government?s reaction to pleas from
foreign firms for new laws and taxes is simply: ?Why do you need all these laws?
Just do business! If you are part of the Russian economy, you will be taken care

Of 7)

The Kremlin gives the major FIGS strong support, and early on, despite the
economy?s structural problems, industrial production starts to grow strongly.
Special deals and exclusive licences are provided to favoured investors. Many
foreign investors welcome the creation of a streamlined, one?stop source for
approvals, and support the government?s success in starting to control organised

crime. Foreign investment, largely led by Russian offshore capital, rises sharply.

However, not all firms find the investment conditions acceptable. Often,
licenses are awarded to firms that are more ?flexible? or, as some would say,
?culturally sensitive?. In this environment,

foreign firms find that strategic alliances are

?Our relations with the 
essential to survrve.
mayor?s office are constructed
on 0f mUtuany Parts of Russia emerge as centres of world

beneficial co?operations rather
than on a personal basis!"

excellence in areas such as electronic

banking, sophisticated risk management and

\?lndimlr Guzins/gv. Most Group

hedging instruments, and security systems
for electronic commerce. Foreign firms are
attracted by low-cost Russian scientists and mathematicians, available since the

collapse of the defence industry.

The Al/lillemzium Bangs

In 2002, just as the economy appears to be headed for recovery, the global
?Millennium Bangs? recession hits Russia hard. World demand for Russia?s natural
resources weakens. Foreign investment dries up as investors seek safe havens for

their money.

Even after the world recovers from recession
and resource prices rise, the result of the 2004
election keeps investors feeling nervous. The
new government demands renegotiation of
many of the deals agreed by the previous
government. With the change of political
leadership, those foreign firms with strong
positions because of their favoured partners,
now often find these partners a political

handicap.

There are occasional attempts to build consensus among the regions over power
sharing, but the country is essentially run from Moscow by a small team close to
the President, and representatives from the surviving FIGS. Increasingly, the
regions view the country not only as run from Moscow, but also as run for
Moscow. Serious conflicts emerge, some even leading to regional independence
movements, such as the failed attempt in Dagestan in 2006. Following the
repression of the regional independence movements, potential investors worry
about unstable conditions, corruption, and the lack of a judicial system that could
effectively enforce agreements and alliances. Towards the end of 2006, Russian

capital flight triggers a currency crisis, which halves the value of the rouble.

The problems in Russia are mirrored in neighbouring countries, particularly the
Ukraine, which, following Russia?s lead, had fostered close ties between industries
in the two countries through incentives for investment by Russian firms. These
commercial ties begin to unravel under the strain of domestic economic turmoil.

The Commonwealth of Independent States (CIS) finally collapses.

Political turmoil in Central Asia threatens to draw Russia into regional conflicts.
Export pipelines are periodically shut down, and Russian oil and gas companies,
facing political difficulties at home, are forced to pull out of the region. Potential

projects to export energy to Asia collapse as government attention is directed

 

63

towards domestic troubles. Investment in the oil sector declines, raising concerns

that Russia could become a net importer of oil during the next decade.

Largely overlooked in all the turmoil is the emergence of a new generation of

 

business leaders, who are quietly building successful enterprises in the growing
service economy. Using sophisticated communications technology, these firms
have succeeded in overcoming the constraint of geography to build inter?regional
enterprises. Many of these firms are connected through alliances that bypass

Moscow.

Spread throughout the country, these young leaders recognise that conflicts
among members of the old guard threaten to undercut the progress they have
made. These leaders also want to limit the market power of FIGS and other large
industrial firms that collude with government officials to block their expansion

plans.

Because of the failures of all the attempts to regenerate the economy, a
consensus begins to emerge that a less centralised, more liberal approach is
called for. Started by a group in Novosibirsk, a new ?Party of the Regions? is
created with the main aim of renegotiating power sharing under the constitution

Russia: to ensure that regions such as

?V/yr Moscow cannot dominate the

 

15' others. After winning the
10? presidential election of 2012, the
5_ new government succeeds changing the constitution, limiting

199 2000 2005 2010 2015 2020 the power of the president, and
6? increasing the power of the
?10? legislature and judiciary. Many of
-15-

 

the old Fle collapse as their

political support is withdrawn. With

64

political interference severely limited, and a new agreement on power sharing
between the centre and the regions, the economy starts its first sustained period
of growth in three decades. Economic growth climbs to over 8% by 2014 and

averages 6% over the decade.

 

65

66

67

    

 

     
   

Canada

i: United States
- Latin America
- Western Europe

 

 

 

- Eastern Europe
- CIS

:l Middle East and
North Africa

India
- China

 

- East Asia
Japan

- Australia and New Zealand
I: Rest of World

Quantification

68

Gross Domestic Product

Constant (bln) adjusted for differences in purchasing power*

1 990 1 995 2000

The New Game

Canada 605 652 737
US 6618 7274 8269
India 1139 1455 1907
China 2100 3698 5182
Japan 2603 2795 2977
Australasia 354 403 468
CIS 1885 1124 1197
Western Europe 6955 7473 8403
Eastern Europe 772 712 863
Middle East/North Africa 1705 2001 2410
Latin America 2603 3081 3708
East Asia 2200 3117 3564
Rest of World 1129 1326 1677
World Total 30667 351 09 41 360

Canada 605 652 737
US 6618 7274 8269
India 1139 1455 1907
China 2100 3698 5083
Japan 2603 2795 2962
Australasia 354 403 468
1885 1124 1180
Western Europe 6955 7473 8403
Eastern Europe 772 712 863
Middle East/North Africa 1705 2001 2398
Latin America 2603 3081 3708
East Asia 2200 3117 3634
Rest of World 1129 1326 1672
World Total 30667 351 09 41 283

Base year 1997, as per IMF World Economic Outlook, spring 1998

2005

829
9290
2527
6799
3341
515
.1282
9274
1081
2946
4755
4579
2079

49296

762
8556
2319
5695
3004

496
1233
8545

971
2621
4212
4171
1893

44478

2010

947
10622
3318
10270
3656
607
1559
10406
1353
3657
6213
5750
2507
60865

911
10231
2985
7617
3596
616
1379
9043
1375
2994
6119
5548
2362
54775

201 5

1053
11805
4250
14068
3977
678
1914
11556
1764
4539
8043
7186
3115
73949

988
11118
3954
10127
4221
750
1943
10139
1805
3522
7844
7118
2917
66447

2020

1225
13738
5730
18735
4426
792
2363
13165
2306
5716
10422
8950
3877
91445

1128
12714
6168
13290
4729
920
2674
12182
2712
3945
10345
9055
3873
83734

1 991 -95

1.5
1.9
5.0
12.0
1.4
2.6
-9.8
1.4
-1.6
3.3
3.4
7.2
3.3
2.7

1.5
1.9
5.0
12.0
1.4
2.6
?9.8
1.4
-1996-00

2.5
2.6
5.6
7.0
1.3
3.0
1.3
2.4
3.9
3.8
3.8
2.7
4.8
3.3

2.5
2.6
5.6
6.6
1.2
3.0
1.0
2.4
3.9
3.7
3.8
3.1
4.7
3.3

average annual increase

200 1 -05

2.4
2.4
5.8
5.6
2.3
2.0
1.4
2.0
4.6
4.1
5.1
5.1
4.4
3.6

0.7
0.7
4.0
2.3
0.3
1.2
0.9
0.3
2.4
1.8
2.6
2.8
2.5
1.5

2006-1 0

2.7
2.7
5.6
8.6
1.8
3.3
4.0
2.3
4.6
4.4
5.5
4.7
3.8
4.3

3.6
3.6
5.2
6.0
3.7
4.4
2.3
1.1
7.2
2.7
7.8
5.9
4.5
4.3

201 1-15

2.1
2.1
5.1
6.5
1.7
2.2
4.2
2.1
5.5
4.4
5.3
4.6
4.4
4.0

1.6
1.7
5.8
5.9
3.3
4.0
7.1
2.3
5.6
3.3
5.1
5.1
4.3
3.9

201 6-20

3.1
3.1
6.2
5.9
2.2
3.2
4.3
2.6
5.5
4.7
5.3
4.5
4.5
4.3

2.7
2.7
9.3
5.6
2.3
4.2
6.6
3.7
8.5
2.3
5.7
4.9
5.8
4.7

69

Energy Demand

The New Game

Total Energy
OECD

CIS and Europe
Others

Total

Oil (and Substitutes)
OECD

CIS and Europe
Others

Total

Natural Gas
OECD

CIS and Europe
Others

Total

Coal

OECD

CIS and Europe
Others

Total

1 990

88.9
35.8
46.0
1 70.7

38.4
10.2
18.5
67.1

16.8
13.3
5.4
35.5

18.9
9.5
16.7
45.1

1 995

96.6
25.8
57.4
1 79.8

39.9
6.0
24.1
70.1

20.1
10.4
7.7
38.2

18.9
6.5
19.7
45.0

boeld

2000

102.3
28.2
72.0

202.5

42.5
6.8
27.3
76.6

21.2
11.3
12.1
44.6

19.8
6.9
25.0
51.7

OECD excludes Korea, Mexico, the Czech Republic, Hungary, and Poland.

2005

102.7
29.8
88.9

221 .4

41.2
7.6
36.1
84.9

24.6
12.3
14.5
51 .4

16.7
6.8
28.1
51.6

2010

99.9
31.8
110.2
242.0

37.1
8.6
46.8
92.5

27.5
13.4
17.9
58.8

12.4
6.7
31.3
50.4

201 5

96.2
33.8
134.2
264.1

31.7
9.2
52.7
93.6

31.3
16.0
33.8
81.1

8.1
5.2
28.2
41 .4

2020

92.8
34.3
160.2
287.3

26.6
8.9
56.8
92.3

35.6
17.9
49.9
1 03.4

2.2
3.9
23.6
29.7

A fuller breakdown of world energy demand will be made available on the Shell Wide Web.

1 991 -95

1.7
-6.3
4.5
1 .0

0.8
-10.1
5.5
0.9

3.7
?4.8
7.4
1 .5

0.0
?7.4
3.4
0.0

1 996-00

1.2
1.8
4.6
2.4

1.3
2.7
2.5
1.8

1.1
1.7
9.5
3.2

0.9
1.2
4.9
2.8

average annual increase

200 1 -05

0.1
1.1
4.3
1.8

-0.6
2.1
5.8

2.1

3.0
1.8
3.7
2.9

?3.3
-0.1

2.3
0.0

2006- 1 0

-o.5
1.3
4.4

1.8

-2.1
2.5
5.4

1 .7

2.3
1.7
4.3
2.7

-5.9
-0.3
2.2
-0.5

201 1-15

-0.8
1.2
4.0

1.8

-3.1
1.4
2.4

0.2

2.6
3.6
13.5
6.6

-8.2
?5.0
-2.1
-3.8

201 6-20

-0.7
0.3
3.6

1.7

-3.4
?0.6
1.5
-0.3

2.6
2.3
8.1
5.0

-22.8
-5.4
-3.4

-6.4

70

Energy Demand

The New Game

Nuclear/Hydroelectricity
OECD

CIS and Europe

Others

Total

Renewables
OECD

CIS and Europe
Others

Total

Electricity
OECD

CIS and Europe
Others

Total

1 990

14.5
2.8
4.5

21 .9

0.9
0.2
0.1
1.1

30.9
7.8
16.7
55.4

1 995

16.8
2.6
5.8

25.3

0.8
0.3
0.1
1.2

38.0
7.8
22.5
68.3

hoe/d

2000

18.0
2.9
7.4

28.3

0.8
0.4
0.2
1.4

40.6
8.5
28.9
78.0

OECD excludes Korea, Mekico, the Czech Republic, Hungary, and Poland.

2005

18.2
2.8
9.8

30.8

1.9
0.3
0.5
2.7

41.3
9.3
35.6
86.2

2010

18.7
2.8
12.8
34.3

4.3
0.3
1.3
5.9

42.4
10.6
43.9
96.9

201 5

18.9
2.9
16.6
38.5

6.2
0.5
2.9
9.6

43.0
12.4
53.1
1 08.5

2020

19.4
2.8
23.0
45.3

9.0
0.7
6.9
16.6

44.1
13.6
69.1

126.7

A fuller breakdown of world energy demand will be made available on the Shell Wide Web.

1 991 -95

3.0
-1.5
5.1
2.9

?2.8
14.8
21996-00

1.3
1.8
5.1
2.3

1.7
1.8
5.5
2.2

1.3
1.8
5.1
2.7

average annual increase

2001 -05

0.3
-0.7
5.6
1.7

17.8
-1.7
21.6
14.5

0.4
1.8
4.2
2.0

2006-1 0

0.4
0.3
5.7
2.2

17.9
-0.8
21.6
17.0

0.5
2.7
4.3
2.4

201 1-15

0.3
0.6
5.3
2.3

7.6
9.1
17.2
10.1

0.3
3.1
3.9
2.3

201 6-20

0.5
-0.6
6.8
3.3

7.8
7.9
18.9
1 1.6

0.5
1.9
5.4
3.2

71

Energy Demand

Total Energy
OECD

CIS and Europe
Others

Total

Oil (and Substitutes)
OECD

CIS and Europe
Others

Total

Natural Gas
OECD

CIS and Europe
Others

Total

Coal

OECD

CIS and Europe
Others

Total

1 990

88.9
35.8
46.0
1 70.7

38.4
10.2
18.5
67.1

16.8
13.3
5.4
35.5

18.9
9.5
16.7
45.1

1995

96.6
25.8
57.4
1 79.8

39.9
6.0
24.1
70.1

20.1
10.4
7.7
38.2

18.9
6.5
19.7
45.0

hoe/d

2000

102.3
28.1
71.6

201.9

42.5
6.8
27.1
76.4

21.2
11.2
12.1
44.5

19.8
6.8
24.9
51.5

OECD excludes Korea, Mexico, the Czech Republic, Hungary, and Poland.

2005

105.1
29.1
80.2

214.5

43.1
7.2
31.0
81.3

22.8
11.5
13.1
47.4

20.8
7.5
27.2
55.4

201 0

109.4
32.5
105.8
247.7

441
&4
429
953

24.2
12.4
16.9
53.6

21.9
8.5
33.9
64.3

201 5

109.3
35.8
136.0
281 .1

40.2
9.5
55.6

1 05.3

29.7
15.2
25.5
70.3

19.8
7.5
38.5
65.9

2020

109.1
36.2
179.6
324.9

35.6
8.4
67.6

1 1 1 .6

35.6
17.0
37.9
90.5

17.1
6.9
47.5
71.5

A fuller breakdown of world energy demand will be made available on the Shell Wide Web.

1 991 -95

1.7
-6.3
4.5
1 .0

0.8
-10.1
5.5
0.9

3.7
-4.8
7.4
1 .5

0.0
-7.4
3.4
0.0

1 996-00

1.2
1.7
4.5
2.3

1.3
2.6
2.3
1.7

1.1
1.6
9.4
3.1

0.9
1.1
4.8
2.7

2001 -05

0.5
0.8
2.3
1.2

0.3
1.1
2.8
1.3

1.4
0.5
1.7

1.0
1.7
1.8

2006- 1 0

0.8
2.2
5.7
2.9

0.5
3.1
6.7
3.2

1.3
1.6
5.2
2.5

1.0
2.6
4.5
3.0

average annual increase

201 1-15

0.0
2.0
5.1
2.6

-1-2.0
-2.4

2.6
0.5

201 6-20

0.0
0.2
5.7
2.9

-2.4
-2.4
4.0
1 .2

3.7
2.3
8.3
5.2

-2.9
-1.8

4.3
1.6

72

Energy Demand

Nuclear/Hydroelectricity
OECD

CIS and Europe

Others

Total

Renewables
OECD

CIS and Europe
Others

Total

Electricity
OECD

CIS and Europe
Others

Total

1 990

14.5
2.8
4.5

21 .9

0.9
0.2
0.1
1.1

30.9
7.8
16.7
55.4

1 995

16.8
2.6
5.8

25.3

0.8
0.3
0.1
1.2

38.0
7.8
22.5
68.3

boeld

2000

18.0
2.9
7.4

28.2

0.8
0.4
0.2
1 .4

40.6
8.4
28.7
77.7

OECD excludes Korea, Mexico, the Czech Republic, Hungary, and Poland.

2005

17.2
2.6
8.4

28.2

1.3
0.4
0.5
2.1

41.3
8.8
32.9
82.9

201 0

17.0
2.8
10.9
30.7

2.2
0.4
1.3
3.9

43.5
10.5
42.4
96.4

2015

16.6
3.0
13.7
33.3

3.1
0.6
2.6
6.3

45.2
12.8
53.4
1 1 1 .4

2020

16.5
3.0
20.3
39.7

4.3
0.9
6.3
1 1.5

47.5
14.7
78.9
141 .0

A fuller breakdown of world energy demand will be made available on the Shell Wide Web.

1 991-95

3.0
-1.5
5.1
2.9

-2.8
14.8
21996-00

1.3
1.7
5.0
2.2

1.7
1.7
5.4
2.1

1.3
1.7
5.0
2.6

average annual increase

2001 -05

-0.9
-1.7

2.7
0.0

9.8
0.2
19.8

0.3
0.8
2.6
1.3

2006-1 0

-0.2
1.2
5.2

1 .7

10.6
3.2
22.7
1 2.6

1.1
3.7
5.2
3.1

201 1-15

-0.4
1.4
4.7

1.7

6.9
8.2
15.5
10.2

0.8
3.9
4.7
2.9

201 6-20

-0.2
0.3
8.1

3.6

7.2
7.1
19.3
12.8

1.0
2.8
8.1
4.8

73

The New Game

Crude Oil (Arab Light

1995 1996 1997 1998 1999 2000 2001

Eriergyy 

Oil (and Substitutes) Production (million hoe/d)
Conventional Oil

NGL

Heavy Oil

Processing Gains

Total

Conventional Oil Production (million bld)
Russia and Caspian Region

Other 

Saudi Arabia

Other ME OPEC

Other OPEC

Total

Gas Production (mboeld)

Coal Production (mboeld)

fob)

{1997

2002 2003 2004

17

1 990

59.8
5.4
0.6
1.3

67.1

11.6
25.3
6.4
9.2

. 7.3
59.8

36.3

45.3

10

1 995

61.5
6.5
0.7
1.4

70.1

7.0
29.8
7.8
9.1
7.9
61.5

38.8

45.3

$/bbl)

2005

10

2000

66.6
7.6
0.8
1.5

76.5

7.2
33.2
7.3
9.9
9.0
66.6

44.7

51.9

2006

10

2007

10

2005

73.3
9.2
0.8
1.6

84.9

7.7
29.5
11.8
13.7
10.6

73.3

51.4

51.9

2008

10

2010

79.3
10.5
0.8
1.9
92.5

7.0
25.0
16.5
19.8
11.0

79.3

58.8

50.6

2009 201 0

10

2015

76.7
14.2
0.8
1.9
93.6

6.9
24.0
15.7
19.1
11.0

76.7

81.1

41 .6

201 1

10

2020

71.5
18.1
0.8
1.9
92.3

6.4
23.0
13.8
17.3
11.0

71.5

1 03.5

29.9

74

Crude Oil (Arab Light fob) (1997 $/bbl)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Energy Supply

Oil (and Substitutes) Production (million boeld)
Conventional Oil

NGL

Heavy Oil

Processing Gains

Total

Conventional Oil Production (million bld)
Russia and Caspian Region

Other 

Saudi Arabia

Other ME OPEC

Other OPEC

Total

Gas Production (mboeld)

Goal Production (mboeld)

1 990

59.8
5.4
0.6
1.3

67.1

11.6
25.3
6.4
9.2
7.3
59.8

36.3

45.3

1 995

61.5
6.5
0.7
1.4

70.1

7.0
29.8
7.8
9.1
7.9
61.5

38.8

45.3

2000

66.6
7.6
0.8
1.5

76.5

6.9
32.0
7.8
10.5
9.4
66.6

44.7

51.7

2005

70.3
8.5
0.8
1.6

81.2

7.8
33.5
8.3
11.1
9.6
70.3

47.4

55.7

2010

81.4
9.6
2.5
1.9

95.4

10.0
35.0
9.8
14.4
12.2
81.4

53.6

64.6

2015

86.9
12.5
4.0
2.0
105.3

10.0
31.5
13.4
18.9
13.0
86.8

70.6

66.2

2020

87.6
1510.0
31.5
13.5
19.6
13.0
87.6

90.6

71.8

Produced by Publicity Services 25240/8.98/1m