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Economic Slowdown


Food and oil scarcity means tougher times ahead

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Hazel Heyer l Special to eTN  May 23, 2008

Professor Norbert Walter, chief economist of Deutsche Bank Group and head of Deutsche Bank Research, is worried about the present. “When times are critical for the world economy, except for Russia, the world lacks dependable leaders. When the economy is a problem, social issues and environment also pose a grave problem. Tolerance in every part of the world is short,” he said at the Global Travel and Tourism Summit held in Dubai.

Many countries around the globe do not pay fair market prices for scarce commodities causing misallocation of resources, which may end up in worldwide catastrophe.

In 2008 through the rest of the year, not only energy but also food will become very expensive. As one social issue, food prices will escalate, increasing social tension world over. The same issue will make countries that have been neglected for so many years become the focus because they’re the world’s food suppliers. Providers of commodities copper, iron, precious minerals, pulp /paper and even soy will not only be rich. In fact, they will become very rich and will have the upper hand in global tourism, thereby posing a challenge to the US and Europe, added Walter.

Christopher Dickey, Paris bureau chief and Middle East regional editor of Newsweek, pointed out recent problems hitting some spots. Food riots in Haiti and breadlines in Cairo, Egypt recently took its toll on tourism. “Tourist industry in many developing countries has become like enclave tourism – putting tourists inside the wall where they can relax, while everyone else stays outside. This will be harder to do as we see food shortages, energy prices and political instability increase in countries which could be ideal tourism destinations. Tourism just has to cope with bad leadership in the world for the near and medium-term,” he said, adding that the reason why private sector leaders need to be aware and have to work themselves around the enduring problem of bad political leaders in the world.

“It’s obvious that Asia will be the growth pole in the next five years. Latin America, growing today at a slow 4 percent has huge potentials to do better. If the region can trade more and openly with the rest of the world, it will become a leader in tourism,” Walter said.

In the next five years, a few more things can happen on the downside. The US may recover from the recession but not as fast as most investment bankers predict today. “The very fact that the US has over-spent its budget continues to put markets in a lull. Question remains as to whether the rest of the world will continue to finance the over-spending of the US or not. In the past, savings from Asia and Europe held the US afloat despite its spending spree,” Walter said.

What will the US policy do to the US dollar which economists say has already been declining for a number of years? “Whether the world will continue to accept a currency diluting its value as a reserved currency or not is a big question. Dubai and the Gulf states are already discussing these issues,” Walter said further stating that in the next two years, more countries will question the value of the dollar and the reserved currency.

Oil- and gas-supplying countries today are quite unhappy that while they pump out precious mineral resources and distribute them to the world, they get back money that loses value overnight. Walter was firm about the Iranian president thinking of denominating oil exports in other currencies in order to escape the dollar slide. Investors and individuals will diversify their investment portfolio from the dollar to other foreign exchange.

However, this is not the period like when the dollar took over the pound sterling. This is not a period for one currency to take over another. There will be two more years for a low dollar before it comes back. The US, being a vital economy, will come back due to its vast pool of young talents and good education. Dollar will not go out of fashion, he said.

From today to 2010/ 2011, revenues and investments dealing in the US dollar are at risk. Margins are not really high enough to withstand fluctuations in the market marked by high food and energy costs. Today’s tourism industry may be confronted by older people getting poorer by the day and a younger generation willing to travel and may have the cash.

Walter said the tourism industry today should also think about more qualified engineers who would use resources wisely and conserve energy and environment. “For instance in Europe, people want to set regulatory framework for the environment. One country cannot seem to do so--the US. But if we would like to know what to expect, we only have to look at what will happen in the US. Whoever becomes the president, the US will definitely become a different country in terms of perception of environmental issues. The US will soon lead the path towards monitoring climate change,” Walter said.

Beware he added, it will no longer be Europe or just one state making a change; it will be one force led by the US as a whole making implications on building codes, insulation, installations, developing designs for engines, outlining carbon-trading and carbon emission regulations vital to costs, said Walter.

Obstacles arise as concerns the forecast growth in Asia. For instance, in China, concern for environment will be utmost especially when it comes to local policies (local air, water and soil), although not for global climate change. Countries next door to China such as Vietnam and countries like Brazil will be confronted with favorable market conditions due to the handling of environmental issues.

With 37 nations facing challenges in stability today when it comes to food and energy, the real immediate issue (more important than climate change) is poverty on which travel and tourism has an impact in the local community. Edouard Ettedgui, group chief, Mandarin Oriental Hotel Group said: “As a fragmented industry with many small players, he proposes tourism should start by working together with governments. Small restaurants and small operators need to operate with the local community and need to regroup to talk with city governments who have a clearer, more focused vision than larger areas like states or provinces.”

Meanwhile, utility suppliers in South Africa are talking about electricity cuts for the next five years. Addressing this acute problem, chairman for South Africa Tourism and group chief executive Tsogo Sun Holdings, Jabu Mabuza, said they’ve made a choice in the country to drive economic growth in the last 5-7 years to the larger part of the population.

“Taking a toll on infrastructure, 4 million new houses were brought into the electricity grid bringing more stress to the electricity supply. We don’t know now how to quantify that problem. Our power utility has committed euros 8.4 billion to address the problem with a call to business and general public to look at other ways of saving energy and generating heating, other than relying on pure electricity. This is the focus of our government, which has identified tourism as a driver of growth and meaningful contributor to GDP. In the last five years, 43 million tourists have come. Tourism will try to alleviate our challenges; and the stress on the system depends on the power that we should generate more and save.”

Though times look tougher ahead, tourism can help alleviate the growing pains. Emerging markets are also taking center stage as they stand to provide the world with much-needed supplies. As the economist said, they will become very rich.

Food and oil scarcity means tougher times ahead
Image via msn.com



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