The Great Opportunities Ahead

 

The blog is taking a break for the festive season (we will back on Thursday next week before, of course, closing-down again over the New Year period). 

We would like to wish all of our readers a very happy holiday season and successful 2012. 

Before we take our leave, here are a few thoughts concerning this year and the outlook for 2012 and beyond. The opportunities are tremendous, but it is not going to be easy….

 

By John Richardson

THERE will be no return to the Old Normal of easy credit and comfortable demographics where the Babyboomers supported the golden economic period of the early 2000s, is the inescapable conclusion of events this year.

So is the painful reality that the “European project”, in its current format at least, is bust. Politicians remain a long way from finding a solution to the Eurozone crisis. If they fail, which seems a strong possibility, we are into a new global recession, quite possibly a Depression.

US politics is a mess. None of the leading candidates for the 2012 presidential election, including the President, get it.

The country doesn’t need smaller government and more tax cuts for the rich. What is required is nothing short of a New Deal – heavy investment in infrastructure, energy research, education etc – all of which have been on the decline as a share of total spending since the Reagan administration, according to The Price of Civilisation by American economist, Jeffrey Sachs.

The US political agenda has been taken over since the 1980s by Big Oil, Wall Street and the corporate lobbyists, argues Sachs. And he points out, as we do in Chapter 3 of our e-book Boom, Gloom & the New Normal, that successive waves of financial deregulation, including decisions taken by the Clinton administration, set the groundwork for the 2008 financial crisis.

This year has also proven that the economic rise of China and India will not be steady and easy.

China faces a systemic debt crisis. The cynicism and general pessimism in India over politics and corruption, as the country also wrestles with inflation, suggests a return to the “Hindu rate of growth”.

Chemicals companies might still be hoping that we will return to the Old Normal in 2012. Mild bouts of re-stocking are likely to occur, leading to a revival in prices for chemicals and in share prices.

But there will be no sustained recovery until politicians recognise and adequately respond to the scale of the problem, and companies adjust their strategies to cope with the evolving New Normal.

There are some tremendous opportunities for the chemical companies with the right approach, beyond cutting costs and lowering operating rates in the hope that “pent-up demand” – i.e. the Old Normal – will return.

We think companies need to focus their R&D efforts, and in adjusting existing manufacturing, on the following:

1.) The increase in the number of people who are over-55 in the West.

2.) Young people in the West struggling with much-worse employment and earnings opportunities than those enjoyed by their parents during the economic Golden Era of the early 2000s.

3.) The “relative” poverty of the rapidly expanding middle classes in the developing world. This will not be a sudden army of hundreds of millions of BMW-owning foreign-holiday goers, but will instead involve a sharp rise in demand for extremely cost-competitive low-end consumer goods.

4.) The megatrends such as carbon footprint, changing demographics and water and food scarcity.

Some chemical companies already get this and have been talking about megatrends for years. They are well set to prosper in the New Normal.

Other companies that focus mainly, or entirely, on quarterly profit growth and the value of their share price are going to struggle.

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