Don't invest in this country until ...
2012 I was doing research for my future book on how to address three main environmental challenges to human civilization (climate change, overpopulation, soil destruction) and I studied some reports about the environmental crisis that Syria faced in the years before the war started. My book "Tre sfide per una generazione" was then published in Italian a few years later.
An hypothesis came to my mind: is it possible to use freely available data to anticipate future crisis like the Syrian one?
Being quite a fan of Nassim Taleb I now know that the future is not (fully) foreseeable, but when people and companies invest in a country they have to evaluate in some way its potential risk of becoming a "Failed State" and potentially losing all their investment.
To check my hypothesis I searched the CIA World Factbook 2011 database for countries with these characteristics:
- fast growing population
- large need for importing food because the local agriculture was not able anymore to feed its population
- low GDP per capita
Two countries emerged as the main potential candidates for becoming future failed states according to my analysis. The first one was Yemen which was suffering also from critical drought. That was my analysis in 2012.
2015 starts the Yemen War and causes thousands of casualties and millions of people suffering.
The second country was Nigeria, considered as an emerging economy with huge opportunities but in my opinion too dependant on oil revenue to cover public finances.
2014 oil price collapses to below 30$ the barrel and Nigeria faces an existential cris for a few years. Luckily for the country, the oil price recovers to around 60$ and the general situation of the country improves. However in Italy we notice a huge increase in Nigerians coming illegally to our country to flee their home situation. This is an article about the topic.
When I started writing the book in 2012 I rembember using the number of 173 million inhabitants for Nigeria. The last data from the CIA World Factbook 2017 tells me the population is now 190 millions and increasing 2.43% a year. Even if, starting today, the fertility rate declines in the country, then the so-called "Demographic Momentum" will assure further large increase in population for many years coming.
Where is the break point for Nigeria?
200 million (in 2020)?
250 million (in 2030)?
More probably it will depend on the oil price, but even an increase in the oil price just postpones the inevitable: at some point the import of food will break the economy except for a large increase in economic growth. In 2015 real GDP growth rate in Nigeria was 2.7%, 2016 decreases to -1.6% and 2017 0.8%. On average it was also lower than the popoulation growth rate.
And so we come to the third country I depicted in my book: Egypt.
One of the reasons of the Arab spring 2010-2012 was the large increase in food prices for the poor population of countries like Tunisia and Egypt.
One of the reasons the situation in Egypt recovered during the last years is that food prices improved mainly because of the huge increase in grain production in Russia following the sanctions decided after the Ukrainian/Crimean crisis of 2013-2014.
However the Egyptian population continues to grow at 2.45% a year reaching in 2017 the level of 97 millions. As in the case of Nigeria, fossil fuel export could compensate for some time the food deficit of the country. Recent huge gas discoveries in the Mediterrean give in fact hope to Egyptian Government.
The problem is that we don't know yet how long the world will rely on natural gas, oil and coal to fuel the economy because climate change on one side and exponential improvement in renewable energy production and electric cars on the other side seem inevitable trends that reduce the economic value of fossil deposits.
Eventually these days Bloombeg published an article with the title:
The Arab Spring's Riskiest Legacy May Be Egypt's Baby Boom
The journalist explains that, during the Arab Spring, population growth even accelerated instead of declining, a phenomenon I was not aware while researching my book. It further worries me about the risk of investing in a country like Egypt that is already the world biggest importer of grain.
My conclusion
I advise companies to freeze long-term investments in Egypt until the population growth has dipped below 1% a year and it becomes evident that the trend is for further reduction of the fertility rate.
As an energy entrepreneur in the renewable energy sector I am myself avoiding investing in countries like Egypt and Nigeria even if the potential would be huge thanks to the high solar irradiation.
Please contact me here on LinkedIn or comment the article if you want support on investment decisions abroad.
This was an article on investment decisions but the governments of the main world economies should use this information to decide to prevent further crisis in countries like Nigeria and Egypt by starting a sort of Marshall Plan to help these countries slow their population growth and expand their economy opening work opportunities for women. We know in fact that if women can plan their fertility and have attracting careers, then the fertility rate can slow very easily and the national economy becomes more robust.
Without such Marshall Plans, we will face huge refugee and humanitarian crisis in the years coming when tens of millions of Nigerians or Egyptians will have to leave their country to avoid famine and dramatic poverty. The consequences would be huge also for the rich countries of the world.
It is therefore in our interest to act now.