South Korea, Madagascar and the likeliness of resource wars

These two stories on another blog are extremely interesting - and surprising:



Such trades to guarantee raw material / food supplies were not uncommon many decades ago (albeit much, much shorter) and still happen. Especially states that don't have foreign currency reserves sometimes try to arrange such deals to secure their supply.
The scale is new to me, though.

South Korea puts many eggs into a single Madagascar basket to secure much of its future. This is a much smarter move than ideology-driven wars for raw materials or even only for access to raw materials. It's also a bond that will likely lead to a lot of South Korean attention for Madagascar.

Madagascar is almost ideally suited for such a deal - relatively stable, militarily weak and geographically divided from unstable continental countries like Mocambique. It would be accessible for an amphibious intervention and it can provide many different raw materials.
I think we can expect a strong ROK marine corps and amphibious fleet as well as development aid for Madagascar for the next decades.

The South Korea-Madagascar deal is extremely interesting for theoretical analysis, but also quite symptomatic for the East Asian approach to supply security. Chinese investors have bought many plantations and mines in Africa in the past years. That's not really uncommon for Europeans as well, but Europeans don't do it with such a systematic approach.

Such a strategy to secure supply reduces the amount of the global free trade with raw materials. This is serious.

Imagine a demand for 100 units of good x* and a supply of 95 units of good x*. That's not too bad, the price will rise a bit till a reduction of consumption by only 5% would match supply and demand.
Now imagine that 90% of the world production of good x was covered by multinational treaties and not available for free trade.
That would mean a remaining demand for 10 units would face a true supply of 5 units! A huge price would be necessary to match supply and demand in this situation.
That price would hurt the buyer very much - and hugely benefit the seller.
The result might be a good motivation for stupid resource wars.

This small theoretical example shows how important such treaties could become for the buyers - and how disadvantageous they could become for the participating sellers.
Even more important: Such treaties might contribute to the likeliness of resource wars.

Sven Ortmann

*: For economic theory purists: think "at price y"

The upside: Huge prices for few could also result in substitution and/or an increase of efficiency (that disperses to the consumers with guaranteed supply as well).

1 comment:

  1. In other words, the people of Madagascar effectively said, "We don't know how to raise our own capital and manage our own farms. Give us capital and management, we'll give you rented land, labor, and food."

    It makes sense. The only other foreigners who care about Madagascar are environmental scientists, and they don't have much cash.