A full-length audio of this interview is available on the Moneyweb website
HILTON TARRANT: We’re on the sidelines of the Fourth African Cup of Investment Management Conference at the Westin Hotel in Cape Town. David Murrin is chief executive of Emergent Asset Management, and also author of “Breaking the Code of History: Past, Present, Future”. Those of the three scenarios and periods you look at in that book... I want to get to the book in a bit, but if we start with China... China is often pointed to and considered a bubble. There are all sorts of paranoia and fear about this potential bubble exploding. Is China a bubble?DAVID MURRIN: No... how do you define a bubble first of all, it’s really a collective mass delusion where people believe there's only one outcome in their investment hypothesis for that particular outcome, with everyone being positioned one way and the whole thing collapses in on itself. Now China is not a bubble it’s actually a fundamentally growthful dynamic, a system I would define moved out of regionalisation in about 1996 and its ascension to empire which is the transition where a regional systems starts imposing its values and wills and trading systems on the outside world, with huge impact for everyone else involved. That’s not a bubble, not to say that there won’t be times when China gets ahead of itself and its investment mechanism perhaps does have a micro bubble, but it’s a growthful trend for China and it’s a powerful expansive trend that impacts the shores of Africa in terms of how China sees Africa to resource itself.
HILTON TARRANT: With the western mind-set, do we even understand China, do we understand the market...?
DAVID MURRIN: Such a good question. As westerners we value individuality. We value our ideas to be put into the collective and we try and protect individual rights. Asian cultures don’t operate like that, they tend to have had larger societies, the individual is less relevant, the collective is more important. I often in audiences ask how many people understand what Taoism is or understands Confucianism which binds and shapes Chinese society, and the answer is one in a hundred, if you're lucky. So it’s a very different system with different perspectives, and that increases the way in which we misunderstand Chinese intentions and mechanisms. There's an awful lot of good in China, but it’s going through its fifth reincarnation as an empire system and the outside world doesn’t understand it or what is its potential.
HILTON TARRANT: If we look at history broadly and go back and look at all the different empires, have we seen anything like this before?
DAVID MURRIN: Interestingly enough it is actually pretty unique. It’s unique in that it is the fifth, could be sixth if you go back far enough, incarnation of a 500 year empire cycle. They're now 120 years into that cycle so they're really about the stage where they burst forth onto the world. Every one of China’s cycles has been bigger than the one before, so when people say it didn’t actually ever have influence outside its borders, look at the last incarnation at the peak of the 14th century. Their trading system reached the shores of Africa, they controlled the Indian Ocean, they controlled the whole or parts of the Pacific. It was a very powerful system, both on the land and trading wise. So a simple misunderstanding and a lovely statement by most people to give them security, is invalid. This case they seek to be a global power, now what's really interesting is Britain as the first of the global empires, was a sea power. America really is a sea power too with just a larger demographic, able to put more soldiers into theatres like Vietnam or North Korea if needed, but still relatively constrained when it copes with Asian demographics. China is really unique. China is a land power that seeks to be a sea power with the most powerful demographic pattern we’ve ever seen and the wealth and shipbuilding to build the most powerful naval and maritime system we’ve ever seen. So there's no system like the Chinese system that has both land and sea powers embedded in its system. And we’re seeing that manifest now.
HILTON TARRANT: How does this link to Africa? We’ve seen Chinese involvement in Africa previously, there's a lot of confusion, a lot of fear, a lot of misunderstanding about how China is active in Africa, how Africa and China work together and perhaps work apart in certain respects?
DAVID MURRIN: Well it dates back to the pre-1996 period when China had a whole strategy of how to expand and expanding means resource acquisition outside its shores and bringing it back for its industrial base and do so under the umbrella as a single super power. And Africa was the vacuous space of American foreign policy. It just wasn’t really interested – it held an interest for America in the Cold War to protect the trade routes around the Cape which is why apartheid and the collapse of apartheid was actually linked to the Cold War more than people realise. But essentially if you move forward, China saw an opportunity to move into a space that was vastly resourced, that no one else was going to contest. And if you go and look at Chinese investment, they offer terms and they offer mechanisms that are not offered by the west. Therefore if you're an impoverished African country seeking to wish... to build your infrastructure, to move forward, there was only one option. That was to go to the Chinese and the Chinese are still doing it and the west is failing to offer alternatives. And the difficulty with that is with the Chinese... the Chinese see it as a resource base. The traditional colonial mechanism is you invest in businesses, you own resources and one day, when there's a problem, you protect it with your soldiers and your soldiers never leave, and I must admit I am apprehensive about that mechanism being in play right now. For the states within Africa, there is the risk you mortgage your future by accepting aid on this basis. So there's a very difficult line to be trodden here for Africa and African states, and I can understand why some countries have actually refused to accept Chinese investment, because they fear it comes with caveats in time.
HILTON TARRANT: Aside from that, a lot of growth coming out of not only Chinese investment in Africa, but China’s ascendancy onto the world stage, the demand for resources obviously very linked to economies on the continent, how difficult is it for investors to capitalise on what's happening, specifically in Africa?
DAVID MURRIN: Look, you’ve got to go back to the African story first and in the book I highlight five stages of an empire – regionalisation, expansion to empire at the top, consolidation and over extension and decline. Maturity is consolidation. They're all driven by demographics, powerful demographics drive the system, collapsing demographics take the system back to where it started from. Africa is, in terms of the cycles if you define the rest of the world, it’s in the earlier stage of a regionalisation. It hasn’t even moved to late regionalisation. Lots of different countries, different regimes, it’s about to bifurcate north and south between the Islamic world and the tribal Christian world and we can see that schism across the sub Saharan areas and that will only get worse, which leaves these basins north and south with their different approaches. Demographics drive Africa and they're the best in the world. Resources are available and if Africa was a single system, I’d say it would still do incredibly well. You have to be optimistic on that basis. It represents a resource pool for Africa which is a kicker for its growth patterns, it’s been neglected by the west because the west just doesn’t have the foreign policy or power to project, financial or military or even political influence into the area, so it’s on its own. It’s a great story but you have got to understand the individual countries you're going to, the types of leadership and where they are, the rule of law to ascertain whether it’s a good investment or not. And those security issues need to be managed too. It’s a complex environment, but the bottom line is if you wish to make a lot of money, you have to take the risk and you manage it step by step. And I still think Africa is the best investment zone in the world, especially sub Saharan Africa.
HILTON TARRANT: Where does South Africa fit it?
DAVID MURRIN: South Africa is an interesting case in that is has a first world quality in its linkage to the western world and I think in many ways, the psychology of that portion of this nation represents a slower growth pattern than everything else, which is why South Africa’s growth has been slower than the surrounding areas around it. It’s almost linked genetically to the first world which is suffering a terminal decline. And then underneath it, you’ve got this transition into a black power base which is gradually growing and taking time. And that requires education and shift ideas, all of which I think are taking place, under the bonnet. Immigration is an issue and border issues need to be resolved so you can actually be South Africa rather than South Africa plus e very nation to the north who wishes to come south. There are some core issues, but ultimately it’s a good story. You’ve been through your civil war and when you’ve been through a civil war, you don’t go back to it, ultimately you set a course afterwards. So I think South Africa is a secure investment destination. It’s a great destination, you have a powerful rule of law and I think you will work out your internal issues and once again, go through a sustained growth process.
HILTON TARRANT: Just to close off with, a complete aside, where does the United States fit in on the kind of stages of empires?
DAVID MURRIN: Well there's the rising bit which obviously China is on and Africa is on, and then there's the declining bit and America fits within what I call the super western Christian empire, which was a sequence of empires that were actually bonded by their religion rather than nations. So that sequence started with Portugal, it went to Spain, and they went to the Dutch, the French, didn’t quite manage it, and then Britain obviously the biggest of the systems challenged by Germany and would have been challenged by America. When Britain collapsed America took it over. so America is the last of the western Christian empires and it itself is well and truly down the decline curve and when Obama got in, I made a difficult observation, however special the individual might or might not be, his election actually ushered in an accelerated period of decline because his policies would look inward rather than outward and his foreign policy has been very, very weak in terms of just projecting American values and the strength of beliefs. And if you look at this issue in Syria it personifies the weakness of American foreign policy. They court, either they act and if they don’t act, they're in trouble, and if they do act they’ll want to act weakly and in fact they're now in a position where they have to definitively act with a strong hand to preserve American foreign policy and all the other areas where they're facing encroachment and challenge. So one of the problems in the world is a weakened America, a Federal Reserve which is actually not independent any more or that operates to maintain the perception that America can support itself. We live in some very difficult times...