Coal-fired growth: Apollo Asia Fund: the manager's report for 2Q2014

Link to: Coal-fired growth

Many economic forecasters in Asia continue to extrapolate the trends of the recent past, failing to recognise the past contribution of resource windfalls which are dwindling, vanished, or overtaken by domestic consumption. Some of these trends are clearly unsustainable. If coal usage in Malaysia were to rise at its present rate for another 16 years, it would have risen 109 times since the start of the fund, and the consequences for the environment are important to contemplate. In practice it seems likely that coal will continue to increase as a proportion of the Southeast Asian energy mix; growth in energy use will moderate as costs rise and some subsidies are withdrawn; and GDP growth will be less than before. 

Moreover, a higher proportion of economic activity will relate to resource extraction and the costs of environmental change (from water procurement through flood mitigation to health impacts). Anecdotally, we have also noticed a number of cases of forced investment in replacement systems due to individual unobtainable parts, without any of the productivity benefits experienced at the time of the original expenditure. Maintenance and replacement expenditure, along with debt service, may thus consume a rising percentage of income. Exports, the traditional growth driver, have faltered since the global financial crisis erupted in 2008. In several countries it now seems appropriate to focus on companies supplying the goods and services that will be prioritised if disposable income is squeezed.