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The answer is to think creatively

  • Published at 12:40 am November 13th, 2017
The answer is to think creatively
We’ve all grasped the basic idea that we’d like to reduce imports and increase exports in order to save hard currency. But what is an import, and what is an export, can be a little tricky to define. Or perhaps, we should be creative when we think about those things. For example, Egypt has long been an importer of wheat (centuries after the age of the Roman Empire, when it used to be a major exporter, of course). But a very useful manner of thinking about this is that Egypt isn’t really importing wheat at all, but rather, water. No, really. A rule of thumb is that it takes some 1,000 tonnes of water to grow 1 tonne of wheat. So, imagine a country like Egypt which has nearly no natural rainfall at all but wants a steady supply of wheat. Is it sensible to irrigate crops in such a land? Or even to import water to do so? Or why not just import wheat? Each tonne of the grain imported saves having to use or import 1,000 tonnes of water. And there are plenty of places around the world where the water to grow wheat, and more, just falls for free from the skies. Similarly, how you export something can vary. Iceland has a lot of electrical power from geothermal and hydro installations. This is also true of some rivers in Northern Quebec and so on. These places aren’t populated enough to use all that is produced. And they’re also too far from places with more people for it to be effective to transmit the power to them because much of the electricity is lost over long distances of transmission.

So, how to export that cheap power?

One answer is to import electricity through a productive business activity that is done in both places – the exporting country and the importing country. The process of making aluminium – converting aluminium oxide, or alumina, into aluminium metal – is hugely energy intensive. Because it is essentially running electricity through it, it costs about $900 in power per tonne of aluminium produced. That makes it worthwhile to ship the alumina, from where it is produced close to the original mine, halfway across the world, to where electricity is cheap and abundant. We could then say that Iceland imports alumina and exports aluminium and we’d be right if we said so. But a better argument is that Iceland exports cheap electricity that way without having to lose a lot of it in transmission. This brings us to the new gas field in Shabazpur of Bhola. New drilling has shown that there’s much more gas there that can be extracted, but even current production is running at full capacity. That’s because the gas is in an island by the Meghna and the island is not connected to the national gas network. So while we are able to extract and produce the gas on the island, we can’t really make use of it on the mainland. This poses something of a problem akin to those in Egypt and Iceland: How do we “export” to the mainland the natural gas we’ve got when we don’t have the infrastructure to export it? The answer is to think creatively. We could, of course, simply build a pipeline, but it is not clear whether this would be cost effective. There is another solution, though: Export the gas after we’ve made something else, something higher value, out of it. And this isn’t all that unusual either. What we’ve got here is something of a “stranded asset.” We know we have valuable natural gas there but we can’t get it from where we have it to where it is useful. The answer then is to use the gas where it is to make something of value which we can then be transported. I am not particularly suggesting that this must be done – this is only an example of the idea. But Bangladesh uses fertiliser, quite a lot of it, and much of this is imported. The major input to the urea type of fertiliser is natural gas, both as raw material and also as the energy input to manufacture it. We could therefore use the “stranded” gas to produce fertiliser by setting up a factory on the island where the gas is. Fertiliser is of much higher value than gas and thus easier to transport for the same value. We might well find that an international fertiliser producer would be happy to pay for and build the fertiliser factory in return for a guaranteed price on the gas we can’t use any other way. Again, I point out that this only an example of how creative thinking about what is an import and what is an export, can lead to useful solutions. We can’t directly export the gas from that island, but we can export the value of it by using it to make something that we can then ship. Just as Iceland cannot export the excess electricity but can use it to make something else that later exported.   Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.