The Game of International Prosperity: Australia’s Position as at December 2016

The Game of International Prosperity: Australia’s Position as at December 2016


Investing is a fascinating game. It’s a study of the inner workings of our world (and of the inner workings of our human nature – but that is for future articles). Sometimes it can feel like I am playing a board game, sitting back and looking at all the pieces, analysing how they work together and then deciding on what move to make. Of late I’ve wanted to begin to better understand the inner workings of our world and how countries interact and compare with each other. Almost all public companies listed on a share market are affected by the situation of at least one other country, so having a better understanding of this should help me make better investing decisions. Trying to understanding all of the inner workings of our world consumes many people’s life times, so in order to learn enough without obsessing over every detail, I’m turning this research into a game for myself.

 

My theory: The Game of International Prosperity

As far as I can tell the current and future prospects for determining the prosperity of a country’s population is not too different from a game of Poker. Where as Poker is played with 52 cards, the ‘Game of International Prosperity’ is played with 6 Elements: Resources, Capital, Labour, Knowledge, Systems and Relationships. In Poker a single Ace beats a two; 2 twos beat a single Ace; 3 twos beat two Aces and so on. In the game of international prosperity, Capital & Systems can beat Resources & Labour (richer nations mining or farming poorer countries); Resources, Knowledge & Systems can beat Capital, Labour, Knowledge & Systems (Norway showed this in how they handled their oil boom); and Resources, Capital, Labour, Knowledge, Systems and Relationships seem to allow a country to position themselves to make the most of the majority of situations (as America previously has and China now is). The biggest difference between Poker and the international game of prosperity is the infinite range of potential outcomes. Cards are limited, elements are not.

 

Purpose: How to better understand the world

I’m no Economist and I’m not naive enough to believe that this cute little game can make complete sense of an infinitely complex world. I have put this research together based purely on what I have learnt from reading, watching, listening and observing as a curious share market investor over the previous 13 years or so. There will be some holes in my conclusions, but that said, I don’t require this to be perfect. In my experience I tend to create value for myself simply by finding the few truths (in this case the 6 Elements) that appear to have the largest impacts on a certain outcome. That is what I am looking for here.

 

Method: Bringing together the 6 Elements

To help myself to better understand the world I am going to test my theory by bringing together the research of others into my ‘Game of International Prosperity – 6 Elements’ model. Within each of the 6 Elements I have chosen a selection of contributing factors that could make or break a countries prosperity potential.

  • Resources: Exports, Energy, Food, Water, Climate.
  • Capital: GDP, GDP per Capita, Debt, Savings, Markets.
  • Labour: Talent, Population, Median Age, Growth Rate.
  • Knowledge: School, University, Internet.
  • Systems: Governance, Tax, Infrastructure, Health, Environment, Military.
  • Relationships: Internal Trust, External Trust.

As I compile the research on each of the contributing factors I simply make a decision on whether each is a strength, a weakness, or both. I then tag each contributing factor as: Green for Strength, Orange for Caution (slight weakness) or Red for Weakness. With all contributing factors (given an equal weighting) in a simple pie chart I can quickly see whether a country is strong or weak in each of the 6 Elements and how each of the countries ‘full deck of the 6 Elements’ compares with each other.

 

Conclusions: How I will use the results

‘All I want to know is where I am going to die, so I’ll never go there.’ – Charlie Munger.

When I am researching for new potential sharemarket investments and one pops up on my radar I am not just looking for reasons why should I make the investment I am more often focused on looking for reasons why shouldn’t I make the investment. I will be using this research and the conclusions it brings in the same way.

For example, some of the assets Carsales.com Ltd owns are in South Korea. Let’s say the South Korean assets were are large part of the Carsales’ portfolio and from a I saw that South Korea’s prospects were too uncertain, if this was the case I would put the investment into the ‘too hard pile’ and walk away. Or I may possibly dig deeper into each Element and decide that despite certain concerns about South Korea’s overall prospects there are some elements and contibruting factors such as ‘Internet (connectivity)’ that are strong and decide that the risk are accounted for and Carsales could potentially do well.

 


Outcomes for Australia as at December 2016



Overall Position

 

Resources

Capital

Labour

Knowledge

 

Systems

 

Relationships

 


 

Research for Australia’s 6 Elements and Contributing Factors



Resources

 

Australia’s Strengths

  • Exports – part I: 10 of the Top 10 Australian Exports are Resources – abundance of resources.
  • Energy: Australia ranks 31 out of 125 on Energy Sustainability Index.125 being the highest at risk.
  • Food: Australia ranks 4 out of 113 on the Food Security Index. 113 being the highest at risk.

Australia’s Weaknesses

  • Exports – part II: 10 of the Top 10 Australian Exports are Resources – possibly too reliant on exporting resources.
  • Water: Australia ranks 43 out of 161 on the Water Stress Index. 1 being the highest at risk.
  • Climate: Australia ranks 38 out of 183 on the Climate Risk Index. 1 being the most affected by extreme weather events.

 

EXPORTS: Top 10 Australian Exports

10 of the Top 10 Australian Exports are Natural Resources / or Improved Natural Resources

 

ENERGY: Australian World Energy Council Energy Sustainability Ranking

Australia has a BBC rating out of AAA and ranks 31st out of 125. 125 being the highest at risk.

 

FOOD: Australian Global Food Security Index Ranking

Australia has a score of 82.6 out of 100 and ranks 4th out of 113. 113 being the highest at risk.

 

WATER: Projected Australian Water Stress Ranking for 2040

Australia has a ‘High Risk’ of water-stress by 2040 and ranks 43 out of 161. 1 being the highest at risk.

 

CLIMATE: Australian Climate Risk Index Ranking

Australia has a CRI score of 53.67 (179.17 being the best score achieved) and ranks 38 out of 183. 1 being the most affected by extreme weather events between 1995 and 2014.

 


Capital

 

Australia’s Strengths

  • GDP: Australia ranks 12 out of 172 on the World Bank GDP List. 1 having the highest GDP.
  • GDP II: Australia ranks 21 out of 183 on the World Bank GDP (PPP) per Capita List. 1 having the highest GDP (PPP) per Capita.
  • MARKETS: Australia ranks 11 out of 59 on the Market Capitalisation List. 1 having the highest market capitalisation.

Australia’s Weaknesses

  • DEBT: Australia ranks 98 out of 174 on the Trading Economics Debt to GDP List. 1 having the highest Debt to GDP percentage.
  • SAVINGS: Australia ranks 71 out of 180 on the CIA National Savings List. 1 having the highest Savings to GDP percentage.

 

 

GDP: Australian Gross Domestic Product

Australia has a GDP of US$1,339,539 million and ranks 12 out of 172. 1 having the highest GDP. 

 

GDP PER CAPITA: Australian Gross Domestic Product (at Purchasing Power Parity) per Capita

Australia has a GDP (PPP) per Capita of 45,514 and ranks 21 out of 183. 1 having the highest GDP (PPP) per Capita.

 

DEBT: Australian Government Debt to Gross Domestic Product

Australia has Debt to GDP of 45,514 and ranks 98 out of 174. 1 having the highest Debt to GDP percentage.

 

SAVINGS: Australian Gross National Savings

Australia has Gross National Savings of 22.10% of GDP and ranks 71 out of 180. 1 having the highest Savings to GDP percentage.

 

MARKETS: Australian Market Capitalisation of Listed Domestic Companies

Australia has a market capitalisation of listed domestic companies of US$1,187,083 million and ranks 11 out of 59. 1 having the highest market capitalisation.

 

Labour

Australia’s Strengths

  • Talent: Australia is ranked 13 out of 124 on Human Capital Index. 1 having the highest ranking.
  • Growth Rate: Australia has growth rate of 1.3% per annum, with the global average being 1.2.

Australia’s Weaknesses

  • Population: Australia has Population of 22,992,654 and ranks 56 out of 238. 1 having the highest Population.
  • Median Age: Australia has a Median Age of 38.6, with the global average being 30.

 

TALENT: Australian Human Capital Index Ranking

Australia is ranked 13 out of 124 on ‘Human Capital Index.‘ 1 having the highest ranking. 

 

POPULATION: Australian Population Ranking

Australia has Population of 22,992,654 and ranks 56 out of 238. 1 having the highest Population.

 

MEDIAN AGE: Australian Median Age Ranking

Australia has a Median Age of 38.6, with the global average being 30.

 

GROWTH RATE: Australian Population Growth Rate Comparison 

Australia has growth rate of 1.3% per annum, with the global average being 1.2.

 

Knowledge

Australia’s Strengths

  • School: Australia has a PISA Ranking of 14 out of 70. 1 having the highest ranking.
  • University: Australia has a 8 Universities in the top 200 of the ‘THE University World Rankings’ Index.
  • Internet: Australia ranks 6 out of 56 on ‘Akamai Q3 2015 average connection speed rankings.‘ 1 having the highest ranking.

Australia’s Weaknesses

  • None.

 

SCHOOL: Australian School Ranking 

Australia has a PISA Ranking of 14 out of 70. 1 having the highest ranking.

 

UNIVERISTY: Australian University Ranking 

Australia has a 8 Universities in the top 200 of the ‘THE University World Rankings’ Index.

 

INTERNET: Australian Internet Connectivity Ranking 

Australia is ranked 6 out of 56 on ‘Akamai Q3 2015 average connection speed rankings.‘ 1 having the highest ranking.

 

 

Systems

Australia’s Strengths

  • Governance: Australia ranks 6 out of 149 on ‘The Legatum Prosperity Index™.’ 1 having the highest ranking.
  • Tax: Australia ranks 8 out of 35 on International Tax Competitiveness Index. 1 having the highest ranking.
  • Infrastructure: Australia ranks 19 out of 160 on Logistics Performance Index. 1 having the highest ranking.
  • Health: Australia ranks 10 out of 188 on the health-related Sustainable Development Goals (SGD) Index. 1 having the highest ranking.
  • Environment: Australia is ranks 3 out of 178 on the Environmental Performance Index. 1 having the highest ranking.
  • Military: Australia is ranks 23 out of 126 on the Global Firepower Military Strength Index. 1 having the highest ranking.

Australia’s Weaknesses

  • None.

Governance: Australian Legatum Prosperity Index™ Ranking 

Australia is ranked 6 out of 149 on ‘The Legatum Prosperity Index™.’ 1 having the highest ranking.

 

Tax: Australian International Tax Competitiveness Index Ranking

Australia is ranked 8 out of 35 on International Tax Competitiveness Index. 1 having the highest ranking.

 

Infrastructure: Australian Logistics Performance Index Ranking

Australia is ranked 19 out of 160 on Logistics Performance Index. 1 having the highest ranking.

 

Health: Australian SGD Index Ranking

Australia is ranked 10 out of 188 on the health-related Sustainable Development Goals (SGD) Index. 1 having the highest ranking.

 

Environment: Australian Environmental Performance Index Ranking

Australia is ranked 3 out of 178 on the Environmental Performance Index. 1 having the highest ranking.

 

Military: Australian Military Strength Ranking

Australia is ranked 23 out of 126 on the Global Firepower Military Strength Index. 1 having the highest ranking.

 

Relationships

Australia’s Strengths

  • Internal Trust: Australia ranks 9 out of 102 on the Open Government Index Ranking. 1 having the highest ranking.
  • External Trust: Australia is ranked 4 out of 70 on the Open Government Index Ranking. 1 having the highest ranking.

Australia’s Weaknesses

  • None.

 

Internal Trust: Australian Open Government Index Ranking

Australia is ranked 9 out of 102 on the Open Government Index Ranking. 1 having the highest ranking.

 

External Trust: Australian Reputation Index Ranking

Australia is ranked 4 out of 70 on the Open Government Index Ranking. 1 having the highest ranking.

 

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