ECONOMY OF
TOMORROW
Contact: Marc Saxer, marc.saxer@fesindia.org

With labour intensive industries moving out if China…
… India hopes to attract manufacturing investment to create millions of jobs

However, there is a second trend in global investment flows…
South to North
1 trillion USD since July 2014
North to South
2 trillion USD from 2009-2014
… manufacturing is moving back to the old industrial centers
Contact: marc.saxer@fesindia.org

Digital automation reduces labor cost, making old industrial centers competitive again…
… while creating less jobs than hoped for in emerging economies.
Contact: marc.saxer@fesindia.org

Manufacturing cost in emerging countries reach the level of the United States…
… undermining their comparative advantage.
Contact: marc.saxer@fesindia.org

ECONOMY OF
TOMORROW
The window for export driven industrialization is closing…
Development
…turning development into a gigantic race against time.
Contact: marc.saxer@fesindia.org

If labour cost advantages are levelled, other factors become more important…
• Long transport distances
• Supply chains
• Rule of Law
• Political Stability
• Skilled workforce
• Quality
…not at least the cost of ENERGY.

In the old industrial centers, the cost of energy starts to surpass the cost of labour …
Germany Manufacturing Cost
Labour Energy & Raw Materials Other
… as the biggest cost factor in manufacturing.

The energy transformation is driven by interests beyond climate change…
Industry:
Competitiveness
Civil Society:
Climate Change
Capital:
Carbon Bubble
Security Sector:
Geopolitical Risk
… but is a strategic project to restore the competitiveness of the old industrial centers

TECHNOLOGY
The green energy revolution is made possible by technological breakthroughs…
… reducing the cost of solar power as well as new solutions for storage and distribution

MARKET
While in the short run, the energy transformation drives up energy cost…
Historical price development of photovoltaic modules
Source: Fraunhofer ISE
… in the long run, higher energy efficiency and lower cost for solar energy will significantly reduce the cost of energy

GEOPOLITICS
Renewables are a way to improve energy security…
… by reducing dependency on geopolitical hotspots

LEGISLATION
European governments have started to legislate the exit from the carbon economy…
National Targets for Energy from Renewables, as codified in national energy laws:
Germany
2025: 45 %
2035: 55-60%
Sweden
2020 - 50%
2050 – 100%
Finland
2020 – 38%
Italy
2020 – 17%
… calling into question trillions of subsidies for fossil fuels.

CAPITAL
The Bank of England warned institutional investors against a USD 28 trillion “carbon bubble”…
Pension funds, required by Law to invest only in assets rated secure, need to hedge their exposure to “carbon risk”...
….Major utilities corporations (Eon, Enel) have started to sell off their entire conventional power plant fleet….
…. „Peak Oil“ may have already happened in financial terms.
… if resources in the books of fossil assets cannot be produced due to climate change legislation.

If India wants to win the race for development...
With the comparative advantage of cheap labour eroding….
….and energy cost slowly becoming a disadvantage ...
… India will find it increasingly difficult to attract manufacturing.
Will India become a world leader in renewable energy (PM Modi,
February 2015)….
… or will the biggest infrastructure build-up in history lead into a technological dead end?
… it must not miss the bus of green growth