CHEMICALS AND THE WORLD ECONOMY . . . . .. . . . . . . . . 42 Developed Countries Output, 42 Capital investment, 44 Manpower, 44 Levels of production, 45 World trade, 48 Future growth, 51 Research and development, 53 54 A. C. H. CAIRNS, B.A., B.Sc., A.R.I.C. Chairman, Joseph Crosfield & Sons Ltd, Warrington, Lancs. Developing Countries Economic models, 56 . . . . .. . . . . . . . . Future Growth . . . . .. . . . . . . . . . . 58 Before the first World War, perhaps even before the Second, it would have seemed presumptuous to have thought of the chemical industry as having an immense effect on the economy of nations, for in the early days of this century, chemicals conjured up an image largely consisting of the alkali industry. Today it is quite clear that what we regard as the chemical and allied industries form a major part of the manufacturing industry and overall economy of what we call developed countries.When we talk of chemicals now, we tend to think first perhaps of the ever increasing range of organic chemicals derived from the mineral oil and natural gas industries, followed by the equally enormous growth of plastics materials. As some of the tables which follow show, the chemical industry today has a major share in overall national wealth and the prosperity of the chemical industry is an essential requisite of continued national growth rate and improvement in living standards. Even though, at present, its role may not be great in the economies of the undeveloped countries, it must take on increasing importance in these areas as they advance their living standards.It is one of the problems of the world today to ensure that the underdeveloped areas of the world make adequate advances so that they can at least keep pace with the growth of the developed countries and that the gap between ‘poor’ and ‘rich’ does not continue to widen. Any paper on the chemical industry must start by defining its scope and we must be clear what is generally regarded as the scope of the chemical industry in most of the statistical information available. However, if we adopt the standard international trade classification (SITC) which is the accepted United Nations definition, we will still find that no two countries appear to use precisely the same interpretation; hence comparisons on an international basis between countries have to be treated with great caution 41 Cairns and we must not read into such comparisons more than the data are worth.Chemicals as defined in the SITC fall into the following classes: 512 Organic chemicals. 513 Inorganic chemicals ; elements, oxides and halogen salts. 514 Other inorganic chemicals. 515 Radioactive and associated materials. 521 Mineral tar and crude chemicals from coal, petroleum and natural gas. 531 Synthetic organic dyestuffs, natural indigo and colour lakes. 532 Dyeing and tanning extracts, and synthetic tanning materials. 533 Pigments, paints, varnishes and related materials. 541 Medicinal and pharmaceutical products.551 Essential oils, perfumes and flavour materials. 553 Perfumery and cosmetics, dentifrices and other toilet preparations. 554 Soaps, cleansing and polishing preparations. 561 Fertilizers manufactured. 571 Explosives and pyrotechnic products. 581 Plastic materials, regenerated cellulose and artificial resins. 599 Chemical materials and products, not elsewhere specified. 23 1 Synthetic rubber and rubber substitutes. 862 Photographic and cinematographic supplies. It will be seen from this list that in addition to what we think of automati- cally as chemical products, such domestic materials as paints and varnishes, drugs, cosmetics, tooth pastes, toilet soaps and washing powders are also included. This means that we have to regard Unilever, Procter and Gamble and others as international giants in the chemical and allied field.For ex- ample, the inclusion of soaps and detergents puts Unilever about seventh in the order of chemical giants. DEVELOPED COUNTRIES It is convenient to look first at the place of the chemical industry in the more developed countries and it is fortunate that this is reasonably well docu- mented with statistics issued by the Organization for Economic Co-operation and Development (OECD). These statistics include most of Western Europe with Canada, Japan and the United States; taken together these countries represent about 76 per cent of the world industry. Of the remaining 24 per cent, 14 per cent is represented by the chemical industry of the USSR.To show the scale of influence on national economies we can look in turn at output, investment and manpower. output Table 1 shows the turnover and value added in the chemical industry for these major developed countries in comparison with their total gross national product. The last column of the total expresses turnover as a percentage of gross national product (GNP) varying from 2.5 to 8.5 per cent. This table also demonstrates the immense size of the US chemical industry which puts it in a class of its own. It is equivalent in size to the next eight developed countries (excluding the USSR) taken together and about equivalent to 37 per cent of the total estimated world turnover in chemicals in 1966. The UK now ranks only fourth in the Western World having recently fallen behind R.I. C. Reviews 42 Gross National Product ($m.) 10 073 Country Austria Belgium Canada Den mark Finland France W. Germany Ireland Italy Japan Net herlands Norway Spain Sweden Switzerland United Kingdom United States Table 1. The chemical industry and GNP, 1967 425 965 I975 280 * 250* (170) 385 nd nd I l5* 2390 4525 35" 5950 8215 85" 5230 2020 2720 580 145" 615 7055 I535 285* I725 695 (855) 6720 38 700 360 nd 3025 nd Total (%m.) nd 200 250 2690 3875 I 3 723 2368 nd 22 034 30 668 nd nd 510 925 nd 414 570* 349 534 I I 314 30 165 528 I 48 I52 - 70 nd 703 2970 2193 5405 4899 3949 I 8 470 128 600 18 110 53 191 I I 119 8604 101 076 I20 267 293 3 61 489 96 375 20 791 7588 24 570 21 300 I 4 901 104 944 756 490 * 1965 figures Figures in brackets are estimates only Table 2.Chemical investment 1966 Total Fixed lnvestment ($m.) Machinery & Equipment Other Country 141 I 2336 8617 I223 I279 I539 5106 I145 nd 8895 I 4 720 nd 13 139 I 5 948 na 7194 na 2952 I070 2615 na 4120 na 2329 I123 2790 I747 Austria Belgium Canada Denmark Finland France W. Germany Ireland Italy Japan Netherlands Norway Spain Sweden Switzerland United Kingdom United States I326 9100 52 098 3152 2623 9370 76 502 * Excludes SlTC groups 541 and 599 Cairns Turnover Value Turnover added ($m.) GNP ($m.) 5.7 as yo of 4.2 - 5.3 (2.5) (3.0) 5.9 6.8 (2 * 9) 8.5 7.3 7.4 (3 *8) 7.0 3.3 (5.7) 6.4 5.I Source: OECD lnvestment Chemicals as % of in Chemicals Machinery & Equipment - 13.0 4.9 - - 6.3 10.0 - 15.0 4.3 5.5 4.0 - 7.7 5.7 Source: OECD 43 Japan in total output. The West German chemical industry has ranked second for many years. If we include the Soviet bloc countries, then the USSR ranks second to the US in chemical turnover. Capital in ves tm en t The chemical industry is a very considerable user of capital and modern chemical industry is increasingly capital intensive.Although the fringe areas such as detergent manufacture, cosmetics etc. are not so capital intensive, manufacturers of direct chemical products are usually concerned with high capital investment, often turned over in sales at a relatively lower rate than in other industries. It is not surprising, therefore, to find that the chemical industry is one of the largest investors in the economies of developed countries. Table 2 shows, for the same countries as listed in Table 1, their invest- ments (where figures are available) in the chemical industry during 1966 together with their total investment on a national basis divided where pos- sible between manufacturing (machinery and equipment) and services. In the last column of the Table, chemical investment is given as a percentage of the total and it will be seen that this varies from 4 to 13 per cent.In the case of the major chemical countries-USA, Germany, UK and Japan-it is a very considerable part of total investment and, in this case also, the UK ranks fourth in the world in terms of chemical investment. Capital investment per employee is as high in the chemical industry as in any other industry, with the possible exception of the petroleum industry. In Western Europe it averages about $2000 per employee per annum with a US figure of over $3000 per employee per annum. Investment as a percent- age of value added ranges from 12.5 per cent in the US to 52 per cent in the Netherlands, with the UK at 21.7 per cent. Manpower The third parameter to consider in establishing the place of chemicals in the national scene is manpower.The chemical industry is not, relatively, a very large employer of manpower and modern processes and larger plants tend to reduce the numbers of operatives employed still further. However, in common with many other industries today, the numbers employed in administration and management generally tend to increase. In Table 3, again referring to the same group of developed countries, numbers employed in the chemical industry are compared with working population and the value added in terms of chemical output per employee. Differences in defini- tions make these figures difficult to compare. This is unfortunate since, if the split between operatives and others were accurate, one might be tempted to draw calculations as to the relative efficiency of the industry in different countries. For instance, if the figures are to be believed the ratio of operatives to management, administration etc.apparently varies between 1.3 : 1 in the case of France and 5 : 1 in the case of Italy. The UK seems to have a ratio of 1.7 : 1 while Germany has a ratio of 1.6. In total the numbers employed in the industry are generally about 1 .O-1.5 per cent of the working population. Switzerland, the Netherlands and Germany are highest, with Austria, Japan and Sweden towards the lower end. R. I . C. Reviews 44 Numbers employed in chemicals Table 3. Manpower (thousands) Country Austria Belgi u m Canada Denmark Finland France W.Germany Ireland Italy Japan Net herlands Norway Spain Sweden Switzerland United Kingdom United States * 1965 figures Working population Operatives 3400 3750 6900 2200 2100 20 000 26.0 36.7 nd 16.8 nd 147.6 286.2 4.7 27 150 I 100 I 9 900 49 000 4500 I450 12 200 170.5 244.0 46.9 12.7 117.5 21.1 36.5 257.0 570.5 3300 2800 25 300 78 400 - 7400 21 500" The figures relating to added value per employee are interesting and have been commented on before in many places. Perhaps the most detailed survey of manpower utilization in the UK chemical industry in comparison with America was carried out by the Economic Development Committee in the chemical industry and published in their report Manpower in the Chemical Industry.It would perhaps be more significant for us to compare ourselves with other European chemical industries and in this case the comparison is not so unfavourable and indeed the efficiency of our industry in terms of value added per employee is rising faster than in most other countries. Levels of production Before we turn to aspects of world trade it is perhaps of interest to go a little further into the national industries of the various countries to compare their importance as producers of certain basic chemicals. Tables 4 and 5 set out the production statistics for 1966 for the major inorganic products- sulphuric acid, ammonia, soda ash, caustic soda and chlorine-as these materials form an essential part of a large broadly-based chemical industry.In Table 5 similar data are given with regard to ethylene, dyestuffs, plastics materials, synthetic rubber, paints and varnishes. It is not possible in several cases to compare the position of the United Kingdom with regard to individual chemicals in comparison with our overall position because the figures are not declared. It will be noticed that some countries are not self-sufficient in basic materials but this is generally because of size on the one hand and availability from close neighbours on the other. Sources: OECD and FA0 ( $1 4800 6800 13 800" - 9100 9700 5300" 9900 6700 7600 7900" 3800 10 400 Cairns ~ ~____ Administration, technical etc.Total 9. I 19.7 nd 11.2 nd 116.4 180.4 2.3 35. I 56.4 72.9 28.0 nd 264.0 466.6 7.0 34. I 162.0 29.2 6.4 46.7 13.4 204.6 406.0 76. I 19. I 164.2 34.5 50.0 408.0 954.4 13.5 151 .O 383.9 ~~ working yo of Chemical workers as Value added per population employee I .o I .5 1 . 1 - I .3 I .3 I .7 0.6 I .o 0.8 I .7 I .3 I .3 1 .o I .8 I .6 I .2 45 Table 4. Production of major inorganic chemical products, 1966 Chlorine Soda ash Sulphuric acid Ammonia (1000 tons Caustic soda (1000 tons as (1000 tons as (1000 tons (1000 tons of Country Austria Belgium Canada Den mark Finland France W.Germany Italy Japan Netherlands Norway Spain Sweden Switzerland United Kingdom United States of&) 252 403 - 669 69 I282 I73 I I087 2000 738 340* 3 52 I12 nd nd 7960 100%) 229 I389 - (239) 480 299 I 3834 3343 6030 I059 I34 I796 600 I69 3168 26 133 * 1965 figures; -f including natural ash Table 5. Production of certain organic products, 1966 Country Austria Belgium Canada Denmark Fin land France W. Germany Ireland Italy Japan Netherlands Norway Spain Sweden Sw i tze r Ian d United Kingdom United States * 1965 figure Plastics Synthetic Paints, Ethylene Dyestuffs material rubber varnishes ( I 000 tons) ( I 000 tons) ( I 000 tons) (1000 tons) ( I 000 tons) - 2.0 - 278 18.I 71.4 - - 890 397 I065 11.5 44.9 4.3 - 60 - 20 11.7 - - 70 580 nd 25. I 40.4 107.0 94 I I 8 79 I 2272 - I066 201 I 287 69 I 47 I 45 I94 200 I 46 I037 6103 Short distances in Western Europe, now reinforced by the lowering of tariff barriers within the EEC and EFTA are helping to rationalize production facilities to an ever increasing extent. One fairly recent development in both the UK and Western Europe is the increasing co-operation between com- panies manufacturing ethylene. There is clear recognition of the fact that 51 .O 531 .O 3800.0 Figures in brackets are estimates only 46 Na2C03) NaOH) nd nd nd nd 704 - - I32 762 I303 750 I499 I I62 I I90 nd 834 I37 26 nd 67 I76 260 nd 6659 nd 6 I93t as Cl2) nd nd 597 - I18 664 I230 623 I469 nd 59 80 - 227 nd 6300 Figures in brackets are estimates only 71 .O 95.0 nd 5.3" 3.6 603 .O 846.0 13.0 255 .O 669.0 150.0 46.0 133.0 123.0 R.I.C.Reviews ethylene is a fundamental base material which, in everyone’s interest, should be readily and cheaply available. Plant sizes have now become so big that they require a high level of continuous output to make them worthwhile. It is increasingly recognized as foolish for companies to instal such large units simultaneously. Such conditions lead to alternative slumps due to overcapacity, followed by periods of shortage.(Phthalic anhydride is notori- ous in this respect.) Increasingly the large manufacturers of ethylene are being linked by an ethylene grid, for mutual support. What we accept as everyday for electricity is now spreading to chemical production. At least 20 producers or users of ethylene in Holland, Belgium and West Germany will be linked by the ethylene grid. Already over 60 per cent of the total West German ethylene capacity is linked and at least 80 per cent will be. In the future, conveyance of chemical raw materials by pipeline will become increasingly common. When considering the importance of chemicals as a whole, one should remember that the industry is involved in almost all other production areas. The chemical industry is, of course, its own biggest customer and every El00 of final chemical output in the UK requires an input of approximately E38 of chemical materials.In the US the corresponding figure appears to be 36 per cent of the chemical industries’ input drawn from its own sales. The other customers of the industry are very widespread : if we take the estimated UK input/output figure for 1963 as indicative of the spread of customers we see from Table 6 that, excluding the chemical industry itself as a customer, the UK industry exports 21 per cent. It sells 14 per cent direct to consumers and about 13 per cent into engineering and allied industries, but other areas such as agriculture and the construction industry, are also large consumers. There is no part of the economy into which products of the chemical industry do not enter and there are moderately strong forward linkages to many industries rather than exceptionally strong ones to a few.In some respects, one could regard the chemical industry almost as a service industry in its Table 6. The UK chemical industry’s customers, 1963 Consuming industry Agriculture etc. Coal mining and other mining Food, drink and tobacco Mineral oil refining Metal manufacture Engineering etc. Textiles, leather Other manufacturing Construction Gas, electricity and water Other services Public authorities Consumers Exports fm. output Cairns 4 % of 91 5 . 0 I 6 0 . 9 6 . 9 2.6 4 . 7 125 48 85 238 13.1 26 1.4 145 7 .9 I l l 6.1 1.2 22 161 8 . 8 109 6 . 0 262 14.4 382 21.0 47 relationship to its consumers. While this is true of the industry as a whole, certain sectors may be very strongly linked to a consuming industry. Thus Class 23 1-synthetic rubber-is strongly bound to the motor-car industry and depends on the latter's prosperity to a very great degree. 31 .O 1133.8 2414 0 19.2 656.7 669.4 763.4 137.0 77.4 160 5 650.0 1312 8 2675.9 * 1965 figures World trade If we now turn to world trade, we find again that chemicals play a large part. Table 7 shows exports and imports for 1966 for a number of countries and from this an indication of the balance of trade of each individual country in terms of chemicals. In the next column imports are expressed as a percent- age of exports and then exports and imports as a percentage of turnover.Most countries are net importers of chemical products. The strong exporting countries are the United States and Germany, with a very large gap separating these two from the remaining countries who have a positive balance of trade. The UK itself still has a considerable excess of exports over imports although the inward trade now amounts to over 60 per cent of the outward. Since 1966 the position has worsened and during 1968 up to October the value of imports represented 70 per cent of the value of exports. The export market position does, of course, vary from sector to sector. Thus, pharmaceutical products have the largest excess of exports over imports but we have a negative balance in organic chemicals and in fertilizers, the latter perhaps to be remedied when Shellstar is fully in operation. As a percentage of turnover the UK does not export an outstandingly high proportion compared with several European countries but it must be remembered that the relationship of the EEC countries now permits great Table 7.World trade in chemicals, 1966 (in $m.) Exports 90. I 422.3 346.0 126.0 Imports 204.5 467.4 513.9 265 5 172.9 840.5 876.6 93.7 578 497 590.9 189 8 312 8 361.8 367.3 825. I 745.2 Country Austria Belgium Canada Denmark Finland France W. Germany Ireland Italy Japan Netherlands Norway Spain Sweden Switzerland United Kingdom United States 48 Balance of trade - 114.4 - 45.1 - 167.9 - 139.5 - 141.9 293.3 1537.4 - 74 5 78.7 172.4 172.5 - 52.8 - 235.4 - 201.3 282.7 487 7 1930.7 Imports as Exports as /mports as % of % of % of turnover 48 48 26 94" 69 * 14 It turnover 21 44 18 45 * 12" 19 30 23 * 13 9 50 48 * 5 23 76 19 7 exports 226 Ill I49 21 I 558 74 34 493 88 74 77 I38 406 225 57 63 27 IlO* I I 7 38 67 * 18 52 43 12 2 Source: OECD R.I. C. Reviews freedom of movement of exports between them and the very large external trading both inwards and outwards carried on by such countries as Belgium, The Netherlands and Switzerland should be noted.In spite of the very large volume of exports from the United States this still represents a very low proportion of their total chemical turnover. The US is almost self-supporting in chemicals and imports represent less than 2 per cent of overall turnover. It must be remembered that the rate of development in chemical processing and the degree of novelty is considerable. Thus even an industry as large as that of the US still finds it necessary to import specialized products sufficiently new to be manufactured in only one or two countries. Chemical trade between developed countries is likely to continue to grow because of the increasing complexity of manufacture. Basic chemicals will always tend to be manufactured more generally. Their relatively low value means that freight plays a significant part in their cost and hence there is less tendency for them to figure in trade between developed countries.Rationalization of manufacture, economy of scale and emphasis on specialization will continue to foster international trade and indeed this is in the interests of efficiency. This rationalization of international chemical industry can be disturbing to politicians concerned with month to month scrutiny of balance of payments statistics. Nonetheless, to embark on processes of import substitution without bearing in mind the long-term factors would be penny wise and pound foolish. In the past tariff barriers played a large part in deciding the degree and direction of international chemical trade, Within the EEC and within EFTA such problems are no longer important but tariffs between the various groups of countries are still significant. They are reducing under the applica- tion of the Kennedy Round but until, for example, the US changes its method of calculation of the duty rates on chemical imports, there will still be con- siderable obstacles to trade between the US and Europe.Freedom brings additional worries to governments if young industries and new manufacture are to be allowed to take root. Much of the remaining UK chemical tariff structure is associated with the old key industry protection given after the first World War to safeguard, for example, the still small UK dyestuffs industry.The whittling away of such protective barriers places on governments the responsibility to keep a keen eye on dumping. It is an unfortunate consequence of the present development of the chemical industry in different countries that from time to time large excesses of capacity are created and there is very great temptation to keep these capacities filled by what amounts to dumping in other countries’ markets. In the UK, we ascribe much of the fall-off in chemical investment in and around 1961 in the newer plastics to the very damaging effect of dumped exports from excess capacities overseas. In general, however, the principal markets of the free enterprise world are controlled by well entrenched oligopolies. The fact that much of the output of the chemical industry is sold to other chemical companies has led to a complex formal and informal network of relationships which effec- tively regularize access to markets.Indeed, there are quite often international allocations and quotas. In many fields it is pretty well impossible for a small Cairns 49 new producer to enter a world market although a newcomer, backed by economic power such as an oil company, can decide to enter the petrochemical market and be successful. In general, the chemical industry does not like to compete on price and to squeeze profit margins. It has a desire for an orderly system and, perhaps more in the UK and European markets than in the US, a preference for an orderly existence. Competition in chemicals is at its keenest in the improve- ment of manufacturing processes and in the development of new and improved products.The growing emphasis on scale in manufacture, the need for ever larger plants, the insatiable appetite for capital, the importance of research and development are all factors which are leading more and more to the growth of larger chemical companies. This process has long been apparent in indi- vidual countries-in the United Kingdom the major chemical company, ICT, was formed as long ago as 1926. Amalgamations and mergers are still taking place in the UK, in the US, in Germany and in other countries. In the last year or two the emergence of larger groups has been most apparent in France. The stage is now set for the growth of truly international chemical companies operating on a world- wide basis.Some of the largest groups in the industry have been part of the international scene for a long period. ICI has always had considerable over- seas interests and today these represent over 50 per cent of group sales. Leading American companies, perhaps particularly those on the pharma- ceutical side, have for many years been established in the UK and other European countries. Today, most of the big 10-Du Pont, Union Carbide, ICI, Hoechst, Monsanto, Bayer, W. R. Grace, Dow Chemical, FMC Corpora- Table 8. Growth rate of the chemical industry Increase in production over the period Country /959/66 (%) 40 * I08 95 105 89 I37 200 I36 53 202 93 Austria 95 Belgium 83 Canada 65 Denmark Finland France W. Germany Ireland Italy Japan Netherlands Norway Spain Sweden Switzerland I I 6 United Kingdom 52 United States 108 * Over 4 years from I96 I 50 R.I.C.Reviews tion and sASF---have considerable overseas activities although it is unlikely that any company approaches the relative scale of ICI's overseas business." There is no doubt that over the next decade we shall see further growth in this direction. It is clear that while the great consumer goods companies have long realized the importance of international brands, so the major chemical companies with their growing involvement in the end use of their products are finding the importance of establishing themselves in world markets.From this it is a short and generally essential step to actual manufacture in different areas. It might be suggested that the extension of this inter- national aspect and the establishing of manufacture in widely separated marketing areas might lead to a diminution in export trade. This is generally not so. The establishment of a manufacturing unit in another country leads not only to the flow of intermediates, but the growth of that unit steadily involves it in the expanding export trade of the parent company and a constant flow of products which the subsidiary does not yet manufacture will find their way overseas. Future growth We have seen that the chemical industry forms a not inconsiderable part of the output and investment in most developed economies.Will this increase or decrease in proportion in the future? The economics of the developed countries depend on a number of dynamic sectors of which the chemical industry is one. It and a few other industries have expanded faster than the economy as a whole. The overall growth in the same selected countries is * More and more chemical companies are arranging to be listed in foreign stock exchanges. Table 9. Increase in industrial production and chemical production, 1966 over 1965 Country Austria Belgium Canada France Finland W. Germany Ireland Italy Japan Netherlands Norway Spain Sweden Sw i tzer Ian d United Kingdom United States Industrial Chemical production production (% increase) (% increase) 14.5 2 .8 8.3 Cairns 4.0 I .5 7 . 7 6 . 2 na 9 . 2 5.6 9 . 2 2.7 6 . 0 6 . 4 7.7 6 . 2 6.0 6.0 I I . 3 3.7 11.6 I .5 5.2 I I . 4 11.5 6.0 4 . 4 12.6 3.5 3. I 0 . 9 9 . I Source: OECD 51 ~~~~ ~ Annual per cent change (compound) I964170 Product group Table 10. UK projections to 1970 6.0 1.2 Ferti I izers 7 . I Dyestuffs 4 . 5 Inorganic chemicals Organic chemicals 15.4 Miscellaneous chemicals 4 . 9 Pharmaceutical preparations 7 . 6 Toilet preparations 4 . 6 Soap and polishes Oils and greases 3 . 4 Paint and varnish 4 . 5 PI ast i cs materials 20.3 shown in Table 8 and in Table 9 the increase in overall industrial production 1966 over 1965 is compared with the increase in chemical production in the same series of countries. As a whole the chemical industry, because of the widespread distribution of its markets amongst many industries, tends to develop in step with the general development of the economy.The ratios of the production figures in Table 9, of course, vary considerably and indeed they vary from year to year but in general it can be said that the chemical industry, for example in the UK, grows at about twice the rate of growth of the gross national product. Growth rates in the industry will vary considerably from one sector to another Attempts at estimating an overall growth rate for the industry were given in the 1965 National Plan but for individual operators it is much more important to try to project growth rates for individual sectors of the industry.This is not so easily carried out, although an interesting attempt was made by Crum in the National Institute Chemical Review for August 1966. He gives a number of estimated growth rates shown in Table 10 for various sectors of the industry calculated in line with the output projections of the National Plan. The latter projection was, of course, substantially too high but at any rate the operative projection rates of the groups are perhaps relatively valid. It is interesting to compare these figures with those of the Chemical and Engineering News Computer Forecasts for American Development shown in Table 11. It will be seen that some parts of the chemical and allied industry are under- going much more dynamic growth than others It is clear that the most important groups in the English scene are organic chemicals, pharmaceuticals and above all plastics.In the American figures we again see the considerable growth rate expected in these areas, although in this case the plastics group is divided between plastics and man-made fibres. Rubber is also given separately. It is not surprising that these areas should be the ones of expected substantial growth and indeed one can only question whether sights have been set sufficiently high. The steady improvement in the properties of man- made fibres and plastics materials is leading to extending uses through the manufacturing industries of developed countries.While there is no doubt 52 ~ R .I. C. Reviews 1963173 12.3 13.9 21.8 17.0 7.6 4.5 5.4 Table 11. American projections to 1973 Annual per cent change (compound) Product group Organic chemicals Inorganic chemicals P last i cs Man-made fibres Synthetic rubber Fe rt i I izers Paints Soaps etc. 5 . 3 an upper limit set for the use of textiles for clothing etc. there must still be an unbounded future for plastics and reinforced plastics materials as substi- tutes for other materials commonly used today, e.g. metals. The use of plastics materials in building and construction has barely started. The use of reinforced plastics etc. in motor-car manufacture is still minute. In these two areas alone there is great room for expansion.It is important to consider the availability of raw material for these in- dustries. The whole of this side of chemistry has been revolutionized by petrochemical developments in recent years and petroleum as a raw material for the organic chemist is now of supreme importance. In other parts of the world and now to an increasing extent in the United Kingdom natural gas has become available as a source of material. At present the world still has abundant supplies of oil and natural gas. The UK has been fortunate in its recent discoveries of gas, but these are still not an unbounded source of raw materials. It is understandable that the gas industry should seize avidly on supplies of natural gas as a means of improving its service as a supplier of fuel to domestic consumers and industry, but of much greater importance is the preservation of sufficient natural gas as a raw material for the products of the chemical industry. It is encouraging to note the recent agreements to supply North Sea gas to ICI (for ammonia, methanol and steam-raising) and to Shellstar.The former will take up to 250 m.ftS/day, the latter up to 35 m.ft3/ day. Proximity in the former case and high load factor have enabled the industry to negotiate lower prices than those offered to the British Steel ,Corporation, which finally settled on oil as its major supply for bulk fuel needs. Nonetheless, a price even lower than 4d per therm will probably be needed to make ICI properly competitive in the future against other natural- gas-based ammonia manufacturers overseas.Although reserves of natural gas and petroleum oils are at present bound- less, demands on them are ever increasing. Success in the preparation of cheap but really usable protein from mineral-based oils would again create a demand of very high potential and our successors may find themselves much concerned with conserving the earth’s natural resources as raw material for the vastly expanded chemical industry of the future. Let us hope that such resources of materials are not squandered before their significance is realized. Cairns 53 Research and development Growth rate in the chemical industry must depend not only on the general growth rate of the economy but on the input of research and development.A considerable part of the R & D effort in a developed country is expended in the chemical industry. For example, in the UK the industry ranks third as a spender. In 1964/65 the expenditure on research and development in chemicals in the UK cost E59.5 m., ranking third behind aircraft and elec- tronics. Table 12 sets the international scene, showing R & D expenditure in 1963/64 and its relationship to turnover for a number of countries. In the next column the R & D expenditure in chemicals is expressed as a percentage of total national R & D expenditure. In some countries the aircraft industry is negligible so that the chemical expenditure looks correspondingly higher. In the final column, therefore, the aircraft industry is as far as possible excluded.Table 12. Chemical research and development expenditure R & D expenditure 1963164 ( $ m . ) over in 1966 Country R & D Expenditure in chemicals, I962 As % of total Expenditure as % of turn- As % of total excluding aircraft (approximate) R & D 39.6 24.4 16.8 32.9 I .4 2 . 2 2 . 4 3 . 8 13 43 144 315 53 40 26 23 33 - - - - (4.3) - I .o 2.4 2.6 3 .O 4.7 24.4 - 11.6 12.6 Belgium Canada France W. Germany Italy Japan Netherlands Norway Sweden United Kingdom United States I68 (65) - 18 200 1805 Figures in brackets are estimates only DEVELOPING COUNTRIES - 24 18 20 Sources: NIESR and OECD So far, we have been concerned with the part played by the chemical industry in the economy of developed countries.This, indeed, is by far the greater part of the chemical industry of the world. The 17 or more countries given in Table 1 constitute 89 per cent of the world chemical industries outside the Soviet bloc and China. The remaining small tonnage is largely made in other countries such as Latin America, South Africa, Australia, leaving a minute proportion to be assigned to the emergent nations. What is of interest to us today is how this situation will change. The chemical industry in the developed countries has had a long period of growth, continually accelerating in pace. The beginnings were usually in such products as saltpetre for gunpowder, alum for tanning hides, potash and later soda ash for soap and glass.The largest chemical company in the world-Du Pont-dates back to 1802 when Euth&re Trknke Du Pont set up 54 R . I. C. Reviews a powder mill near Wilmington, Delaware. Early chemical industry centred to a large extent on sulphuric acid manufacture (US 1793; UK 1730). The modern alkali industry was a later starter in America; it was not until 1584 that a Solvay plant was erected at Syracuse. In Europe the first Solvay plant was erected in Belgium about 1860 and the first UK plant at Winnington in 1873. On the other hand, electrolytic production of chlorine and caustic soda started in America in 1896 (UK 1920). Organic chemicals were very much a European and especially a German preserve until World War I (in 1914 Germany accounted for 87 per cent of the world’s dyestuffs).A new industry based on coal tar was erected over the years 1914 to 1916 both in the UK and the US. This time-table of development, spread over many years like development in other manufacturing processes, is not acceptable to developing countries eager to make rapid strides in improving their standard of living. On the other hand, it is very difficult for a developing country to plan the right route to expansion and to decide which task to tackle first. Should there be develop- ment in basic industry such as sulphuric acid, alkalis etc? Should advantage be taken of mineral oil deposits to proceed to the manufacture of petro- chemicals? On the other hand, should manufacture be developed first in the fringe industries such as detergents,paints, pharmaceuticals or indeed should the country concentrate first on improving its agricultural base before becoming a manufacturing nation? The last of these, expansion in agri- culture, may often be more sound financially but is not necessarily as attrac- tive to aspiring governments.An important factor in decision is, or should be, whether the country concerned can support an adequate scale of manufacture. In the chemical industry today, certainly where the commoner chemical products are involved, economy of scale is of paramount importance. In the manufacture of basic chemicals, sub-continental size markets may well be required for efficient operation.Size is not necessarily so significant in specialist areas-as Sir Paul Chambers said recently ‘where there are no technological advantages in having manufacture on a large scale, or having a great variety of products, there is generally a strong case for seeing that the size of a business and its complexity does not grow beyond what is ideal for the maintenance of simple efficient internal communication.’ Smaller countries determined to establish manufacturing industries will often find other alternatives more attractive than heavy chemical production with its requirement for large plants and large capital investment. The very large plants characteristic of modern chemical industry are run by a handful of operatives and can provide little attraction for developing countries with large excesses of untrained labour.Little can be expected of the chemical industry in directly mitigating an unemployment problem although, of course, secondary industries based on the chemical industry are generally bigger users of labour. The fringe areas-soaps, cosmetics etc.-are much more likely to be suitable greas of manufacture for smaller and perhaps less developed markets. It can even be feared that the establishment of too much chemical industry may itself lead to a bias in favour of certain types of consumption which do not help in the development of the country. It is Cairns 55 even possible for secondary industrial developments to be wrongly chosen because of the necessity to import intermediate materials to keep these in operation.This can produce an inflexibility of foreign exchange demand which may lead to an unbearable strain. The most important item in the economy of scale brought about by large plants is the reduction of unit fixed investment required as productive capacity increases. A secondary, generally minor factor, is a sharp reduction of unit labour requirements. Economies may also arise in raw material usage and procurement. There is also economy of scale when customers themselves grow larger and a not inconsiderable part of the apparent greater efficiency of the American chemical industry may be associated with economy of scale in distribution to large consumers.300 200 600 ~~ 12 1.66 3.39 6 90 18 136 44 1.35 2.40 6.45 73 27 128 344 130 611 0.16 0.44 I69 Econometric models The United Nations' planners have done a great deal of work in the prepara- tion of models for economies of smaller countries. In a model in Mexico, for example, 20 separate commodities were studied including soda ash, caustic soda, chlorine, fertilizers, sulphuric acid, ethylene and various polymers, carbon black etc. The optimal programme indicated that it would be ad- vantageous to produce each of these commodities domestically. Some calcu- lations of population size required at different income levels to support chemical plants of a given size have also been produced. Table 13 shows the necessary population in millions at each of four relatively low income levels necessary for the support of'an economic basis of the output of smaller and large sized chemical plants.A number of products have been covered from which caustic soda, soda ash, and butadiene have been selected. It can be seen that at the very low income of $100 per capita a very large population would be required for even a minimum size (by developed-country standards) soda ash plant. Even by the time we reach the income of $600, which is Soda Ash (Solvay) Consumption kg per capita per year Required population, 175 000 tons/year 825 000 tons/year Butadiene Consumption for rubber, kg per capita per year Required population, 27 000 tons/year Table 13. Population (millions) at various income levels needed to support mini- mum and maximum size chemical plants Income levels ($US per capita) 100 ~ Caustic Soda (electrolysis) Consumption kg per capita per year Required population, 20 000 tons/year I50 000 tons/year 230 000 tons/year 0.55 1.10 36 273 0.51 243 1617 1438 0.78 2.21 12 104 35 295 61 523 ~~ Source: United Nations R.I.C.Reviews 56 considerably greater than the per capita annual income in many parts of the world, something like 128 million people would be needed to support a European sized soda ash plant although a smaller sized plant could economi- cally supply a population of 27 million. Secondary processes could be shown to be more feasible than more basic ones.For example, a GRS-type plant of minimal size, say 18 000 tons/year, can be supported by a population of 18 million having a per capita income of $300. On the other hand, although butadiene may represent 80 per cent of the raw materials required for this plant, to manufacture butadiene economically requires a population of 35 million at the same income level. It follows that it is important to plan chemical processes in complexes as far as possible so that the scale problem can be attacked by the joint utiliza- tion by several secondary users of a common intermediate chemical. It also follows that grouping of markets on a regional basis may provide the neces- sary scale. For example, it has been demonstrated that production costs on a scale suitable for the Chilean market tend to be about 125 per cent higher than the production costs of the same product at the scale of demand of the whole Latin American market.Trading groups where tariff barriers may be eliminated may have a great significance in economic expansion of the chemical industry of the area provided care is taken to see that not every member manufactures the same product. This is a desirable practice but not always easily followed. Governments frequently tend to press for local production facilities for a product on a ‘me, too’ basis. For example, a few years ago the demand for modern washing powders in the Middle East probably amounted at most to 20 or 30000 tons a year. This is hardly enough to keep a single plant occupied in a developed country and there are many plants larger than this.Nonetheless, national pride and, of course, a desire to reduce the import bill led over a period of three or four years to the erection of 10 or 12 individual detergent powder plants scattered over the area in different countries each of which produced one or two thousand tons a year and operated over relatively short periods. Obviously, on an international basis this represented extremely poor operating efficiencies and economics. In such a case a single plant would have served the area admirably, whereas a lot of plants were put up, no doubt each including in their plans the probability of exporting to the others. It seems likely that many parts of the world, certainly where populations are smaller, will continue to be served by exports from the developed countries. As the smaller countries develop manufacture will probably, or should probably, be concentrated in the fringe areas which are less capital intensive and generally have higher labour usage.One exception should perhaps be chemical fertilizers. Tremendous scope exists today for raising crop yields, particularly in the Near East, Africa and Latin America. Indeed the growing populations of the world will make it essential for such an increase to be brought about in many areas. Much of this increase depends on the supply of chemical fertilizers. If demand expands quickly the scale of consumption could quickly rise to an economic production level and make it desirable to erect fertilizer plants and in this case quite large plants could be quickly justified.Cairns 57 FUTURE GROWTH Reference has already been made to the growth of international companies and, in common with other industries, we can foresee continuing growth in size by acquisition and merger in the chemical industry. The only limitations which can be expected on this development are those deriving from national legislation. In the US especially the anti-trust legislation can place a limit on growth by acquisition and merger and the US chemical majors will prob- ably grow largely by growth of the US market and by continued expansion overseas rather than by mergers at home. At the smaller end of the US industry-and there are still a large number of small companies-such mergers will continue. In the UK one can see the industry growing partly by mergers, partly by expansion overseas and partly by the continued growth of the petrochemical companies. The latter-Shell, BP, Esso etc.-are capable of presenting ICI with considerable competition in the organic field in the years ahead. This must be good for the UK industry. I have referred elsewhere (Chemistry in Britain, 1968,4, 544) to the fact that although ICI (UK) may be growing at 8.4 per cent, the rest of the industry must, on a weighted basis, be responsible for a rate of only 3.4 per cent, if the overall UK chemical industry has only achieved 5.3 per cent (over the years 1963-67). One of the UK industry’s handicaps is the size of the home market. It is essential for its prosperity to win a larger share of the European market. It does not matter very much whether this is done by UK entry into the EEC, or by greater investment by UK chemical companies in western Europe. Tbo much Government restriction on such investment will be extremely short-sighted. In the end the prosperity of the industry must rest on its ability to tap this larger market. Otherwise it will become progressively less resistant to the large European companies which grow rapidly stronger as they serve the whole EEC market. A further decline in strength must inevitably lead to a further growth of imports into the UK, without the ability to balance them by corresponding exports to the EEC. If direct investment proves impossible opportunities should be explored for joint ventures, Continental marriages, collaboration and so on. This is a second best and rationalization schemes for increased efficiency and economy in production might well not be in our favour and again not beneficial to the balance of trade. All this adds up to a belief in a continued remarkable growth rate for major sectors of the chemical industry, internationally. In particular the areas of plastics, pharmaceuticals and organic chemicals must continue to expand at a great rate. In undeveloped areas fertilizers should grow sub- stantially. The present considerable part played by chemicals in the world economy will tend to increase even further and the power of the great com- panies will become a still greater factor in international business. R. I. C. Re views 58