Speaker 1: This is Waltree Week. I'm David Weston bringing you stories
Speaker 1: of capitalism. The data center frenzy is in full bloom,
Speaker 1: but the neighbors are restless. Is there a way for
Speaker 1: the rest of us to get the benefits from AI
Speaker 1: without compromising the interests of those who will be living
Speaker 1: next door? Plus Earlier we brought you the story of
Speaker 1: the brain drain from New Zealand. People and talent are
Speaker 1: flowing the other way. For Poland, it's one of the
Speaker 1: fastest growing economies around, driven in part by the best
Speaker 1: and brightest returning home, and we use it for everything
Speaker 1: from military equipment to package goods. Aluminum is ubiquitous, and
Speaker 1: now it's caught in between Trump tariffs and a war
Speaker 1: in Iran. But we start with the drama that is
Speaker 1: politics in the United Kingdom, as the fifth Prime minister
Speaker 1: in eight years is finding to avoid yet another turnover
Speaker 1: at number ten and the markets are keeping score. How
Speaker 1: much say does the guilt market have in who gets
Speaker 1: to run the country? John Authurs is Bloomberg's senior editor
Speaker 1: for Markets. So John, there's a lot of political upheaval
Speaker 1: drama playing out in the United Kingdom right now. At
Speaker 1: the same time bonds are selling off guilts. Yes, the
Speaker 1: yields have gone up. Is there a connection between the two,
Speaker 1: and if.
Speaker 2: So, what Yes, there's certainly a connection, which is that
Speaker 2: Britain has even more than where we are here in
Speaker 2: the US the rest of the Western world, it has
Speaker 2: a fiscal problem. We don't have much headroom left to
Speaker 2: spend money in the UK. Any sign of concern about
Speaker 2: political instability will in its own right worry bond markets,
Speaker 2: and specifically at the moment, because Kirstama is in a
Speaker 2: lot of political trouble. Any challenger, even those who you
Speaker 2: could argue are to his political right, will want to
Speaker 2: do something to show they've made a difference once they
Speaker 2: take over from him, and that's going to involve spending
Speaker 2: some more money on something that's going to involve being
Speaker 2: more lenient on fiscal policy than labor has been so far.
Speaker 2: So plainly the risks are towards more fiscal spending. That's
Speaker 2: plainly something the guilt market dislikes. There's a long history
Speaker 2: of friction between a labor government that has its origins
Speaker 2: in socialism and the unions and bond markets.
Speaker 1: Naturally, there is also a more recent history between the
Speaker 1: Conservative government the Bard market. Yes read Ritler's Trust. We
Speaker 1: remember that. But one of the things you pointed out
Speaker 1: one of your columns is actually the yields and guilt
Speaker 1: right now are above where they got to unders Trust exactly.
Speaker 2: I mean that there are to be fair to the
Speaker 2: current labor government. There are reasons for that in the
Speaker 2: interests have risen across the world since then. And what
Speaker 2: really can endanger a financial extent is when yields rise
Speaker 2: very fast, which is absolutely what happened under Liz Trust.
Speaker 2: She took the market by surprise and thereby slipped on
Speaker 2: a banana skin, whereas what we've got at the moment
Speaker 2: is more of a slow motion car wreck with labor.
Speaker 2: But yes, the ultimate fact is true. The higher the
Speaker 2: yields go, and they are now even higher than when
Speaker 2: they toppled Liz trusts, the less room for maneuver any
Speaker 2: government has. And to some extent this is a systemic
Speaker 2: problem for the UK because as we've just said that
Speaker 2: Liz Trust was and is conservative. This is universal across
Speaker 2: the party is a certain lack of trust and the
Speaker 2: British two party system is breaking down at present, and
Speaker 2: both Greens, who are basically a British Woman of the
Speaker 2: the AOC Bernie Sanders left and the Reform Party of
Speaker 2: the Nigel Farash were obviously very similar to the Donald
Speaker 2: Trump margat Wright. Both of those are on the face
Speaker 2: of it, more inclined to splash money around and do
Speaker 2: things that the bond market really dislikes than the incumbents.
Speaker 2: There's a very worrying dynamic about the entire British political situation,
Speaker 2: or at least it's very worrying if you're a guilt investor.
Speaker 1: We know from your calm that you are a student
Speaker 1: of popular music. And I don't remember the Ritha Franklin
Speaker 1: song Who's Zoom and Who?
Speaker 3: Yes?
Speaker 2: So that the nineteen eighty five I remember that that
Speaker 2: was actually my first time in America. But anyway, carry on.
Speaker 1: But if you take the bond market the guilt market
Speaker 1: the one hand, and the political system on the other,
Speaker 1: Who's zoom and Who? I mean you've explained how that
Speaker 1: the political turmol can affect the guilt market. Is the
Speaker 1: guilt market affecting what's going on in politics as well.
Speaker 4: At the moment?
Speaker 2: I mean, certainly in the Liszt trust incident, Yes, that
Speaker 2: was very much case that it was the bond market
Speaker 2: that basically said no, you can't do this, and force
Speaker 2: the expulsion of first the Chancellor and then the Prime
Speaker 2: Minister itself. This time around, that's less clear. You could
Speaker 2: certainly say that at this point the bond market has
Speaker 2: become a kind of a sheet anchor or a straight
Speaker 2: jacket for whoever is in charge. But it will be
Speaker 2: more uncomfortable for, you know, a party of the left
Speaker 2: that actually has fewer hang ups about spending taxpayers money.
Speaker 2: But you know, the overall position is difficult either way.
Speaker 2: And the other thing that's quite interesting compared to history
Speaker 2: is that it used to be the currency market. So
Speaker 2: Harold Wilson have being forced to devalue in the pound
Speaker 2: and then going on television to say that the pound
Speaker 2: in your pocket, of course isn't worth any less, which
Speaker 2: absolutely wasn't true, and then Labor government of the seventies
Speaker 2: being forced by a run on the pounds to go
Speaker 2: to borrow from the IMF, and John Major's government basically
Speaker 2: never recovered from the Black Wednesday attack on sterling by
Speaker 2: George Soros and others. So it used to be the
Speaker 2: currency market that's really inflicted pain. And now that currencies
Speaker 2: do tends to float more gradually, more easily, and now
Speaker 2: that we've had many years of being used to extremely
Speaker 2: low bond yields, that cheap money is being treated as
Speaker 2: a fact of light for a birthright. Almost it's the
Speaker 2: bond market that has now taken over as the anchor
Speaker 2: the great limitation.
Speaker 1: The UNI Kingdom has a historically high ratio of debt
Speaker 1: to g gyps, but they're not alone in that. There
Speaker 1: may be a little bit more than some of the
Speaker 1: rest of us, maybe a little less than some as well.
Speaker 1: Is what we're seeing in the UK simply what's going
Speaker 1: to happen in other parts of the world, including the
Speaker 1: United States, just sooner.
Speaker 2: Yes, there's a reason that the UK has more of
Speaker 2: a problem, or more of an instant problem, which you
Speaker 2: can explain easily enough from geography and history. The UK
Speaker 2: is an island which got rich by trading with other people.
Speaker 2: The US is basically a continent that got rich by
Speaker 2: trading with itself. So exports have always been a much
Speaker 2: more important part of the UK equation. When you have
Speaker 2: pressure on the currency, when you have inflation elsewhere, it
Speaker 2: will affect the UK much more swiftly, much more dramatically.
Speaker 2: It is much more dependent on the generosity of others
Speaker 2: than the states. That said, America's share of GDP public
Speaker 2: debt as a share of GDP was in around numbers
Speaker 2: twenty years ago, before the global financial crisis sixty percent.
Speaker 2: Cause are occasioning great alarm. The Simpson bowls if you
Speaker 2: remember that attempts to cut the deficit.
Speaker 4: It's now one hundred and twenty.
Speaker 2: And whatever you think of the relative merits of Joe
Speaker 2: Biden and Donald Trump, both of them spent money, whether
Speaker 2: through tax cuts or fiscal larges or both, in a
Speaker 2: way that suggested that this just wasn't an issue. It
Speaker 2: will become an issue at a time. The US is
Speaker 2: a bigger, more closed economy than the UK. It can,
Speaker 2: and it has the exorbitant privilege of the dollar. It
Speaker 2: doesn't it's not it's not disciplined by potential runs on
Speaker 2: the currency like the UK is. But ultimately, if you're
Speaker 2: borrowing more than you have and can't generate the money
Speaker 2: to repay it, you're either going to get very bad
Speaker 2: inflation or you're going to go bust. You're not going
Speaker 2: to go bust. You're going to get very bad inflation
Speaker 2: and that that is ultimately the risk that afflicts this country.
Speaker 1: To you were a young lad, a young boy during
Speaker 1: the Wilson time and the crisis when there was really
Speaker 1: high inflation in the UK, and as you say, the
Speaker 1: power was devaluing, and I think some would say that
Speaker 1: was a predicate for what happened with Margaret Thatcher and
Speaker 1: a fundamental revision of the economy. Is there any prospect
Speaker 1: that could happen again in the UK. Could we have
Speaker 1: a new Thatcherer?
Speaker 2: We certainly can't see her yet. Although that being said,
Speaker 2: if you think back to seventy five seventy six, Margaret
Speaker 2: Thatcher wins the leadership of the Conservative Party in seventy five,
Speaker 2: doesn't actually get the general election which becomes prime minister
Speaker 2: until seventy nine. She certainly didn't seem to be quite
Speaker 2: the radical departure that she would turn out to be
Speaker 2: in seventy five. So maybe there is somebody out there
Speaker 2: who is hiding in plain sight already. I think the
Speaker 2: points I would make about the Thatcher regime I was
Speaker 2: when she got in twenty four, when she left, my
Speaker 2: generation of Brits still basically think she's running the world.
Speaker 2: And you could also argue there's an analogue to that
Speaker 2: in the States, which didn't get into anything like as
Speaker 2: much trouble in the seventies as Britain did, but did
Speaker 2: get into a lot of trouble. Paul Volka is the
Speaker 2: key figure who changes America around. He is appointed by
Speaker 2: Jimmy Carter.
Speaker 1: As was Alfred Kahan as deregulation.
Speaker 2: Yes, and would the American economy have boom the way
Speaker 2: it did in the eighties if you hadn't then had
Speaker 2: Ronald Reagan, who really believed this stuff, who was a
Speaker 2: really enthusiastic advocate for almost certainly not. But it was
Speaker 2: much easier for him to do what he did because
Speaker 2: he actually had the building blocks in place. Again, the
Speaker 2: ancien regime had accepted that the game was up and
Speaker 2: shifted before you then had the really exciting free market
Speaker 2: politician factor o Reagan to take things for So, I
Speaker 2: think the key moment is when is the game up?
Speaker 2: When does the market that the economy force a change.
Speaker 2: It's conceivable it could happen here that Donald Trump grasps
Speaker 2: that you just need to actually start cutting entitlements and
Speaker 2: cutting back on defense budgets or whatever. But I think
Speaker 2: it's more likely that circumstances force a change from the
Speaker 2: ancien regime and that's the critical change, rather than that
Speaker 2: voters elect in the person who will make the.
Speaker 1: Change coming up. The money is pouring in, the construction
Speaker 1: is underway. Data centers are paving the way for our
Speaker 1: AI future. But some communities want to know why they
Speaker 1: have to be in their backyard. This is a story
Speaker 1: about good fences making good neighbors. The promise of artificial
Speaker 1: intelligence has brought a wave of data center building across
Speaker 1: the country, and in success, we hope that AI will
Speaker 1: benefit the economy, investors, and the vast majority of Americans.
Speaker 5: A trillion dollars is an enormous amount of infrastructure. You
Speaker 5: have to have complete confidence that the trillion dollars you're
Speaker 5: putting down would be performant for as long as you
Speaker 5: could see.
Speaker 6: If you're building a multi billion dollar data center in
Speaker 6: the US or around the world, and you have a
Speaker 6: fifteen plus year contract with a company with a three
Speaker 6: trillion dollar market cap, that feels pretty good.
Speaker 4: If we knew how to get a trillion dollars right now.
Speaker 7: If we don't, would we be able to deploy that
Speaker 7: profitably in the next few years and I'm not sure
Speaker 7: about that, but I feel.
Speaker 4: Confident we can make five hundred billion of value back.
Speaker 1: But while we all wait for the full benefits of
Speaker 1: AI to be realized, what does construction of these massive
Speaker 1: AI data centers mean for the people living around them?
Speaker 1: And how much of us, say, do residents have and
Speaker 1: the type of fences keeping things in or out?
Speaker 8: Pushback today to a proposed AI data center. Amazon comes
Speaker 8: to town, starts emailing our town manager and wants to
Speaker 8: build an enormous data center and the citizens did not
Speaker 8: know about this, even though it was going to be
Speaker 8: a five hundred million dollar investment.
Speaker 1: That sort of massive capital investment brings with it the
Speaker 1: prospect that the data centers being built today will be
Speaker 1: with us for a long time to.
Speaker 9: Come, ultimately to be paid for the risk that we're taking.
Speaker 9: We're looking to get a lease that's somewhere in the
Speaker 9: neighborhood David between thirteen years and seventeen years.
Speaker 1: Mark Genzi is the CEO of Digital Bridge, an alternative
Speaker 1: asset investment firm specializing in data infrastructure. He's among the
Speaker 1: major players making long term bets for AI, massive bets
Speaker 1: that are being distributed across a wide array of investors.
Speaker 9: So on the equity side, you're seeing the traditional players,
Speaker 9: the big infrastructure players, and so we're seeing today as
Speaker 9: we're seeing the large megafunds, these big, big infrastructure players
Speaker 9: really lean into the AI thematic, and as a part
Speaker 9: of that thematic, when they think about infrastructure, they think
Speaker 9: about putting billions of dollars of equity to work behind
Speaker 9: these large data center platforms and projects. On the debt side,
Speaker 9: it's actually really interesting today. Of course, we see bank syndicates,
Speaker 9: we see construction financing club deals on the bank side,
Speaker 9: and now, David, you're beginning to see the emergence of
Speaker 9: private debt capital. So private debt capital financing projects that
Speaker 9: are a little tougher, perhaps less investment, great exposure, or
Speaker 9: perhaps even more risk.
Speaker 1: On the power side, projected investments in data centers have
Speaker 1: climbed past three trillion dollars. That's a three trillion dollar
Speaker 1: long term bet on the future, which requires a business
Speaker 1: plan with some pretty attractive returns.
Speaker 9: That is the long term nature of the cashlows, so
Speaker 9: that we go to build that facility, we're getting an
Speaker 9: imputed yield, and today most data center yields are somewhere
Speaker 9: between David on a cash on cash return basis somewhere
Speaker 9: between eight and twelve percent.
Speaker 4: It just depends on who the credit is.
Speaker 9: So if you're dealing with an investment grade tenant like Amazon.
Speaker 4: You're going to be at the low end of that guidance.
Speaker 9: If you're dealing with a brand new startup, or perhaps
Speaker 9: you're dealing with a quantum compute player that's non investment grade,
Speaker 9: you're looking at something more like an eleven to twelve
Speaker 9: cap rate. But you do need to be paid for
Speaker 9: the risk that you're taking, and that risk is measured
Speaker 9: in long durrated cashlows with some form of an escalator.
Speaker 1: But while investors anticipate that future payout over fifteen or
Speaker 1: twenty years, in the communities where data centers are going
Speaker 1: up right now, there are immediate potential effects on the
Speaker 1: people who live near them.
Speaker 10: To say that I have significant concerns is sort of
Speaker 10: an understatement.
Speaker 1: Dana Nessel is the Michigan Attorney General, who's job includes
Speaker 1: looking out for the interests of Michigan taxpayers, rate payers,
Speaker 1: and citizens. She is appealing the state's expedited approval of
Speaker 1: a very large data center set to be built in
Speaker 1: Saline Township, just south of ann Arbor.
Speaker 2: Well.
Speaker 10: It appears as though the project is underway. The first
Speaker 10: that I learned about it was really on Halloween of
Speaker 10: last year, that this was going to be an enormous project,
Speaker 10: a project bigger than any of its kind we've seen.
Speaker 1: It's not that Attorney General Nessel denies the potential upside
Speaker 1: of data centers in Michigan, but she wants to test
Speaker 1: the projections and promises, weighing both the benefits and the
Speaker 1: burdens of things like changing electricity rates, land values, and
Speaker 1: water needs, that her citizens will face the sorts of
Speaker 1: things that may require some pretty good fences.
Speaker 10: If you talk to Michigan residents, they don't want these
Speaker 10: in their backyard. Nobody knows yet what it's going to
Speaker 10: mean for that community. They don't know what it's going
Speaker 10: to mean for their water. They don't know what it's
Speaker 10: going to mean in regard to noise pollution or other
Speaker 10: types of pollutants. Until we have some of those questions
Speaker 10: that can be more fully answered and better policies put
Speaker 10: in place at the state level. Most people don't want
Speaker 10: to see these massive data centers continue to be erected.
Speaker 1: Michigan residents aren't the only ones with concerns. Pew Research
Speaker 1: Center found that an overwhelming share of Americans think data
Speaker 1: centers are mostly bad for the environment, home energy costs,
Speaker 1: and their overall quality of life. But Ganzhi says he's
Speaker 1: seen a version of this play before and that it
Speaker 1: can be handled in a way that satisfies the need
Speaker 1: for growth and the concerns of citizens. Do you need
Speaker 1: to take into account the reaction of the community.
Speaker 4: One hundred percent as a factor.
Speaker 9: I've been doing this for thirty two years, building digital infrastructure,
Speaker 9: and where I got my sort of humble start with
Speaker 9: building cell towers David in nineteen ninety four. And at
Speaker 9: that point in time, nobody wanted a cell tower in
Speaker 9: their backyard, and that was the rise of nimbiism, not
Speaker 9: in my backyard. Well, the sector got organized, we navigated
Speaker 9: through it, we explained the benefits of mobile communications, emergency services,
Speaker 9: and ultimately the fact that most Americans wanted ubiquitous mobile coverage.
Speaker 9: And so that carried through the early two thousands into
Speaker 9: twenty ten, twenty twenty, and today you don't hear a
Speaker 9: lot of skirmishes around cell towers because largely the industry
Speaker 9: has made peace with the local community.
Speaker 1: State leaders like Nessel don't deny that things might work
Speaker 1: out for all concerned, but for that to happen, she
Speaker 1: believes we all need to know in advance the scope
Speaker 1: of data center construction, the effects it's likely to have
Speaker 1: on the community, and what commitments the developers and owners
Speaker 1: are making to address the possible local downsides.
Speaker 10: The request was made before our utility regulator, the Michigan
Speaker 10: Public Service Commission, for this contract that was filed for
Speaker 10: an ex party hearing, meaning a hearing that would take
Speaker 10: place behind closed doors that we wouldn't be allowed to
Speaker 10: be part of. So the contract that was posted publicly
Speaker 10: was heavily redacted, and that included reactions to some incredibly
Speaker 10: important information, you know, evolving things like exit fees, what
Speaker 10: would happen upon the termination of the contract, Even you know,
Speaker 10: basic terms and definitions had been redacted, Customer credits, even
Speaker 10: the signatories to the contract had been redacted, so that
Speaker 10: we can't even know who signed this contract or what
Speaker 10: company they're affiliated with, which is pretty insane when you
Speaker 10: think about it. How are we supposed to know whether
Speaker 10: or not rate payers are getting a fair deal if
Speaker 10: we're not even allowed to see the contract itself.
Speaker 1: All of this comes against the backdrop of a rapidly
Speaker 1: evolving technology that is growing at a rate we've never
Speaker 1: seen before, raising questions about what happens if things evolve
Speaker 1: in ways that fall short of the best case. As
Speaker 1: an infrastructure investor, Ganzhi says, they're ready for that. How
Speaker 1: do you anticipate the further growth as well as the
Speaker 1: obsolescence of some of the technology you're putting in.
Speaker 9: Well, I think the great part about being the owner
Speaker 9: of the railroad is you don't known the actual cars
Speaker 9: that run on the tracks.
Speaker 4: We own the land. We build the power plant.
Speaker 9: Sometimes actually we're building power adjacent to the data center.
Speaker 9: We build the physical real estate structure inside the four walls.
Speaker 9: We bring the fiber connectivity, we bring the cooling, we
Speaker 9: bring the back of power. We create the data hall
Speaker 9: conditions where the UPC units are in and the cooling
Speaker 9: is in and the cable trays. But eventually, David, our
Speaker 9: customers put in the technology. So what makes our business
Speaker 9: great is we are candily we're GPU and TPU agnostic,
Speaker 9: And what I mean by that is we're not involved
Speaker 9: in the active compute. That is a bet that we
Speaker 9: don't make it digital bridge. What we are in the
Speaker 9: business of doing is providing that mission critical real estate
Speaker 9: and infrastructure to the top technology providers in the world,
Speaker 9: and we let them make the decision what kind of
Speaker 9: server they're going to buy.
Speaker 1: That may take care of the investor risk, but what
Speaker 1: about community risk. In Michigan, abandoned auto plants still dot
Speaker 1: the landscape, a constant reminder of an earlier era of
Speaker 1: technological promise and the costs that followed. Who will bear
Speaker 1: the cost this time remains uncertain.
Speaker 10: In the event that the bubble bursts and something happens
Speaker 10: and this hyperscale center in Saline Township is no longer needed,
Speaker 10: somebody is going to have to pay all of the
Speaker 10: extra costs of this new infrastructure. And who's going to
Speaker 10: pay it, Well, it's either going to be borne by
Speaker 10: the rate payers in this state, and we already are
Speaker 10: subject to some of the highest rates and the worst
Speaker 10: reliability anywhere in the country, or it'll be the taxpayers
Speaker 10: they'll have to bail out the utility companies who are
Speaker 10: making these in some instances, is you know, terrible bets
Speaker 10: that AI is going to be around for a long time.
Speaker 10: If you look at these contracts, it's clear that the
Speaker 10: cost is supposed to be born out not over the
Speaker 10: course of a few years, but over the course of
Speaker 10: really a few decades, you know, up to something like
Speaker 10: eighteen years. But we can't even see the exit fees
Speaker 10: in the next few years. Those that have encouraged these
Speaker 10: data centers to come here without any sort of guardrails
Speaker 10: at all, I think they've set us up for a
Speaker 10: very difficult future here.
Speaker 1: Which brings us back to those fences neighbors need. Ganzy
Speaker 1: sees a way to build what's needed in a way
Speaker 1: that accommodates everyone and doesn't stand in the way of progress.
Speaker 9: You're seeing Red states and blue states both look at
Speaker 9: the data center opportunity and quandary in the same way,
Speaker 9: which is, can't hurt consumers. So the industry has to
Speaker 9: get organized and has to explain ultimately the benefits of
Speaker 9: why these data centers exist, Why are they creating jobs
Speaker 9: not losing jobs, Why is it going to be good
Speaker 9: for them long term from a property value perspective, and
Speaker 9: why it ultimately isn't going to rise their utility bill
Speaker 9: and take away all their water. We got a pretty big,
Speaker 9: uphill challenge.
Speaker 1: We need data centers to build the technology of tomorrow.
Speaker 1: The long term promises are big, but so are short
Speaker 1: term costs that may fall on the shoulders of local communities.
Speaker 1: That's why we need to construct some fences carefully to
Speaker 1: protect our neighbors. And to do that, we need to
Speaker 1: bring everyone to the table up next. Poland has gone
Speaker 1: from a laggard to a European economic leader, in large
Speaker 1: part by attracting back all those talented polls working abroad.
Speaker 1: This is a story about going home again. The narrative
Speaker 1: of Europe in recent years has too often been about
Speaker 1: lack of growth, but there are exceptions. It turns out
Speaker 1: that Poland is one of the world's fastest growing economies,
Speaker 1: and although it's now attracting its best and brightest to
Speaker 1: come home to build their businesses, tough challenges still lie ahead.
Speaker 1: Born and raised in Warsaw, Alexandra Pedroshevska followed a well
Speaker 1: trodden path for young, ambitious Poles and went abroad.
Speaker 11: I wanted to study abroad, and I started looking around,
Speaker 11: and my objective was getting the best education that I
Speaker 11: can get. So I left in twenty thirteen to study
Speaker 11: at Cambridge. I didn't really make a choice after his
Speaker 11: studies about which country I want to live in. It
Speaker 11: was very much driven by the opportunities what kudat are
Speaker 11: in different countries, and for me it was natural to
Speaker 11: stay in the UK.
Speaker 1: But that was then. Now the well trodden path is
Speaker 1: heading in the other direction. Poland is booming. It's economy
Speaker 1: top one trillion dollars last year and this year it
Speaker 1: will be invited to the G twenty summit, and it's
Speaker 1: kind of citizens living abroad, a figure that was steadily
Speaker 1: climbing after I joined the EU in two thousand and four,
Speaker 1: peaked in twenty seventeen and has been dropping ever since,
Speaker 1: although Poland's National Statistics Agency adjusted its methodology in twenty
Speaker 1: twenty two. Among those returning is Pedroshevska.
Speaker 11: I think a lot has changed, and especially for people
Speaker 11: like me with the backgrounds like I had. I wanted
Speaker 11: to work on the edge of new technologies. I really
Speaker 11: wanted to be exposed to the best R and D,
Speaker 11: the best teams that are building effectively the future of
Speaker 11: what the technology sector is. I don't think that these
Speaker 11: opportunities were as obvious ten years ago and as available
Speaker 11: as they are now.
Speaker 7: Actually, our performance started in nineteen eighty nine.
Speaker 1: Andre Domanski is Poland's Minister of Finance and Economy.
Speaker 7: And nineteen eighty nine we had GDP of sixty seven
Speaker 7: billion US dollars. Last year GDP of Poland reached one trillion.
Speaker 7: There was only one country in that period that had
Speaker 7: a higher pace of growth, and it was China.
Speaker 1: What were the things that drove that performance over that
Speaker 1: long period of time.
Speaker 7: Well, first of all the reforms of the early nineties,
Speaker 7: strong institutions that were established here at the time. Of course,
Speaker 7: the entrepreneurship spirit of Polish people who helped in this process,
Speaker 7: and of course, with no doubt, joining European Union in
Speaker 7: two thousand and four. And frankly, we are often asked
Speaker 7: what is the most important sector or most important company
Speaker 7: of Polish economy And it's very difficult to say, and
Speaker 7: I perceive it as a strength of Poland because we
Speaker 7: are really well diversified. Polish economy is well integrated with
Speaker 7: other European Union economies, we are well integrated with global
Speaker 7: value chains. At the same time, we are quite important
Speaker 7: market of thirty seven million people, so we have strong
Speaker 7: domestic markets. So there are many engines of Polish GDP growth.
Speaker 1: Drivers of Poland's economic growth include a range of services
Speaker 1: as well as manufacturing. More recently, the Russian invasion of
Speaker 1: Ukraine has led to a sharp uptick in defense spending,
Speaker 1: projected to account for almost five percent of GDP and
Speaker 1: twenty twenty five, the highest in the EU. Its digital
Speaker 1: industry is also growing fast. McKinsey estimates the current forty
Speaker 1: four billion dollar sector will grow to one hundred twenty
Speaker 1: three billion dollars in twenty thirty, accounting for nine percent
Speaker 1: of GDP. That's Petroshevska's domain. She co founded vivid Q,
Speaker 1: a British company developing holographic display technology, in twenty seventeen,
Speaker 1: but on her return to Poland she started vast Point,
Speaker 1: a venture capital firm focused on tech startups in Central
Speaker 1: and Eastern Europe.
Speaker 11: The startup seeing is very vibrant. And I think about
Speaker 11: this word, I think it really represents what's currently going on.
Speaker 11: I think that this ambition and this certainty that whatever
Speaker 11: is being built from here or by Polish teams has
Speaker 11: this potential of becoming a global solution.
Speaker 1: Yet for all the optimism around Poland, there are some
Speaker 1: warning signs ahead. Machi Albanovski is an economist at the
Speaker 1: Institute for Structural Research in Warsaw.
Speaker 12: The short term challenge for POMP is to consolidate public finances.
Speaker 12: Although public debt is still at moderate level of around
Speaker 12: sixty percent of GDP and public debt is safe in
Speaker 12: Polant we are running large deficits. Last year it was
Speaker 12: around seven percent of GDP, so it is clearly not
Speaker 12: sustainable over the longer term, and we need to come
Speaker 12: up with a way to rationalize public spending, probably raise
Speaker 12: some taxes, and probably we need to face the fact
Speaker 12: that elevated military spending requires some tax hikes. We don't
Speaker 12: want to start consolidating our public finances when we are
Speaker 12: under external pressure, because then it's more painful.
Speaker 7: We spend close to five percent of our GDP on defense.
Speaker 7: This is close to fifty billion euro per year, so
Speaker 7: of course we run high deficit. We take some steps
Speaker 7: to lower it gradually, we believe that we are not
Speaker 7: in a position to cut spendings on defense.
Speaker 1: Another challenge lies in demographics. For Poland, as in much
Speaker 1: of the Western world.
Speaker 12: By fifty our labor force will shrink by about twenty percent,
Speaker 12: so this is one large factor. Secondly, the average age
Speaker 12: of an employee is increasing and it also matters for
Speaker 12: the productivity. While older workers can certainly work with modern technologies,
Speaker 12: they may need some more support than younger workers. So
Speaker 12: we need to invest more in policies that allow up skilling,
Speaker 12: cre skilling, adjusting skills to these new technologies. And currently
Speaker 12: we are not doing much in this direction.
Speaker 1: How do you address that economically?
Speaker 7: So we are running many programs that are supporting Polish
Speaker 7: families with some additional income. We have also started in
Speaker 7: Vitro program. Already thirteen thousand children were born thanks to
Speaker 7: this program in Poland, and I want to say personally
Speaker 7: that we are really proud that after eight years of
Speaker 7: very right wing government that stopped this program, our government
Speaker 7: reintroduced it and we already have, as I said, thirteen
Speaker 7: thousand young Polish people because of that. But it's not enough.
Speaker 7: We need to create new incentives for people to be
Speaker 7: more willing to work, and our government is doing that.
Speaker 1: Foreign investment is both an opportunity and a challenge for Poland.
Speaker 1: Many foreign investors have become more confident in this sstainability
Speaker 1: of the Poland story. But Damonsky says the war in
Speaker 1: Ukraine has made some wearing.
Speaker 7: We see that some investors, especially from non European investors,
Speaker 7: are a little more reluctant to invest in especially eastern
Speaker 7: parts of Poland recently. That being said, Poland will be
Speaker 7: the biggest, of course, apart from the Ukraine, beneficiary of
Speaker 7: peace in Ukraine. So we want just and lasting peace
Speaker 7: for Ukraine first of all. Of course too we need
Speaker 7: to end this brutal Russian aggression. It would be also
Speaker 7: very good for Polish economy. Foregdirect investments were absolutely crucial
Speaker 7: in building strength of Polish economy. And this is not
Speaker 7: it's a matter of facts, it's not an opinion. Because
Speaker 7: of the investments from other European countries of US investors,
Speaker 7: right now we see more and more interests from Asian
Speaker 7: investors investing in Poland.
Speaker 12: We certainly need to invest more in research and development.
Speaker 12: We need to invest in our academic sector. We also
Speaker 12: need to refining our educational policies, both aimed at children
Speaker 12: and at adults, because this is what more successful Western
Speaker 12: economies are doing. And in Poland so far we relate
Speaker 12: much on competitive labor supply, on cheap labor costs, but
Speaker 12: if we want to reach higher level of wages, if
Speaker 12: you want to converge to not to fifty percent of
Speaker 12: German wages, but to eighty or ninety percent, we certainly
Speaker 12: need to invest more in education, in research and development
Speaker 12: and in other programs policies. We are quite satisfied with
Speaker 12: our present growth trajectory, so we may not be well
Speaker 12: motivated to invest in research and development, to invest in
Speaker 12: new educational policies, because so far is good, but in
Speaker 12: future current growth model of Polish economy may not be sufficient.
Speaker 1: As they say, getting to the tap is one thing,
Speaker 1: staying there is another. Poland's growth is a success story,
Speaker 1: but its next test will be sustaining it.
Speaker 11: A lot of the success of Poland's so far has
Speaker 11: been unfortunately playing catch up. I think once you join
Speaker 11: twenty biggest economies in the world, or twenty economies with
Speaker 11: the biggest GDP per capita, it really becomes about what
Speaker 11: is the limits of your growth and where do you
Speaker 11: need to seek it if playing catchup is not going
Speaker 11: to work out that well anymore.
Speaker 1: But in the end, for Poland, as it is for
Speaker 1: many countries, the key is making sure that the best,
Speaker 1: the brightest can go home. Again and stay there.
Speaker 11: I could have stayed in London, raise a fund there,
Speaker 11: I could have thought about maybe moving to the US
Speaker 11: and effectively starting over. But I decided to take a
Speaker 11: step which I don't think is a step back, but
Speaker 11: step into something entirely new, but just in the place
Speaker 11: which I used to call home as a child. So
Speaker 11: it feels really special to be able to do that.
Speaker 11: It feels also really special because I don't feel like
Speaker 11: I have to give up on anything.
Speaker 1: Coming up. It's not just oil and fertilizer. Aluminum is
Speaker 1: another victim of the around war, which is making President
Speaker 1: Trump's plans to strengthen the US industry that much harder.
Speaker 1: This is a story about trying to have it both way.
Speaker 1: Since he first became president, Donald Trump has sought to
Speaker 1: protect the US aluminum industry through tariffs, but the war
Speaker 1: in Iran may be taking us in a very different direction.
Speaker 1: Our colleague Christian Friedland tells us a story of a
Speaker 1: key metal that is caught in the middle.
Speaker 10: Aluminum foil keeps foods from drying out while ceiling in
Speaker 10: all their natural flavor.
Speaker 13: When you think about aluminum, the first thing that comes
Speaker 13: to mind might be tinfoil. Or soda cants, but it's
Speaker 13: also an essential component of cars, planes and machinery. It's
Speaker 13: the world's most abundant metal. But even that hasn't kept
Speaker 13: aluminum safe from the fallow of war.
Speaker 14: The supply is now depleted by about half of the
Speaker 14: metal that used to be shipped from the Middle East
Speaker 14: because there's been some damage and there's been some curtailments
Speaker 14: to avoid further damage.
Speaker 13: Jean si mart is the President and CEO of the
Speaker 13: Aluminum Association of Canada.
Speaker 14: It's a very significant situation for the aluminum sector worldwide
Speaker 14: because the Middle East produces twenty percent of all the
Speaker 14: aluminum outside China, and it ships to Asia, but mostly
Speaker 14: to the US and to Europe.
Speaker 13: Of the top aluminum producing countries in the world, two
Speaker 13: or in the Middle East, and Sima says the impact
Speaker 13: of the war in Iran could be long lasting.
Speaker 14: Starting at the beginning of the crisis, the first curtailment
Speaker 14: happened in Qatar because of an energy supply situation, and
Speaker 14: then damage was done in Baryn and then to the
Speaker 14: alta wheela smelters in the Emerits. This is very significant
Speaker 14: because it will take a long time to bring it
Speaker 14: back smelters are very highly impacted by energy, and to
Speaker 14: restart a smelter have to do like if there is
Speaker 14: a supply problem with electricity for your house, you have
Speaker 14: to unplug everything and then replug one at a time,
Speaker 14: so they can only start back two cells a day
Speaker 14: out of hundreds and hundreds of cells.
Speaker 13: Production is just one part of the aluminum supply chain,
Speaker 13: facing disruption distribution is another. Like so many of the
Speaker 13: world's exports, aluminum needs to be shipped, often a long way,
Speaker 13: and shipments are snarled by the blockade of the Strait
Speaker 13: of Hormonies.
Speaker 14: The problem is what's in front of us. The last
Speaker 14: ship to leave the Middle East just before the beginning
Speaker 14: of the crisis has made it to the US. There's
Speaker 14: no other ship on its way. It took sixty days
Speaker 14: to get there, so the full shock is ahead of us.
Speaker 14: I'm not too sure that all downstream transformers, processors, mom
Speaker 14: and pop shops that use aluminium are fully aware of
Speaker 14: what's ahead of them.
Speaker 13: In the first two weeks of the war, the price
Speaker 13: of aluminum on them life London Metal Exchange saw double
Speaker 13: digit gains, shooting to record highs. But while the war
Speaker 13: added to rising prices around the world. Some of the
Speaker 13: fallout in the US is self inflicted. Last year, President
Speaker 13: Trump hiked tariffs on imports of aluminum to fifty percent
Speaker 13: with the intention of stimulating domestic production. As of twenty
Speaker 13: twenty five, the US was dependent on imports to meet
Speaker 13: some sixty percent of internal aluminum consumption, and that was
Speaker 13: something that the Trump administration didn't like.
Speaker 15: The US is a short market on primary aluminium, so
Speaker 15: the US need to import a lot of primary aluminium
Speaker 15: to fill demand. So to attract that metal, then US
Speaker 15: consumers or manufacturing using aluminum, in effect, how to pay
Speaker 15: the duthday on aluminum into the US market.
Speaker 13: Tront Olaf Christofferson is the CFO of Norris Kiedro, a
Speaker 13: publicly traded aluminum producer based in Norway. The company is
Speaker 13: also in the unique position of having a production facility
Speaker 13: in couver.
Speaker 15: Our joint venture in Katar Catalom has been impacted by
Speaker 15: the war and is currently operating around sixty percent production
Speaker 15: capacity because of the situation, and we continue to operate
Speaker 15: around that level. It is a challenging situation with the
Speaker 15: raw material access and also to get metal out from
Speaker 15: the region, but we are continuing to operate at that.
Speaker 13: Production level, and so is the US now facing more
Speaker 13: of an aluminum crisis than other parts of the world.
Speaker 15: Well, the supply situation, I think is of the situation
Speaker 15: in midleast impacts the supply situation in all markets physically.
Speaker 15: When it comes to supply, I think the Asian market
Speaker 15: is worse impacted because quite a lot of the metal
Speaker 15: from the Middle East is normally sold in Asia around
Speaker 15: two and a half million tons, But the price impact
Speaker 15: is global.
Speaker 13: This isn't the first time the United States has imposed
Speaker 13: tariffs on Canadian aluminum. In twenty eighteen, when I was
Speaker 13: Foreign Minister, the trade spat between our two countries ended
Speaker 13: with the US backing down. And although the US is
Speaker 13: facing higher aluminum prices today, SamArt says that's not a
Speaker 13: direct effect of the warrant around. That's because the vast
Speaker 13: majority of aluminum the United States imports comes from Canada.
Speaker 14: When the tariffs, the fifty percent tariff were implemented, it
Speaker 14: created a price shock in the market for exporters into
Speaker 14: the US, as Canada is one of them, and basically
Speaker 14: the reaction was to divert shipments to another market, which
Speaker 14: covered the full logistical costs and the whole netback that
Speaker 14: would differentiate this destination from the US. One thing is sure,
Speaker 14: if you want to get all the available supply from Canada,
Speaker 14: you have as a polymaker in the US to do
Speaker 14: a carve out for Canada within the global tariff situation
Speaker 14: right now. If that doesn't happen, Canada will go where
Speaker 14: the market is.
Speaker 13: Among the industries that are most affected by higher aluminum
Speaker 13: prices are packaging and transportation from trains and trucks to
Speaker 13: mopeds and bikes, and that's where Brenton Moore comes in.
Speaker 16: Fundamentally, aluminum is one of the primary materials used on
Speaker 16: a bicycle. The reason is it's very light, very strong,
Speaker 16: reasonably priced. You know, it's not a super exotic metal.
Speaker 13: Or's company, Wolf Tooth Components, makes premium bike parts that
Speaker 13: are shipped all over the world. His manufacturing plant in
Speaker 13: the suburbs of Minneapolis is about seven thousand miles from
Speaker 13: the Strait of Hormies. But he's still feeling the consequences
Speaker 13: of the war in Iran.
Speaker 3: We're a small company like us.
Speaker 16: We're not Boeing, so we don't get to say, Kaiser
Speaker 16: send us ten truckloads of aluminum. We buy our luminum
Speaker 16: through suppliers locally, and those suppliers will source that from
Speaker 16: various suppliers around the world.
Speaker 3: We don't get a lot.
Speaker 16: Of choice and where our aluminum comes from, but I
Speaker 16: can tell you that it's shifted and we do have
Speaker 16: a preference for US aluminum.
Speaker 13: Eventually, the only solution for a manufacturer like More might
Speaker 13: be to raise prices, but he says it's not so.
Speaker 3: Simple in consumer goods.
Speaker 16: I would say, it's not like when you go to
Speaker 16: the restaurant and there's like lobster pricing and it's like
Speaker 16: market rate.
Speaker 3: That's not how consumer goods work.
Speaker 16: And when prices of aluminum raw material go in, we
Speaker 16: can't necessarily just like raise our prices right away. Raising prices, remember,
Speaker 16: does three really bad things. One it upsets your customers, Two,
Speaker 16: it puts you at a disadvantage to your competition, and
Speaker 16: three it's actually a lot of work. And so when
Speaker 16: aluminum goes up, effectively initially we just eat. It just
Speaker 16: comes right out of our bottom line.
Speaker 13: Has seen peaks and valleys in the price of aluminum before,
Speaker 13: but he says this time is different.
Speaker 16: If you look, there was COVID, which aluminum prices started
Speaker 16: going up, but then actually the biggest peak was right
Speaker 16: when the Russian War started, just went crazy high, and
Speaker 16: then tariffs came in and then the.
Speaker 3: Straight of horror moves was closed.
Speaker 16: But the biggest thing people aren't talking about, and you're
Speaker 16: seeing this broadly across commodities, is the AI buildout is
Speaker 16: actually one of the big impacts for aluminum prices going up.
Speaker 16: Right now, those data centers that we all hear so
Speaker 16: much about, they use a ton of raw material and
Speaker 16: a lot of it's aluminum, and so kind of we're
Speaker 16: seeing like a triple whammy.
Speaker 13: Now, if you will, smaller manufacturers like wolf Tooth components
Speaker 13: not only have to contend with higher prices for the
Speaker 13: metal they need, but also have to compete against bigger,
Speaker 13: more powerful players that also use illuminum. The squeeze could
Speaker 13: eventually raise prices across the board for consumers, triggering another
Speaker 13: of inflation.
Speaker 16: There's really no viable alternative to aluminum in our case,
Speaker 16: and you'd hear the same thing if you ask blowing
Speaker 16: like they're still going to use tons of aluminum airplanes
Speaker 16: no matter what the price is, and the price of
Speaker 16: those airplanes will just go up same with our bicycle parts.
Speaker 13: As the war drags on, so did the timeline for
Speaker 13: prices to stabilize. Back in Norway. Christofferson says, the outlook
Speaker 13: is far from certain.
Speaker 15: So in the aluminum market, I think we see a
Speaker 15: bit the same situation as you see in the energy markets,
Speaker 15: where you have quite high prices in the front ten
Speaker 15: meaning metals to be delivered in the coming month, but
Speaker 15: then you have a declining price of backguardation situation in
Speaker 15: the market with lower prices folding down to three thousand dollars.
Speaker 3: But on a couple of years out in time.
Speaker 14: So it will take anywhere between twelve to eighteen months
Speaker 14: for the Middle East supply that's been affected to come
Speaker 14: back into the market, and then you need sixty days
Speaker 14: to sip to North America that you add to this.
Speaker 14: So we're heading for a supply shock as we move
Speaker 14: through the summer period, and this will last most likely
Speaker 14: for about a year a year and a half until
Speaker 14: this supply starts to make its way back into the market.
Speaker 13: For business owners like Brendan Moore, the effects of domestic
Speaker 13: and foreign policy have become an unavoidable hazard of the job.
Speaker 16: We control, the processing, we control our efficiency, We control
Speaker 16: our yields, so we have to just focus on those.
Speaker 16: I think near term we're going to be able to
Speaker 16: mitigate most of the aluminum prices. Longer term, if it
Speaker 16: stays this high, there has to be some sort of increase.
Speaker 16: But a consumer, if aluminum goes up twenty percent again
Speaker 16: this year, our prices of our products aren't going to
Speaker 16: go twenty percent.
Speaker 3: They're going to go up like three or five percent.
Speaker 3: And I like boeing do.
Speaker 16: I mean, I'm trying to poopoo with them at all,
Speaker 16: But like, we don't have the negotiating power that say
Speaker 16: they have or automaker has, And when these prices change
Speaker 16: or tariffs change, I see that almost the same day.
Speaker 3: I mean not joking.
Speaker 16: Sometimes, Well, I didn't start this small business because I
Speaker 16: wanted to learn about tariffs or deal with massive supply
Speaker 16: chain issues, or deal with geopolitics. Those are, in fact
Speaker 16: some of my least favorite things. Bicycles are way more
Speaker 16: fun than that stuff.
Speaker 13: With all the back and forth of tariffs and wars,
Speaker 13: it's hard to see how US policy at the moment
Speaker 13: is helping American manufacturers or American consumers. And this is
Speaker 13: one problem that the marketplace can't fix on its own