Continental drift is slow, takes place imperceptibly and inexorably, and typically ends up having dramatic effects in the long run. In this, it is very similar to demographic change. Let’s begin with the facts. The world’s population is set to grow from 7 bn today to more than 9 bn by 2050. By comparison, the world’s population was a mere 2.5 bn in 1950. The regional (continental) demographic balance has been shifting for quite some time. In 1950, four of the ten largest countries were European (Germany, Italy, Russia/ USSR, UK). Today, only Russia, ironically the country with the most adverse demographics, ranks among the top-10. In 1950, the big European four made up 10% of the world’s population. This figure has dropped to 5% today and will continue to decline for the foreseeable future. The populations of Africa and Asia will continue increase dramatically over the next few decades. Admittedly, the aggregate increase hides significant intra-regional differences (e.g. East versus South Asia).
By 2060, three contiguous South Asian countries (India, Pakistan and Bangladesh) will have a combined population of 2.2 bn. This will be equivalent to the combined population of Europe and the Americas. Meanwhile, on current projections, Nigeria’s population is set to reach 460 m and thus to exceed that of the US, whose population is projected to reach 420 m. More intriguingly, two sub-Saharan economies, the DRC and Tanzania, will have populations of 170 m each, according to UN projections. If these projections materialise, they will have a dramatic impact on the international system, economically and politically. Naturally, fifty years is a long time in trend forecasting.
After all, who would have thought in 1970 that fertility rates in many developing countries would collapse as dramatically as they subsequently did. Forty years ago, the average Mexican woman bore seven children, compared to 5.5 in India and Indonesia. Today, fertility ratios have reached fallen to and/ or below replacement levels in all three countries. As a matter of fact, fertility rates in all advanced and the vast majority of the larger emerging economies have fallen to below replacement levels. This means that population size will over time stabilise and eventually begin to decline (absent net immigration). If the experience of the advanced economies is anything to go by, it will be very difficult to engineer a substantial rise in fertility rates.
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| Source: OECD |
The demographic transition in the EM supports economic growth through its impact on savings and investment, all other things equal. But the demographic window will soon be closing in a number of today’s top-tier emerging economies, if it has not already done so (e.g. China, Russia). It may therefore be time to have a closer look at so-called frontier economies, effectively second- and third-tier emerging economies. This is where the economic growth of the future will be generated provided these economies succeed in creating growth-friendly domestic institutions and political stability.
Among the fifteen largest countries in the world by population, one finds Pakistan (population: 182 m, per capita income: USD 2,800), Nigeria (167 m, USD 2,500) and Bangladesh (153 m, USD 1,800). By comparison, the per capita income of Germany and the US is USD 38,800 and USD 48,100, respectively. In spite of the former group’s demographic weight, these economies remain tiny. Nigeria, the largest of the three, has a nominal GDP of a mere USD 250 bn – smaller than the GDP of the city-state Singapore, a country of 5 m inhabitants! It will hence take some time before demographically large, but economically small economies will have a tangible impact globally given the low starting level.
Contrary to the predictions of the dependency theorists of the 60s, developing economies are capable of advancing into the upper middle income brackets, even if breaking into the advanced economy club has proved more elusive. Only Hong Kong, Singapore, Taiwan and Korea have managed to do so. Partial economic catch-up is nonetheless achievable against the backdrop of global technological diffusion and growth-oriented domestic policies. Naturally, rapid population growth and especially a growing youth bulge in various countries risks creating conditions that may well raise political instability (Arab Spring) and undercut growth-oriented reforms and policies, especially in the context of heightened popular expectations, enhanced access to communication/ information and rising educational standards (esp. where these are not matched by improving job prospects).
Today’s top-tier emerging economies have a fair amount of catch-up growth left. The advanced economies will experience increasingly limited economic growth on the back of a declining workforce and age-related pressure on savings and investment. Innovation is also bound to slow down in aging, increasingly risk-adverse societies. While ageing is likely to translate into greater political stability in the near- to medium-term, it may risk translating into inertia to the point of becoming economically and financially destabilising over the longer term (e.g. grey majority and social-security reform). It may be time to start thinking about which of the demographic heavyweights among the least developed economies will become be part of the next generation of top-tier emerging economies over the course of the next two decades.