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The impact of changing demographics

, July 20, 2013, 0 Comments

The latest United Nations projection for world population reflects the significant demographic changes likely to occur in different parts of the world over the next few decades. The changes have strong economic implications, and many of them have already begun taking place.

One of the major projections is India’s emergence as the world’s most populous country in another fifteen years. India’s population is expected to equal China’s by 2028 and subsequently overtake it.

But while in 2028 both countries are expected to have a population of 1.45 billion each, India’s population is projected to reach 1.5 billion in 2100 compared with China’s 1.1 billion. The difference in the projection for the two countries’ populations at the end of the century is because of the difference in the nature of their growth. India’s population will continue to grow at a positive rate for several decades before declining in the later part of this century. But the rate of growth in China’s population will become negative after 2030 and its population will start declining much before India’s.

While the Indian population is expected to become more than China’s by 2030, Nigeria is expected to overtake China as the second most populous country by the end of the century. Nigeria’s current population is 173 million. Its population growth will be almost explosive as it is projected to surpass the US’ population by the middle of the century and match China’s by the end.

In fact, the African continent is projected to be the largest contributor to the increase in global population this century. Apart from Nigeria, other African countries projected to have rapid population growths are Tanzania, Congo, Ethiopia, Uganda and Niger. These countries will join Pakistan and Indonesia as the world’s most populous countries following India and China.

These demographic changes have far-reaching economic implications. It is clear that some countries from Asia and Africa will be the largest global population hubs in the future. But they may not become the most prosperous economies. This is particularly true for African countries. While a resource-rich and relatively industrial African economy like Nigeria may grow and develop to become a major regional economy, other African economies experiencing high population growth, particularly the sub-Saharan economies, may remain economically backward. Even Nigeria, despite its economic potential, could find it difficult to expand its economy to a size that can generate enough livelihoods for its fast-growing population.

The problem of the demographic phenomenon of rapid population growth in high-fertility countries not being accompanied by the economic phenomenon of sustained high growth for creating jobs and generating employment is not a concern only for Africa. It also applies to populous Asian economies like India, Indonesia and Pakistan. The new population projections, while confirming the possibility of these countries enjoying demographic dividends over the next few decades, also draw attention to the economic imbalances that these demographic changes could produce.

At this point in time, it is inconceivable that underdeveloped African economies projected to have high population growths would be able to raise their economic growth to sufficiently high levels by exploiting their comparative advantages in exporting a few natural resources. Unless equipped with good infrastructure and modern industries, they can hardly expect to achieve sustainable high growth.

But developing infrastructure and modern industries requires large investments. So high-fertility resource-rich African countries like Nigeria and Ethiopia would look forward to other countries for these investments. Much of these are expected to flow from large developing countries, in which resource-intensive industries aim to be connected to natural resource supplies in Africa through forward and backward linkages. China, India and Brazil are the obvious sources of such investments. They are already investing heavily in Africa and are expected to invest more in the future.

For a populous country like India, investing in Africa means creating new jobs for its own people. New industrial projects in African countries, which have limited technical expertise, can enable skilled Indian technical professionals to move to skilled professions in these projects. At the same time, these projects will also create low-skill local jobs making them “win-win” outcomes for both sides.

The favorable outcomes apply to investments from other large developing countries like China, Brazil, Indonesia and Mexico as well. All these countries would benefit from the demographic dynamics by investing in Africa, because their investments would generate income and employment for both sides.

Countries like India and Indonesia need to take particular note of investment opportunities in Africa, because despite having a lower fertility rate, they will still have positive population growth for a long time and will thus have young workers. China and Brazil, in contrast, are already experiencing falling fertility rates, aging populations and older workforces. India and Indonesia – more than China and Brazil – will need to create adequate jobs for the increasing number of entrants to their job markets, for which they have to invest in other economies and markets. African countries seem to be the best choice for them, because in that case the changing global demographics can also produce more active South-South cooperation.

This article first appeared in the China Daily

About author
Dr Amitendu Palit is Head (Partnerships & Programmes) and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore. Dr Palit worked in India’s Ministry of Finance for a decade and handled India’s external sector, industrial and infrastructure policies. ...more