Emerging Demographic Trends: Eight Factors To Consider


One of the major factors determining the long-term economic and geopolitical prospects of emerging markets (EM) - and developed states, for that matter - is demographics. Most EM nations are experiencing rapid population growth, resulting in youthful overall populations, while most wealthy countries are seeing minimal population expansions, with a rising proportion aged 65 or over. In addition, several developed states are already experiencing shrinking populations, as total fertility rates fall below 2.1 children per woman (the minimum rate necessary to keep the population stable). However, it is too simplistic to say that countries with rapidly growing populations will reap the biggest rewards while others will not. Below, we outline eight demographic factors to consider.

Emerging markets are ageing rapidly: Although most observers correctly associate EMs with rapidly growing and youthful populations, this masks the likelihood that several major emerging economies will see their populations peak by the mid-21 st century. At the same time, they are also ageing rapidly. According to forecasts from the UN World Population Prospects 2010 Revision database, China's population will peak at 1.395bn in 2025, and the proportion of Chinese aged 65 and above will treble from 8.2% in 2010 to 25.6% by 2050. Meanwhile, Brazil's population will peak at 224.4mn in 2040, and the proportion of Brazilians aged 65 and above will treble from 7.0% in 2010 to 22.5% by 2050. Other EMs experiencing similar population dynamics include Chile, Mexico, Iran, Turkey, South Korea, Thailand, and Vietnam. In other words, by mid-century, many EMs will virtually have caught up with developed states in terms of percentage of people aged 65 and above.

The Ageing Of Nations
Population Aged 65 And Above (%)

This raises serious questions about their long-term economic growth prospects. The ageing of populations generally leads to a reduction in the size of labour force, higher expenditures on health and welfare, and the erosion of savings. These circumstances also imply higher tax burdens, as governments need to finance pensions and healthcare. Arguably, one of the major reasons for Japan's economic underperformance since 1990 was the rapid ageing of its population, with the proportion of those aged 65 and above rising from 11.9% in 1990 to 22.7% in 2010. In addition, Japan's population has been shrinking since the mid-2000s.

The Future Is Grey
Japan - Population Characteristics

Nevertheless, by the time Japan's working age population (those aged 15-64) peaked in 1990, Japan was already a tremendously wealthy country, meaning that it could afford to finance an ageing society. However, it is doubtful whether many EMs can accumulate Japanese levels of wealth by the time their working age populations peak or while their populations age. Thus, many EMs are at risk of 'growing old before they get rich'. This could leave them at greater risk of getting caught in the 'middle income trap'.

Countries with expanding, youthful populations are not guaranteed success: Large, expanding and youthful populations like India's are considered positive for economic growth, but this must be accompanied by job creation and socioeconomic opportunities. Otherwise, the demographic youth bulge will end up unemployed or underemployed, thus becoming a source of social and political instability, and a drag on fiscal expenses. The 'Arab Spring' of 2011 was arguably a result of widespread anger among fast growing youthful populations, which perceived themselves to be denied opportunities for economic and social advancement and political representation. While the long-term impact of the Arab Spring should be positive, if it leads to improved governance and economic management, the democratic transition will probably take at least five to ten years and is not guaranteed to be successful.

The Young And The Restless
Egypt - Population By Age Group ('000s)

More broadly, it is reasonable to assume that a large pool of unemployed or underemployed people provides potential recruits for gangs, criminal organisations, extremist movements, militias, or radical Islamist groups. All of these undermine an economy's security and could impede development.

Another problem with large, youthful populations is that this combination leads to abundant labour and lower wages. Although this is theoretically advantageous, it could also mean that there is less incentive for technological change through industrialisation and automation. The historian Fernand Braudel cites China's large population as a reason why it failed to industrialise early vis-à-vis Europe in the late second millennium. Some countries, such as the Philippines, have effectively exported their surplus labour abroad, and overseas Filipino workers (OFWs) are equivalent to 10% of the country's population. Positively, the remittances they send home are a major source of income. However, this leaves the Philippine economy over-dependent on remittances.

Immigration will rise up the political agenda: The countries farthest along the path of ageing include Japan, Italy, Germany, and several Central and Eastern European (CEE) states. How they adapt to population ageing and contraction will be closely watched by countries with slightly more favourable demographic profiles. Realistically, the most obvious way in which the most aged nations can offset the associated economic problems is by encouraging immigration to top up the workforce and population. However, this is much easier said than done. For example, although there have been calls from Japanese political leaders to boost immigration, there is widespread resistance to this among society. Matters are complicated by Japan's ethnic homogeneity and perceived cultural uniqueness (for example, the language barrier), and the fact that the weakness of the Japanese economy has reduced demand for additional workers. Thus, Japan has the lowest proportion of foreign-born residents (around 1.6%) among major developed countries. Many CEE states are also very homogenous, implying that substantial immigration would not necessarily be welcomed.

Japan Has Much Catching Up To Do
Foreign Born Populations (% Of Total)

Going forward, we expect to see a growing debate between politicians of pragmatic, economy-oriented leanings, and politicians of culturally conservative, nationalist ideologies on the opportunities and risks of mass immigration in countries such as Japan, Italy, the CEE states, etc. This debate has already been a hot topic in Britain, France, Germany, the Netherlands, and Scandinavian countries (which have significant immigrant communities), and could result in far-right parties manoeuvring themselves further into the limelight. European countries will be worth watching especially closely, given their weak economic positions and the risks of a eurozone collapse, which would embolden extremist political forces.

South-South migration could add to EM governance challenges: Although much of the immigration discourse centres on South-North migration - i.e. people moving from developing countries to developed ones - various estimates suggest that around 40% of global migration takes place between emerging markets. Examples include Bolivians working in Brazil, Zimbabweans in South Africa, and Indonesians in Malaysia. For logistical reasons, it certainly makes sense for those moving abroad for work to travel to nearby countries, especially if they are hired on short-term contracts. Yet, given that the host nation will often have difficulties providing jobs, housing, and welfare for its own citizens, South-South migration will pose additional challenges for EMs.

Urbanisation is significant, but somewhat exaggerated: Urbanisation is undoubtedly a major mega-trend in emerging markets, with hundreds of millions of people moving from the countryside to towns and cities in search of economic opportunities. The UN forecasts that urban populations will treble to 1.26bn in Africa between 2010 and 2050, and almost double to 3.31bn in Asia over the same time period. In absolute terms, Africa's and Asia's urban populations will increase by 864mn and 1.46bn, respectively. Even after this, Africa and Asia will still be far less urbanised than the Americas and Europe. Overall, the growth of cities will mean tremendous opportunities for housing and infrastructure construction, and the expansion of modern services. The big risk, of course, is that governments will fail to manage the process successfully, causing cities to effectively become vast slums. The problem is not so much the absolute size of the city. After all, the world's largest urban agglomeration, Tokyo-Yokohama, has 32mn people but still functions smoothly. Rather, the issue is one of resources and management.

Asia And Africa Are The Main Drivers
World Urban Populations (mn)

Nonetheless, urbanisation has been exaggerated somewhat by the fact that there is no standard definition of urban areas. The UN's World Population Division has been stating in recent years that for the first time in history, more people live in cities than in the countryside. However, if we define cities as settlements with at least 100,000 people (a reasonable threshold, in our view), then current UN figures show that only 33% of mankind lives in cities. The proportion will rise to 37% by 2025. Urbanisation is still highly significant, but perhaps not quite as dramatic as headline figures suggest. What is undoubtedly true, though, is that the world's megacities will increasingly be found in emerging markets.

Demographic-induced 'character change' could pose risks: Aside from economic concerns such as the belief that immigrants divert jobs and benefits away from the native population, immigrants are also considered problematic for many societies because they threaten to transform the character of the nation. The key to mitigating such negative sentiment is through successful integration. For example, Canada's immigrant population stands at 19% of the total and the country experiences very little social disharmony. However, not all countries can emulate Canada's success.

For better or for worse (from the point of view of locals), immigration will transform the character of entire regions within countries, if not the countries themselves. For example, in the US, the south-western states are becoming increasingly 'Hispanicised' as a result of immigration from Mexico and other Latin American states. Although this has not attracted significant alarm, it is not without controversy. In general, the growth of the Hispanic population (admittedly a broad term) within the US has served as a driver of the American economy, effectively constituting an emerging market within a developed state. One potential geopolitical consequence of the increasing proportion of Hispanics and Asians in the US is that Washington will increasingly shift its foreign policy priorities towards Latin America and Asia, and away from Europe.

The Changing Face Of America
US Hispanic Population (% Of Total)

Elsewhere, it is unclear how demography-induced character change could affect Russia, for example. Russia's population is shrinking, as ethnic Russians suffer from low birth rates and very high death rates. By contrast, Russia's Muslim ethnic minorities are still growing, meaning that they will constitute a rising proportion of the Russian Federation's population. (The Pew Forum on Religion and Public Life forecasts an increase from 11.7% in 2010 to 14.4% by 2030.) Given that Russia has already fought two intense wars in the Muslim North Caucasus region to prevent secession, Russian nationalists fear that the country's orthodox Christian character could be diluted, and that Muslim-majority regions could eventually secede. Consequently, Russia has seen a rise in far-right groups. Similar demographic fears exist over Chinese immigration into Russia's Far Eastern region, which has seen a sharp population decline since the collapse of the USSR. Going forward, Russia's increasing sense of vulnerability could produce a more nationalist political discourse, thus straining relations with the West.

Arguably, the biggest risks of instability will be in areas where immigration or demographic change upsets a finely balanced equilibrium between two communities. One example is Macedonia, whose Muslim population is forecast to rise from 35% in 2010 to 40% by 2030, according to Pew. Another example is Nigeria, where Muslims are forecast to slightly outnumber Christians by 2030. Nigeria is already seeing high levels of religious violence in the central regions.

Gender imbalanced populations: A further population phenomenon worth watching is gender-skewed populations, especially populations where males outnumber females. In most countries, females slightly outnumber males, mainly due to longer female life expectancy. However, gender imbalances can vary across age groups. In several Asian countries, a preference for male babies (especially in China, where there has been a single-child policy) has resulted in significantly more males being born for every female born. This means that the next generation of males will have trouble finding wives. This is considered destabilising for societies, because crimes tend to be committed by young males, who may have less of a stake in society if they are unmarried or without jobs. In a country as populous as China, the government's fear is that a demographic bulge of tens of millions of 'surplus' males aged between 18-30 could be marginalised and driven to crime or political radicalism. This in turn may force the government to take an increasingly authoritarian stance (on the grounds of preserving social stability), which in turn would delay political liberalisation. Parts of India, too, are experiencing a similar gender imbalance.

Too Many Males In Some Places
Countries* With Highest And Lowest Sex Ratios (under 15s)

There is no quick fix for this social phenomenon. China and India could conceivably offer incentives for women from nearby countries to move to their own territories, but this would exacerbate gender imbalances in countries whose women migrated to China and India (although that would not be Beijing's and New Delhi's problem). The two Asian giants could also look further afield, by encouraging their surplus males to move abroad, potentially to South American or sub-Saharan African countries where the sex ratio is skewed in favour of females in the younger age bracket. In recent years there have been reports of Chinese moving to Latin America and Africa in search of economic opportunities, although it is not clear if this is a manifestation of the 'surplus male' problem.

Global power considerations: Absolute population size matters for the purpose of global power calculations. A country's total population will determine the number of people that can be mobilised for economic activities or the armed forces. Thus, although the Soviet Union was much poorer than Western countries in terms of GDP per capita, its vast population gave it the manpower to build the world's second-largest economy (until it was overtaken by Japan in the early 1980s) and a vast military-industrial complex. Similarly, although China's GDP per capita is far lower than developed states, the country's sheer population size gives it a vast economy that is now the second-largest in the world and an industrial complex that consumes much of the world's commodities.

Overall, countries with aging and shrinking populations are at risk of losing global influence for three main reasons. Firstly, a greying population will require more government funds to be channelled towards social security rather than investment or the military. Secondly, an older population may well become more risk averse, with the public less keen to risk the lives of their young (especially if they are sole offspring) in foreign battlegrounds. Thirdly, the declining number of young people means that armed forces may find it harder to meet their recruitment targets. Militaries would thus have to lower their standards of entry, potentially undermining their effectiveness.

Current global demographic trends augur well for the United States retaining its position as the world's most powerful actor. Although the US population is ageing, immigration will keep its population younger than that of potential rivals such as China and Russia as the 21 st century progresses. However, in the next decade or two, there is still a slight risk of Sino-American conflict, especially if China seeks to maximise its global influence while its population is still young, and the US moves to prevent this.

A Power Shift In Europe
Population (mn)

Going forward, it is also worth paying attention to changes of countries' population rankings for clues as to how power may shift. At present, Germany is by far Europe's most populous country and biggest economy. However, according to the UN, by 2050 the populations of Britain and France will be almost as big as Germany's, implying that their economies may also be of comparable size to Germany's. This means that Germany would no longer be the 'natural' leader of Europe.

Wild Cards To Consider

There are a couple of wild cards to consider, too. Firstly, technological breakthroughs, particularly in the field of robotics, artificial intelligence, or human life extension, could provide mature economies with a hitherto unforeseen economic advantage - provided that they develop and implement those technologies first. Secondly, environmental change could accelerate global migration patterns, potentially smoothing out existing demographic imbalances in both developed states and emerging markets.

This article is tagged to:
Sector: Country Risk, Pharmaceuticals & Healthcare
Geography: Global