From African Business
Of the 10 countries that have the world’s fastest birth rates, nine of them are in Africa – and most of those are in sub-Saharan Africa. Over the next few decades, the continent will be the world’s biggest source of young people. And what does that mean for Africa? It could mean a massive boost to the sub-Saharan economy, as young populations are usually associated with faster growth. Or could it mean an equally massive disappointment, as millions of young people wanting education and jobs come up against poverty and disappointment – and make their feelings known in a wave of unrest?
By Richard Walker
Why did the economies of Asia boom for most of the last quarter of a century? Why did the southern European economies boom in the 1950s and 1960s? Why did Latin America boom in the early years of the last century? Of course there are many reasons for these periods of very rapid economic growth, booms that transformed rather simple and undeveloped economies into modern and complex ones, with all the skills and infrastructure needed to support such economies. But the simplest explanation is one of the most persuasive. These economies had more young people than old people – and where there are young people there is often rapid economic growth.
In countries that are relatively poor, people usually have a lot of children. In relative poverty, children are an economic resource – a source of wages, and an insurance policy against old age. Mortality rates are higher in poor countries, so more people die in childhood – the hard fact is that one reason why adults produce more children is because they expect to lose some. But in countries that are relatively rich, people have fewer children. Instead of being seen as an economic resource, children become an economic burden. The children of the rich require expensive education, and the expensive healthcare that makes it less likely that those children will die, and all the goods and services that rich and comfortable children demand.
Tell Me About The Future
So the demographic pattern is for there to be more young people than old people in poorer countries, and the other way around in richer countries. But this very pattern contains the seeds of change – because large numbers of young people in an economy are also associated with economic growth, and increasing wealth. Even though the very poorest countries have high mortality rates, as healthcare gradually improves people begin to live longer, and the economy becomes more productive with large numbers of young people working for relatively low wages, while the small numbers of old people in the economy require less financial support than would be the case in rich countries. This is the growth moment, when economies emerge from poverty and suddenly become very attractive places to set up businesses simply because of their human resources.
This is what has happened to India and to China in recent decades. And this is what is happening now in Africa. The pattern can be seen clearly in Africa’s demographic ‘dependency ratios’ – that is, the number of young productive workers in the economy compared to the number of older unproductive people who need to be supported by those of working age.
In fact, Africa is the only continent that will see its working age population grow during the next thirty years. The number of 15-24 year olds will continue to rise at least until 2040, and there will be up to 15 working age people for every pensioner in sub-Saharan Africa as late as 2030. Even by 2050 there will still be 10 working age people for every pensioner by 2050.
These dependency ratios are much more favourable for growth than the ratios in advanced economies, where an ever-smaller working age population has to support an ever-growing pensioner population. The worst-case scenario in dependency is Japan, where already there are less than three working age people to support every pensioner of 65 or older, and where by 2020 there will be fewer than two workers to support each pensioner. And even in fast growing China, a problem of old-age dependency is beginning to emerge. The ratio of workers to pensioners in China will have fallen from eight-to-one in 2010 to five-to-one in 2020.
Most of the rest of the world is beginning to follow where Japan has led, towards an economy dominated by relatively unproductive old people. According to Renaissance Capital, an investment bank, the number of 15 to 24 year-olds is expected to be constant between 2010 and 2020 in North America but in Western Europe that younger age group will decline by 6%, and Latin America and the Caribbean will see only marginal growth of 2% before declining over the next 30 years. Eastern Europe is expected to see a dramatic 32% fall in the absolute number of 15 to 24 year-olds, and among the non-African emerging economies only South Asia will see some growth in the younger age group, with a 6% rise in 15 to 24 year-olds.
Africa is quite different – it is the only part of the world expected to see rapid growth in the working age population. Most of the growth will be in sub-Saharan Africa, where the cohort of 15 to 24 year-olds will rise by 15-20% every decade from now until 2040. There is one exception, and that is South Africa. Richer than any other economy in the region, South Africa’s demographic profile is closer to that of India, but even South Africa will still have more than five workers for every pensioner by 2050, a far more favourable ratio than in Western Europe or Japan.
In other words, on demographic figures alone, Africa is set for growth for the next 40 years. But is that growth assured? A lot will depend on how the economies of sub-Saharan Africa handle the challenge of rising expectations among their young populations. The challenge will be to meet the costs associated with those expectations, costs that will probably have to be met some time before the economic benefits of higher growth are fully felt. That means that Africa will have to find some way to bridge the gap between expectation and performance – effectively, Africa’s economies will have to borrow from the future, or risk disappointment and unrest.
A recent report from the Legatum Institute, a think-tank based in London and Washington, has pointed up some of these challenges. Legatum produces a regular ‘prosperity index’ that rates countries not only on how wealthy they are, but also on measures on how satisfied citizens are with that wealth, using indicators based on opportunity, governance, education, health, safety & security, personal freedom and social capital. The index adds together quantitative data on things like income, health, education and crime, and adds to them subjective data on how people see their lives and their futures, through the answers to questions about confidence in the judicial system and elections, expectations as to whether life is getting better or worse, and whether people are happy, confident, or worried. The results give a picture not only of where a society and an economy is today, but also about where its citizens think it is going. As with all such rankings the results depend on how the different results are weighted – but unusually, the Legatum report allows readers to change the weightings if they wish to do so (anyone can do this on the Prosperity Report website at www.prosperity.com).
A recent special Prosperity Report on Africa addresses the question of which African nations will be best placed to handle the growing prosperity expectations of a demographically young Africa. The report concludes that most African economies will profit from the ‘demographic dividend’ – but that some are at risk of failing to deliver the growth that a young population is certain to demand.
The biggest challenge that African economies will face in the near future is simply creating enough jobs to keep young populations in work. Unemployment has been a long term-challenge for sub-Saharan Africa – according to the International Institute for Labour Studies the region has a long-term unemployment rate of 35%, very much higher than unemployment rates in developed economies. As more young people enter the job market, in many cases with higher educational attainments and higher expectations than would have been the case in the past, it seems likely that such high unemployment rates will not be sustainable. If jobs are not created to bring unemployment levels down closer to the 10% or less enjoyed by developed economies, the likely result will be unrest on the streets: as the Prosperity Report points out, if governments cannot deliver very high annual GDP growth, then as working age populations grow unemployment will also start to grow from its already high levels.
The other great challenge will be to continue to deliver the kinds of improvements in healthcare and life-expectancy that have already been achieved over the last twenty years.
The revolution in healthcare is one of the untold stories of modern Africa. According to Renaissance Capital, all but four countries in Africa recorded improvements in infant mortality in the five years to 2010. Ten countries improved more than 5%, and Senegal and Rwanda improved by almost 10%. Maternal mortality has dropped sharply, and life expectancy (which was reduced by the HIV and AIDS epidemic) bottomed shortly after the year 2000 and is now in strong recovery in all but a handful of countries in the region. Much of this is due to better access to clean water. For example, where only 30% of rural Nigerians had access to adequate clean water supplies in 1990, today that figure is 43%, and rising.
This helps to explain why African countries are seeing a continued increase in the number of young people in the population even when birth rates are already falling (as they usually do as populations start to become richer). Legatum’s Prosperity Report points out that the UN Population Division forecasts that by 2030, Africa’s overall fertility rate will have halved from its 1990 level of six births per woman to three births, and that by 2050 it will have fallen below 2.5. Eventually population growth will plateau and then finally start to decline some time after 2050 – but the improvements in healthcare and sanitation already achieved mean that a much larger proportion of the children born in Africa will survive to become demanding citizens who want to see even better health and wealth levels for their own children. And the challenge for governments is that the next stage of healthcare development is likely to be a lot more expensive than the previous stage: Africa’s coming generation will demand hospitals and high technology treatments where today there are often only basic rural clinics.
Africa’s growth in populations and improvements in the quality of life have set the stage for much faster economic growth in the near future. But some fear that expectations of improvement could outstrip ability to deliver that improvement. The Legatum Prosperity Report argues that this could lead to the emergence of ‘Two Africas’. In the upbeat version of Africa a combination of youth, education and better infrastructure all combine to attract new investment and new technology, and end up creating much greater wealth quite quickly. But there is also a downbeat version of Africa, which is pretty much the opposite. In this unhappy Africa the challenges of finding jobs for young and growing populations, and of funding roads and airports, and hospitals and universities, all proves too much of a challenge for governments that are still much poorer than the rest of the world. In downbeat Africa the huge numbers of young people who should be building the economy end up burning it down.
As it happens, the Prosperity Report shows that the majority of citizens of sub-Saharan countries already feel that their governments are not doing enough to reduce poverty, and only 35% of people in the region think that now is a good time to find a job – an important measure of whether people believe their lives are getting better. Governments will be hard pressed to convince such dissatisfied populations – especially in those countries with the largest proportions of young people (and in Ethiopia, Kenya, Liberia, Nigeria and Uganda more than two-thirds of the population is under 30).
What will be the relative performance of African countries in the face of rising expectations of wealth and well-being? Will the growing numbers of young work-hungry Africans prove to be a demographic opportunity, or a demographic time-bomb? The rankings of the 38 African countries included in the Legatum Africa Prosperity Report give some indication of how individual economies are placed to meet the challenges.
In these rankings the prosperity of today is an important guide to the ability of a country to cope with high expectations among young people, because they include scores based on people’s expectations of future wealth and their views on how effectively governments are responding to the demand for better governance, more opportunity, improved education and healthcare, and improved overall quality of life.
According to the report, Botswana is rated the most prosperous country of all in Africa, and Chad the least prosperous. In the top ten most prosperous countries in all of Africa there are seven sub-Saharan entrants – along with Botswana they are South Africa, Namibia, Ghana, Senegal, Rwanda and Zambia. They do not score well on every category, but on entrepreneurship & opportunity, education, health, and governance they are mostly in the top ten or close to it (the one exception is Zambia’s rather poor position in the health league). And at the bottom of the rankings, by far the worst performers are three central African neighbours, the Democratic Republic of Congo, the Central African Republic, and Chad.
Health, education and economic opportunity are the very areas that are likely to determine whether a country is part of the upbeat story of Africa, or part of the downbeat version. Health, education and opportunity are what young and ambitious populations are likely to demand, and the countries that can meet those demands are likely to be the countries that make the best use of their youthful populations. The countries that cannot or will not offer these opportunities are also the countries that are likely to find that a young demographic can also be a threat to stability. And unless those countries grasp the need for change, and find the means of achieving it, their future is very bleak – even as the rest of Africa just gets richer and happier.
First published here.