The demographics of a population and its change over time can have dramatic effects on a nation. We saw that in 2011 as various Middle Eastern nations with a high concentration of unemployed youth threw away decades of dictatorship within a matter of weeks. If you are following the news now, you might know that maybe we would be able to say the same about Putin’s Russia in due time. Whether one looks at the population increase that aided the Industrial Revolution or the current plight of Japan with its shrinking and aging population, demographics play a vital role in how economies are shaped. In this post, we focus on the aging issue plaguing some BRIC nations.
Goldman Sachs (GS), where the word “BRIC” was coined, published a report this year about the effect of the aging population in BRIC countries on their economic growth prospects. While this topic isn’t particularly new, the report provides interesting forecasts, causes and likely effects of the current trends. A copy of the report can be found here.
The economic effects of an aging population are fairly obvious. In that, as the general population becomes older, it requires excess resources in terms of healthcare and pensions, while its ability to actively contribute to any economic growth diminishes over time. A younger, vibrant workforce is, thus, more desirable, especially in the case of BRIC countries which thrive on the competitive advantage provided by their labour class. I found this article a good read on the topic. In the following, I look at our BRIC nations to see where they stand:
As the report notes, the dual result of lower mortality rates from increased economic progress and high birth rates led to create a massive young Chinese workforce. This formed the backbone of China’s economic miracle and helped it become the “world’s factory” over the past 3 decades. This massive workforce, however, is expected to retire in the next 20-30 years and currently stands at a median age of 36 years. As far as economic theories go, this would mean that Chinese growth will become slower as the country spends to cater to its old and struggles to get abundant cheap labour for its factories. Will this actually come to pass is anyone’s guess. China is one country where socio-economic demographics can be bent to the will of the government, as the one-child policy proved 30 years ago. Indeed, the government was able to halt the growth in birth rates since 1979 when the policy was enacted. Recently, however, the policy is being loosened in certain areas of the country and two or more children are allowed in certain cities with permission.
While population growth is slowing in China, it is on a trajectory of growth in India. The country is expected to take over China as the most populous country in the world by 2021, as the GS report notes. Further, the demographic trends point to a favourable future for the country, i.e., India will have a much younger workforce than any of the BRIC countries. The median age in India currently stands at 25 years, lowest within BRIC countries and one of the lowest in the world. This subject is a topic in a recent book called “Imaging India” written by one of India’s most renowned entrepreneurs, Nandan Nilekani, co-founder of the Indian IT giant Infosys. While particularly biased towards India, he points to the population demographic as the reason why the future belongs to India and not China. However, to harness this potential, the country needs a good policy framework, which it undoubtedly lacks in the present. Poor education system, labour laws, healthcare and infrastructure coupled with rampant corruption stand in the way of any opportunity. Regardless, India stands to gain the most as one of the youngest countries in a world where Europe, North America and many of it’s eastern neighbours including Japan and China become considerably older.
To some extent I question the inclusion of Russia in the BRIC set of countries because of the socio-economic differences it possesses compared to other nations. Nowhere is that more apparent than when one looks at Russia’s population demographic – the Russian population is experiencing a steady and steep decline, the likes of which has baffled many. If you like graphs like I do, this website provides a good set to explain the problem. Russians are experiencing low birth rates, a decreasing life expectancy and a rapidly aging population. Russia also has the highest abortion rate in the world and a big alcoholism problem. As the GS report mentions, the country is nearing the end of its demographic boom and its population is expected to age rapidly over the next decade. With a median age of 38 years, Russians are the oldest amonst the BRIC nations. Moreover, by 2015, 20% of the population is expected to be over the age of 60! An important point to note, however, is that compared to other BRIC countries, Russia’s population demographic was never a direct instigator of economic growth. The boom in commodity prices (mostly oil) has been the chief driver of the country’s economic vehicle in the past and will continue to remain so for the foreseeable future given the demographic trends. As oil prices recede, Russia’s economic and demographic issues will garner more and more attention. Expect more social unrest and political uprisings. Protests to oust Putin have already started, economic threats might be forthcoming.
Brazil stands somewhere between India and China in the demographic spectrum. Similar to India, the Brazilian population is on an upward trend and is expected to reach 230 million by the year 2030 from 200 million currently. Brazilians are also considerably younger with a median age of 29 years. Similar to China, Brazil is in the midst of a demographic boom helping spur economic growth as duly noted in the Goldman Sach’s report. However, also similar to China, this population trend is expected to reverse over the following few decades as the population ages rapidly. The percentage of Brazilians over the age of 60 stood at about 11% of total population in 2009 and is expected to increase to 30% by 2050! Brazilians are aging, but not as fast as the Chinese. The culprit here is a lower birth rate due to urbanization and an increase in average life expectancy. Add to this the fact that Brazil has one of the most generous pension systems among BRIC countries, if not the world, and one can appreciate the economic burden facing the Brazilian government in the future.
What does all this mean?
Here are my views:
- India will have the biggest population and the youngest workforce of all BRIC countries in the not so distant future. As far as demographic trends go in supporting economic growth, I am long on India’s future.
- The social structure of Russia scares me. Everything from the alcoholism problem to the population issue paints a dreary picture. Looking at these factors in isolation, I hold a pessimistic view of Russia. Fortunately, there are loads of things going right for the country as some of the other posts have pointed out.
- China and Brazil conjure mixed feelings. I have faith in the Chinese planning cycle to turn things around so I wouldn’t be as short on its prospects as Mr. Nilekani was in his book. Brazil has around half a century left before it deals with this problem so my guess is as good as yours about what might happen.
What remains important to note is that as the population demographics change, so will be needs of the consumers. Everything from old age homes and pharmaceuticals for the old to things such as education and lifestyle goods for the youth will be needed in different quantities in different countries. Demographic trends create opportunities and threats alike, depending on what end of the spectrum you are. The question is – where will you stand once these opportunities come to pass?
Comments are always appreciated! Let us know your thoughts below.
About Vijay Kukreja
Vijay Kukreja hails from New Delhi, India but has lived and worked in many countries across the world. The beautiful city of Toronto in Canada is his current home. He has worked for large multinationals in North America, started businesses in Asia and is an active investor in BRIC countries and other frontier markets. Aside from writing amateur economic and investment blog posts, Vijay enjoys travelling and has an uncanny ability to get into all sorts of trouble worldwide. Beijing and Barcelona are his two favourite cities; the first for the food and the second for the architecture. He is interested in policy, trade and international geopolitics.