With the world
population having reached approximately seven billion, and continuing to grow
about 79 million people each year, most
of the growth in the recent years almost exclusively have been taking place in
the less developed countries, which include the least developed, in Africa and
Asia.[1] Out of the 48 least developed countries in
the world, 33 of them are located in sub-Saharan Africa. According to UN estimates, by the year 2050,
the number of people in sub-Saharan Africa may double and by the end of the
century it may quadruple.[2] The estimates project population in sub-Saharan
Africa to peak at around 1.6 billion, accounting for about 19% of the world
population, in 2030 (see figures 1 & 2).[3]
That projection puts sub-Saharan Africa way below Asia at 58% of the world
population in 2030, but definitely higher than South America at 8% and rest of
the world (see Figure 1 & Figure 2).[4]
With the increasing presence of African population in the world
demographic scene, Africa can potentially provide, investors world-wide,
opportunities in the years to come to partake in its economic growth, if and
when it takes off, and that growth shall derive its strength, at least to begin
with, from its human capital progress.
In the rest of
this chapter, we’ll discuss in detail principles, analysis and the thesis that
could be used by investment professionals – money managers, investment bankers,
financial analysts and others – to dissect the demographic trends in Africa to
arrive at a narrative– a narrative that will tell us what nations/regions in
Africa have the potential, or not, to be the next generation of BRICs, the
group of nations that have captivated investors around the world in the last two decades with a feel-good
growth story, or to be the next East Asian growth miracle that peppered the few
decades since World War II. Of course, there are those factors apart from
demographics that need to be taken in to consideration before investment
decisions are made, and those factors would be covered in detail in the
remaining chapters of the book.
Population vs. Development Relationship
In the recent
decades, discerning the relationship between population change and economic
growth has become essential to explain the miraculous growth episode seen in
East Asia from the 1950s to the early 1990s, and also that seen in Brazil, China
and India the last two decades. But, the
relationship has remained a subject of debate among economists and demographers
for centuries. Till the turn of the
century, the effects of population size and growth on economic development were
at the heart of that raging debate. However,
since the late eighties, age structure of the population has been thrown into
the mix because of its proficiency in explaining recent growth episodes in East
Asia. Age structure of the population is the distribution of the population
across various age groups (see Figure 3).
Prior to the
age structure model becoming part of the debate, the opinion amongst
demographers and economists were divided, and they were classified as Pessimistic
Theory, Optimistic Theory, or Neutralist Theory. The pessimists, who traced their roots back
to Thomas Malthus’s alarmist doctrines, held the opinion that population growth
impedes economic development due to excessive burden placed on fixed resources
and reductions in capital per worker and lower living standards. In the 18th
century, Malthus theorized that in a world with fixed resources and weak
technology progress would lead to insufficient food production leading to
famine and starvation deaths. Even though those prognostications failed to come
to pass, they remained very much in the debate till a few decades ago. However, during the last four decades or more
the world’s population has more than doubled and yet the average per capita
incomes have increased by more than two-thirds.[5]
This cognizance led to the decline of pessimists, giving way to the so-called
optimists. Optimists like economist Simon Kuznets and others while refuting the
ideas of the pessimists believed that population growth is an economic asset,
and it aids economic growth through increased stock of human innovation and
gains from economies of scale. Julian
Simon, an optimist, in his landmark book - The
Ultimate Resources - revealed that growing demands of rising population on
natural resources encourages technological progress resulting in the decline of
their prices for the long-term. The Optimistic Theory gives more importance to
technological progress and human capital progress than to physical and natural
capital. The theory, while propounding the positive effects of population
growth, also suggests that apart from population growth, there could have been
multiple external factors in play for the consequences of population growth.[6] To summarize, Optimistic Theory debunks the
Pessimistic Theory by asserting that population indeed adds pressure on fixed
resources, but people are so resourceful and resilient that they tend to
innovate under adversity.[7]
Econometric analyses from numerous
cross-country studies have revealed that when controlling for factors like
country size, openness to trade, educational attainment, and quality of civil
and political institutions, there is little evidence that population growth
impedes or promotes economic growth, thereby supporting a neutralist view.[8] In other words, after controlling for the
factors, the negative correlation between economic growth and population growth,
as outlined by the Pessimistic Theory, disappears. Neutralist Theory has been
the dominant view since the 1980s, and in line with that view, the policy
makers has accorded population size and growth a marginalized position in
national policy settings.[9]
There are wide-ranging opinions amongst neutralist school of thought.
While National Academy of Sciences (NAS)
concluded in 1986 that “… slower population growth would be beneficial to
economic development of most developing countries”, and whereas World Bank
economist William Easterly suggested in his book - The
Elusive Quest for Growth: Economists’ Adventures and Misadventures in the
Tropics - that in some countries bigger populations
can boost economic growth. Both
Neutralist and Optimistic Theories take a broad approach on the relationship
between population and development arguing that there is multitude of
population-related factors that can have both positive and negative impacts on
development.[10]
The three views
stated above had discounted the evolving age structure of a population, and
which, as stated earlier is arguably as important as population.
[1] Lilli
Sippel et al., Africa’s Demographic Challenges (Berlin: Berlin Institute for
Population Development, 2011), 6.
[2] Ibid.,
6.
[3] Ibid.,
6.
[4] Ibid.,
6.
[5] David E
Bloom David Canning and J. Sevilla, The Demographic Dividend: a New Perspective
on the Economic Consequences of Population Change (Santa Monica: Rand
Corporation, 2003), 15.
[6] Ibid., 16.
[7] M.
Kummu, M. Keskinen and O. Varis, Modern
Myths of the Mekong (Helsinki: Helsinki University of Technology, 2008), 108.
[8] David E
Bloom David Canning and J. Sevilla, The Demographic Dividend: a New Perspective
on the Economic Consequences of Population Change (Santa Monica: Rand
Corporation, 2003), 17.
[9] Ibid.,
18.
[10] Ibid.,
16.
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| Figure 1 |
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| Figure 2 |
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| Figure 3 |