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Published: October 31, 2011

 
 

Demographics Are Not Destiny

Today, these countries have a large working-age population. By and large, they are youthful countries with relatively high fertility, so youth dependency is high but the number of dependent aging people is low. Generally, Southeast Asian countries have reaped more prosperity gains from their workers than African nations, thanks to better education systems and the reform of their business environment to encourage private enterprise. Most African nations are still struggling to put their youth to work and capitalize on their demographic dividend.

The arc of growth analysis predicts that by 2020, several nascent countries will be transitioning into momentum countries. These fast-paced countries are struggling to provide the infrastructure and services needed to support increased urbanization, offer opportunities for a rapidly growing working-age population, and prevent the emigration of their talent.

India is a prime example of a nascent country on its way up. Thanks to its huge working-age population, it is in the midst of a transition to high economic growth and a potentially high demographic dividend. But managing that growth poses important policy challenges. By 2050, India will have more than 1 billion working-age people. If the government sets a target unemployment rate of 5 percent and counts on a 67 percent labor participation rate, that means the country needs to create about 7 million jobs per year. To pull that off, the government would probably have to boost economic competitiveness by supporting key sectors and promoting increased labor productivity through innovation. Failure to accomplish this would pose major risks; if the unemployment rate in India rose to 15 percent, 110 million people would be unemployed.

That is why India’s development level is not optimal at this stage of the game. The answer for India, and for all other nascent countries, lies first in creating the education systems that young people need — improving the quality of basic education and providing better access to college and university training, so skilled graduates are available to replenish the workforce as the aging population retires. Nascent countries also need to invest in providing basic healthcare and access to family planning programs. Although family planning will lower the birthrate, propelling the country more quickly into aging, it will also allow families to invest more in each child, which boosts productivity and prosperity.

Economic policies should support balanced regional development, controlled internal migration, and a sound physical infrastructure for urban development — namely, roads, utilities, and telecommunications. Environmental policies should guarantee food security and water access. Finally, the government of a nascent country should start now to build the financial resources that it will need 30 years from now to meet the liabilities of an enormous aging population. This means not simply creating wealth but putting in place the mechanisms that will sustain it — including robust insurance and banking industries, as well as public and private pension plans that allow people to save for their own future. At the same time, it means avoiding unsustainable policies that will create deficits, such as overly rapid or unnecessary expansion of the military.

Momentum Countries

Of our 131 sample countries, there are 33 countries in the momentum group. The full group of all momentum countries in the world has a total population of 2.6 billion, making up 41 percent of the global population. Most of these countries are in Latin America and East Asia. They have had a recent period of high birthrates and have a young working-age population that is large relative to the dependent population. This generation of workers could propel significant growth if the proper policies are in place.

So far, the East Asian momentum countries have enjoyed stronger economic growth than their Latin American counterparts. They’ve accomplished this success through a combination of regulatory and judicial reform that has created transparency, stamped out corruption, and generally improved the business environment, encouraging investment.

 
 
 
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Resources

  1. DeAnne Aguirre, Laird Post, and Sylvia Ann Hewlett, “The Talent Innovation Imperative,” s+b, Autumn 2009: In light of today’s changing workforce, rethink the way you manage people.
  2. David E. Bloom and David Canning, “Booms, Busts, and Echoes,” Finance and Development, vol. 43, no. 3 (September 2006): Analysis of current population trends, featuring the demographic dividend concept.
  3. Alonso Martinez and Ronald Haddock, “The Flatbread Factor, ” s+b, Spring 2007: To understand the life cycle of an emerging market, learn to decode its consumer products.
  4. C.K. Prahalad and Hrishi Bhattacharyya, “How to Be a Truly Global Company,” s+b, Autumn 2011: Three strategies — customization, competencies, and arbitrage — for a business model relevant to emerging economies.
  5. Edward Tse, The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010): A guide to the country’s changing markets, increased competition, shifting government priorities, and relationship with the outside world.
  6. Edward Tse, Bill Russo, and Ronald Haddock, “Competing for the Global Middle Class,” s+b, Autumn 2011: How three types of companies are jockeying to capture the loyalty of billions of new consumers.
  7. For more on this topic, see the s+b website at: www.strategy-business.com/global_perspective.
 
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