Asia in danger of growing old before it becomes rich

No one may yet be advocating it, but two recent reports from the IMF suggest one possible solution to many of the emerging world’s economic woes — mass migration from Africa to Asia.

The fund’s latest Asia Pacific regional economic outlook, released this month, warned that the continent was in danger of growing old before it becomes rich because of plunging birth rates. This threatens to leave it in far worse shape than the developed world, which at least became wealthy before the wrinkles set in.

In sharp contrast, a study of Africa, released in April, concluded that a key reason why the continent has been unable to copy Asia’s rise out of poverty is its “sluggish pace of demographic transition,” ie that its birth rate remains far too high.

In theory, one simple solution that would help alleviate both problems would be a large-scale shift of younger people eastward, even if the complexities and difficulties associated with such an endeavour make it virtually impossible to envisage.

Fears over the impact of rapid ageing in Asia, particularly its eastern extremes, are not new.

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A year ago Bank of America Merrill Lynch estimated that 80 per cent of the world’s elderly will live in emerging markets, primarily in Asia, by 2050. The developing world is not just following the path trodden by the developed one, it is doing so at a dramatically faster pace, as the first chart shows.

In February of this year, projections by Standard Chartered suggested that, by 2050, the likes of South Korea, Singapore, Thailand and China would have a higher share of pensioners in their population than most developed countries, depicted in the second chart.

The latest analysis by the IMF points to the likelihood that Asian countries will be far poorer than developed ones when their working-age populations peak as a share of the total population. Indeed, in some countries such as China, Thailand, Vietnam and South Korea, this is not a prediction: it has already happened.

According to the Fund’s calculations, when the share of their working-age populations peaked, Australia, Japan, Germany, Italy, Canada, France and the UK all had per capita income of at least 70 per cent of the level the US had at the same point, measured in terms of purchasing power parity. These peaks were reached between 1950 and 2009.

China’s working-age population peaked 2011 but its per capita income was just 20.7 per cent of the US level. Thailand was a little wealthier, at 28.9 per cent, when its working-age share peaked in 2013, but Vietnam was far poorer still, at 10.4 per cent of the US level, when it reached the same point a year later.

Malaysia, Indonesia, India and the Philippines are projected to be somewhat better off when they reach peak working-age share, probably between 2020 and 2056, but still some way below the income levels reached in the west, as the third chart shows.

“In past decades, Asia has benefited significantly from demographic trends. Many parts of Asia, particularly East Asia, reaped a ‘demographic dividend’ as the number of workers grew faster than the number of dependants, providing a strong tailwind for growth. This dividend is about to end for many Asian economies,” wrote Ranil Salgado, division chief of the IMF’s Asia and Pacific department.

“Adapting to ageing could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old.”

The IMF forecasts that population growth, already modestly negative in Japan, will fall to zero Asia-wide by 2050, as fertility rates, currently 1.98 children per woman, fall to 1.83 and rises in life expectancy slow, as indicated in the fourth chart.

“In a global context, Asia is shifting from being the biggest contributor to the global working-age population to subtracting hundreds of millions of people from it,” Mr Salgado added.

There are caveats here. The analysis is based on 13 Asia Pacific countries and excludes some with very high birth rates such as Afghanistan, Pakistan, Cambodia and Laos, as well as the Middle East which, at one point at least, was considered part of Asia. Moreover, forecasts for global population growth have tended to be revised upwards, rather than downwards, in recent years.

Nevertheless, the IMF is convinced these demographic developments will lead to lower economic growth for most of the countries it has studied.

Between 2020 and 2050 it forecasts that, in the absence of migration, growth in gross domestic product per capita in Hong Kong will be reduced by 1.2 percentage points a year by demographics. It sees comparable reductions of 0.69 percentage points in South Korea, 0.65 points in Singapore, 0.64 points in China. 0.51 in Japan and 0.41 in Thailand, as the fifth chart shows.

The IMF argues that migration can soften these shortfalls, however. Factoring in UN forecasts for future migration, it calculates that the reduction in GDP growth per capita falls to 0.94 percentage points in Hong Kong and 0.55 points in Singapore, with smaller reductions elsewhere (but a small increase in China, which is expected to be a net exporter of people).

In the unlikely event that East Asian countries were to choose to pep up their growth rates by opening their doors to mass migration, a different team at the IMF may be able to suggest just where to look.

The Fund’s Africa department fears that the continent will struggle to follow the development path blazed by Asia because its birth rate remains far too high.

In the document, Structural Transformation in Employment and Productivity: What Can Africa Hope For?, the fund concludes that “sub-Saharan Africa will not be able to transform through manufacturing as East Asia did over the past two decades”.

The analysis says that when Asia’s manufacturing boom took off, drawing workers to highly productive industries, “the share of employment in the lowest-productivity sectors [primarily agriculture] declined rapidly because of low labour force growth”.

However, the picture is somewhat different in Africa. While East Asia’s labour force grew by 1.2 per cent a year between 2000 and 2010, and that of South Asia by 1.7 per cent, in sub-Saharan Africa it rose by 2.6 per cent a year.

With a median age of 18 in SSA, seven years younger than in South Asia, the next youngest region, “the number of youths entering Africa’s working-age population will be rising for years to come”, the IMF says, with the labour force expected to swell by 200m between 2005 and 2020.

The fund says that this lack of demographic transition means that even if the continent was to see a boom in private sector growth as rapid and labour intensive as that of East Asia over the past 20 years, “a similar employment transition could not occur”, as the number of people engaged in areas such as subsistence agriculture would be unlikely to fall.

“Enterprises would not be able to absorb the same share of the labour force because the labour force would be too big,” it gloomily concludes.

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