Africa’s demographic dividend narrative on trial

In a proceeding recently, my two colleagues and I left a case unsettled. In the trial, I accused Africa’s demographic dividend narrative to be a hype; on the defence side, my colleagues argued it was a reality. It is high time we now convened a jury.

By 2050, it is predicted that a quarter of the world’s population will be in Africa and beyond 2050; half of the world’s population growth will be on the continent.

The defence claims that this holds great economic benefits, because with a large population, Africa will have abundant human and intellectual capital, as well as a large market size. A big youthful population is a large consumer base and an opportunity for cheap labour that is a boon to manufacturing.

They point to the East Asian miracle as evidence that a demographic dividend is indeed positive for economic growth. China’s large population has been the engine for the impressive growth rate in the country.

A large consumer base has been a sweet spot that has garnered global attention and attracts investment into the china, the defense argues.

Although I agree that population growth can positively affect growth, I believe that a demographic dividend in Africa is a hype and should be found guilty as charged.

First, the term demographic dividend does not apply to Africa if we closely examine the definition. A demographic dividend occurs when the labour force grows rapidly than the population dependent on it.

During this phase, working age population increases while fertility rates significantly decreases. Resources are freed-up and family welfare improves, enabling savings, which in turn supports economic growth.

East Asian countries benefited from such a demographic dividend because falling fertility rates led to smaller families, which meant that families were able to afford high education spending per child, which improved labour force skills.

Countries like South Korea and China were able to take advantage of the shift in global manufacturing and centre their economic progress on export-focused manufacturing. 

In most Sub Saharan countries, however, fertility rates are still high and family sizes will continue to be big considering population growth forecasts. It is therefore likely that the increase in population will largely lead to a high number of unskilled workforce that should continue to fuel unemployment and strain public services.

For Africa to mimic the East Asian miracle and benefit from such demographic shift, job creation is crucial, but the continent has struggled on this front. For example, in the period of 2000 – 2007, there was a 2.6% annual growth of the working age population, which added 96 million working age people.

In the same period, only 63 million jobs were created leaving a significant gap. Each year, around 10 –12 million young people enter the job market in Africa; if job creation fails to keep up and remain at such a sluggish pace, this could spell disaster.

In the last decade, Africa’s GDP growth rates have averaged 4.6% while annual population growth has averaged 2.7%, which means that annual per capita income growth has been smaller than 2% while in China annual income growth rate has been around 7%.

The IMF predicts that in 12 countries comprising of 40% of Africa’s population, GDP growth in 2018 will be below population growth. If Africa maintains the same pace of progress, it will take more than 80 years from now, for the continent to obtain today’s advanced economy living standards.

Some argue that since Asian countries like China are transitioning to consumer-based economies, Africa will take the advantage of the manufacturing shift and become the next manufacturing hub, leading to rapid job creation and spurring export-oriented manufacturing.

It is, however, important to note that the current innovation and technology advances may pose a threat to this assumption. Automation, for example, promises to shake up the manufacturing industry.

As more and more repetitive work gets automated, physical jobs in manufacturing may be eroded and if technology continues to change the shape of manufacturing, Africa may miss this train.

However, it is not all doom and gloom and Africa can turn the surging population into an opportunity, by maintaining sound economic policies to maximise job creation in a diverse range of sectors as well as promoting programmes that reduce fertility rates.

Rwanda is a case in point. The country’s National Strategy for Transformation, a seven-year plan with the objective of developing appropriate strategies for radical economic transformation beyond poverty reduction and a ground work for Vision 2050 (the plan for Rwanda to be a high-income country in 2050) is a timely answer.

The strategy seeks to build a competitive private sector to lead economic growth, promote sustainable job creation, digital literacy and innovation among others. These plans will set Rwanda as a diversified economy able to handle various economic shocks.

If more and more African countries can mimic Rwanda’s impressive agenda, to strategically plan for the future ahead, then the continent may emerge a global powerhouse.

As for my case, I will leave it to the jury to deliberate. The Africa’s demographic dividend narrative should get us to think more about how we could collectively ensure that Africa benefits from the growing population rather than glowingly nodding to the rhythms of this term.

Celebrating may be too early, let us get to work instead!

 

The writer is an Economist, Monetary Policy and Research Department at the National Bank of Rwanda.

The views expressed in this article are of the author and do not necessarily represent those of The New Times.