By Edward Muguza – DRG Director
Population changes can have positive or negative effects on a country’s economy. In the African context, population changes have the potential to accelerate economic growth and improve the standard of living but the journey is not straightforward for most countries. There is need for effective strategic planning and economic investments in key areas of development to ensure that the expected population growth is not a curse but a benefit. In this essay, I will define the concept of the demographic transition and demographic dividend, highlight three challenges and three opportunities that these concepts present for Africa as a region, and potential interventions African governments should implement to deal with the anticipated challenges and harness the expected opportunities.
A demographic transition occurs when a country’s population moves from high levels of mortality and fertility to low levels of mortality and fertility (Islam, 2016). The first stage of the demographic transition is characterized by high mortality and fertility rates. Improvements in sanitary methods, nutrition and health services kick-starts the second stage of the demographic transition which is characterized by a reduction in mortality rates mostly due to declining infant mortality rates. The lag between the reduction in mortality rates and high fertility rates results in exponential population growth – bigger families, higher dependent to working-age population ratio, and skewed age-structure towards the youth (Bloom, 2003). The third stage kicks off due to declining fertility rates as child survival rates and access to contraceptives improves. The resulting low fertility rates and low mortality rates marks the beginning of the fourth stage of the demographic transition. As countries go through demographic transitions, there are windows of opportunities that can accelerate economic growth. Of note is the transition from stage two to stage three, where a country experiences low mortality rates, declining fertility rates and changes in the population age-structure. During this period, the ratio of dependents to working-age population declines and the share of the working-age population rises, which results in accelerated economic growth referred to as the demographic dividend. However, reaping the demographic dividend is not automatic, countries need to implement the right social and economic policies and heavily invest in health, education, governance, and the economy (Bloom, 2002; Islam, 2016). Failure to harness the demographic dividend might result in sub-optimal economic growth or even worse, a demographic curse.
Most African countries are going through the second stage of the demographic transition with signs of moving into the third stage, however, the transition has been slower. This slow transition has resulted in a population boom – Africa’s population currently stands at 1.2 billion and is expected to peak to 2.7 billion by 2060 (Ncube, 2017). The population will increasingly become youthful and the age-structure will show a distinct ‘youth bulge’ which makes employment a priority – unemployment has been persistently high across many countries (e.g. South Africa with 25.6% unemployment in 2016 – World Bank Indicator) and at the same time the quality of the few jobs being created today do not meaningfully transform people’s lives (WESO Report ILO, 2017). The second challenge expected from the demographic transition is education. Africa’s young population is getting better educated but the growing education attainment levels are not translating into job skills, higher transitions from secondary education to tertiary education and inclusive classrooms. Zimbabwe is one of the flagship countries with high education attainment levels (Zimbabwe adult literacy rate – 87% (World Bank Indicators, 2015)) but the majority of those educated do not have the skills to take on high-quality jobs which drive economic development. The third challenge from the demographic transition is healthcare. There have been significant improvements in child survival rates across Africa but the expected decline in fertility rates has been delayed. Most African family sizes are still high especially in West Africa (fertility rate of 5.6) due to lack of knowledge and access to reproductive health services, which is a threat to reaping the demographic dividend (Madsen, 2013). Beyond child health, HIV/AIDS and the emerging threat of non-communicable diseases (NCDs), “particularly in East and Southern Africa, has increased mortality among the working-age population” (World Bank, 2015). The situation is not only dire for young people, adults are starting to confront health challenges that come with old age. The issue is exacerbated by systemic factors that remain unaddressed – weak health systems, huge shortage of health workers, and inequitable distribution of health facilities between urban and rural areas, high out of pocket health care costs, and most importantly, lack of social protection schemes. The intersectionality of health, education, and employment challenges and an increasingly youthful population poses a huge threat to the development of Africa and will continue to put pressure on the demand for social services. Failure by African governments to address these challenges would result in high rates of crime, civil unrest, political uprisings, uncontrolled migration etc.
On the flipside of these challenges, the demographic transition presents vast opportunities for economic growth in Africa. The youthful age-structure represent a sustainable supply of productive labor for the next couple of decades while aging is still not an issue. The expected increase in the share of working-age population has a direct link to economic growth (World Bank, 2014). However, the boom in the working-age population is only beneficial if coupled with declining fertility rates and improvements in education and employment opportunities (Islam, 2016). The expected decline in the dependency to working-age population ratio will result in economic growth as families spend less on raising children and invest more on opportunities that bring greater returns to support old age. In addition, governments would also spend less on health and education per child (World Bank, 2015). The process of greater accumulation of wealth and greater investments in human capital present an opportunity for a ‘second’ demographic dividend leading to further productivity gains in Africa (Ntuli, 2017). Another key opportunity from the demographic transition is the involvement of women in economic development issues. As the fertility rate drops, women would be freed from child-rearing tasks, which allows them to get more educated and meaningfully participate in the labor market. The increase in productive labor supply driven by young people and women presents a huge opportunity for economic development.
The challenges and opportunities from the demographic transition are interconnected and there is need for policies that transcends sectors to harness the demographic dividend (World Bank, 2015). Economic policies that ensure the expected increase in supply of productive labor is met with an increase in demand for labor are very critical. Governments should invest in sectors that significantly grow employment for example agriculture, agro-processing, infrastructure etc. Also linked to the economy is regional integration – there is need to construct more one-stop boarders, regional highway roads and railway lines, and regional ports. The African middle class is expected to grow from 300 million in 2010 to 1.1 billion in 2060 and consumption by this segment is expected to increase from US$680 billion to US$2 trillion by 2030 (Ntuli, 2017). Opportunities for growing the economy and signs for output absorption are there, governments need to prioritize policies that grow the economy. Another area of focus is child and women health – there is need to strengthen reproductive, maternal and child health (RMNCH) interventions to empower women and reduce fertility rates. RMNCH improvements would lead to declining fertility rates which kick-start the demographic transition for countries still experiencing high fertility rates. A low dependency ratio is key to harnessing the demographic dividend. Governments across the continent should also invest in increasing access to education especially for women and tailor education to enhance skills development. The current education system does not meet the needs of the job market – many young people are involved in entrepreneurial ventures but don’t have the basic skills of running businesses or working with regulators. The government should invest in providing training, capital, and mentorship to young entrepreneurs. The research done by Brixiova et al shows that skills shortage and capital are the major barriers to entrepreneurship in Swaziland. Even though the study focused on Swaziland, the key findings are applicable to other African contexts.
Overall, African governments will have to be proactive to ensure the demographic transition works in their favor. However, implementation on the ground needs to be quick and tailored to the local context – countries stalled at stage two of the demographic transition need to invest heavily in health to rapidly reduce fertility rates among young families, while countries transitioning to stage three needs to invest heavily in quality education, skills development, and boosting employment. Predictions from the World Bank show that under the pessimistic economic growth scenario, the demographic dividend would account for 11% of GDP growth between 2011 and 2030; while under the optimistic economic growth scenario, the demographic dividend will account for 15% of GDP growth between 2011 and 2030 (World Bank; Ahmed et al; 2014). Therefore, population changes present huge economic opportunities for Africa but the magnitude of the gains will be different for each country. There will be more winners than others.