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Picture: 123RF/RAW PIXEL
Picture: 123RF/RAW PIXEL

Until quite recently the human population had been growing consistently for millennia, and that assumption is now baked into our economic theories. For an economy to grow it either has to sell more stuff, sell the same stuff at higher prices or sell the same stuff to more people.

When there are fewer people to sell to, the market is clearly shrinking. At the micro level this doesn’t matter too much, but when it happens at scale the problem becomes rather serious. Most of our economic policies count on there being more people in future, and when that changes these policies no longer work. This is where much of the world is now.

Let’s start with the world’s lowest birth rate country, South Korea. Only women have children, so when we consider birth rate we need to measure the births per woman in the population. The replacement rate for a population is 2.1 children per woman (one for each parent and 0.1 for the youngsters who don’t make it beyond childhood). Korea is at 0.81 births per woman in 2023.

If we start with 40 parents now, 20 of those would be women, and as only they can have kids we need to apply the birth rate of 0.81 to them. Twenty women times 0.81 equals 16.2. You can’t have 0.2 of a child, so let’s round down to 16. Five generations on, at that birth rate you are left with just two people.

South Korea has a population of 52-million people. At the current birth rate (and discounting immigration) this will be 30-million by 2100 (a 44% drop in 77 years). The country has great healthcare, good nutrition and low crime rates, so people live a long time, which is why the population fall is not as precipitous as you would expect.

It turns out that low fertility is a really difficult problem to solve, and Korea has been trying hard to sort it out. Visualise Korea in 2100, with half the population it has now. The median age is 43.7 at present. According to the UN, it will be 59.3 in 2100. Korea now has about 37-million working age people (71%), but by 2100 this will be only 16.5-million (55%). You can see how this creates a productivity problem of staggering proportions. Who will do the work? Where will the money come from to support the old folk who are not working?

Tech skills

With a huge drop in the number of young people it becomes increasingly difficult to protect your borders. Even though the Korean population is exceptionally well educated and no doubt still will be in 2100, there will be fewer Koreans around to know things. Technology will help, but — at least for now — innovation is a human skill and heavily concentrated in young people.

The problem in China is arguably worse, even though its birth rate is higher, in part because of the past one-child policy. According to data released last week by the China Population and Development Research Centre, a government institution, the country’s fertility rate dropped to 1.09 last year from 1.15 in 2021. The ratio of men to women in China is 111.3 men to 100 women, and 116 to 100 in children. The normal distribution globally (excluding China) is 98.8 men to 100 women.

China’s population is estimated at 1.4-billion people, meaning 660-million of these are women. If this were a normally distributed population, we would expect there to be 704-million women. The missing 44-million women has a disproportionate impact on the downstream population because none of the men who have replaced them will have children. Because the sex ratio is more skewed towards younger people, the effect is that more women are removed from future populations than the current average.

China’s population shrank for the first time in six decades in 2022, falling by 850,000 to 1.41-billion. In April, India is estimated to have overtaken China as the world’s most populous country when its population reached 1.43-billion. By 2050 (27 years from now), China’s population is projected to drop by a further 100-million people, but due to age its working age population will be 200-million smaller.

The engine of China’s growth up to now has been a large pool of cheap labour in the countryside, which could be relocated to the coastal cities. Because its economy has been so heavily export focused, this cheap labour could be sold at global prices, pushing a flood of cash into China.

Young people are more productive than old people and also consume more.

China’s population was younger than that of the West for decades, which means it had deep labour pools, but this is changing fast. The average person working in China has fewer and fewer working years ahead of them, and because the population fall is so dramatic they are unable to fill those positions with younger people.

Young people are more productive than old people and also consume more. The rapidly changing shape of China’s population pyramid means growing local consumption is going to be difficult in the long term. Already Chinese villages are emptying out or are populated largely by old people. Its oldest village, Zhongcun in Jiangsu province, has a median age of 67.4 years. Pause to think about that. When you count from youngest to oldest person you get to someone aged 67.4 well before you reach the halfway mark. Given that people don’t live to 135, it means the older half of the population falls within a 20-year range only. The population plunge will be ever more severe with each passing year.

Labour shortages in China are already pushing up costs, with the country now having the second-fastest growing annual wage rate in the world at 8.4% (Vietnam is number one at 10.2%.) This doesn’t spell the end for China, but it does mean its political heft in the world will slowly reduce as its population continues to fall. It is difficult to keep growing GDP at the stellar rates China has managed for the past three decades with a shrinking population.

GDP is affected by consumption (the number of consumers times how much they consume) and productivity. Productivity is a function of the number of people multiplied by their output. If there are dramatically fewer people, it would require enormous productivity growth to compensate. Perhaps with technology this is possible, but the burden will keep growing with each passing year.

China is an enormous economic force in the world now, but it will see its power diminish over time. By contrast Africa, the only continent with a growing population, should see its fortunes rise. But will it? The answer is in the continent’s own hands.

Africa needs to focus on attracting the old, rich world’s capital, not in the form of donor funding but in the form of real investment in the only place with a young enough population (for now) to do the work.

• MacKay is CEO of XA Global Trade Advisors.

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