The Demographic Dividend in sub-Saharan Africa

July 20, 2023
The Demographic Dividend in sub-Saharan Africa
Ben Finlay

In sub-Saharan Africa, improvements in medical care, decreasing child mortality and high fertility rates continue to drive massive population growth. According to projections by McKinsey and Co., the working age population of sub-Saharan Africa could reach over one and a half billion by the year 2050. Many estimates have the continent reaching between three and four billion by the 2100. This immense population growth could serve as a great asset to the developing continent and individual nations, as well as strengthen their forthcoming role in the global market.

While these data are vitally important to understanding Africa’s looming influence, it is tempting to generalize sub-Saharan Africa as one place. While continental unity exists in some regards and may be important to evaluate as such,  it is just as often or more to avoid this generalization. Africa’s rising population can be massively empowering for it’s development as a continent, but it can be equally crippling for the economic development in many countries. To demonstrate how growing populations may be harnessed for positive growth, we must turn to the economic phenomena of the demographic dividend.

The Demographic Dividend as an Economic Phenomenon

Broadly speaking, the demographic dividend is a theory to explain what happens when a nation or region experiences rapid economic growth as a result of a shift from high fertility to low fertility as well as declining child mortality. Thus, there will be a large labor force with a smaller number of those who depend on them, increasing the investment made into each child, which can increase economic growth. As the World Bank puts it in Africa’s Demographic Transition:

“Declines in child mortality, followed by declines in fertility, produce a ‘bulge’ generation and a period when a country has a large number of working-age people and a smaller number of dependents. Having a large number of workers per capita gives a boost to the economy provided there are labor opportunities for the workers. More importantly, for a sizeable dividend, however, are changes in worker productivity.”

If nations in sub-Saharan Africa wish to garner the economic boost that arises from a demographic dividend, they will likely have to further drop their fertility rates and create higher demands for labor and increased productivity in that labor. Conversely, if there is a bulge generation(s) in sub-Saharan Africa but stagnant productivity per unit and low demand for labor, unemployment, crime, and poverty will remain a large issue, and they will forgo the opportunity to boost their economies via new and more productive employment.

East Asia serves as a relevant case study in how a region reaped the benefits of a similar demographic dividend in the twentieth century.

With the drastic decreases in fertility and child mortality rates, these East Asian nations were able to rapidly accelerate their economic growth and development. While decreases in fertility and under-5 mortality are highly correlated with economic growth, it is wrong to assume that decreases in such will automatically bring increases in the economic growth as a deficiency in demand for labor cannot be solved by an excess in supply. Investment from both the public and private sectors must be properly placed to employ the bulge generation and increase productivity per person.  As we know, East Asia capitalized on this labor population growth to become a leader in global manufacturing. It was that foundation that fueled the tremendous GDP growth experienced. Sub-Saharan Africa’s population will need to increase thier productivity per worker in a similar way to boost their growth.

Harnessing Africa’s Demographic Dividend

As it has been noted, Africa’s population is projected to skyrocket, and this often leads us to assume that it will cause a subsequent economic boom – and it can. Let’s take a look at child mortalityrates , fertility rates, and GDP per capita in a few sub-Saharan nations.

Because child mortality data has been sparse in sub-Saharan Africa as compared to fertility and GDP per capita, this data set ranges from 1990-2021. Nevertheless, in this time alone can we notice the great strides made in preventing child mortality – cutting it by more than half in 30 years. It is worth noting that Kenya and Ghana both lie well below the average at 37.2 and 44, respectively, while Nigeria stands at 110.8.

By taking data from the Democratic Republic of Congo, Ghana, Kenya, Nigeria, Zambia, and the sub-Saharan average, we can see how different nations, of whom all decreased their child mortality rate, have slowly decreased their fertility rates – or increased them.

Based on this data, it can be argued that there are three categories here: increased fertility, modestly decreased, and significantly decreased fertility with the DRC increasing, Nigeria modestly decreasing, and the rest significantly decreasing. With these categories in mind, we can turn to the GDP per capita of these same nations:

One may first notice Ghana, Kenya, and Nigeria as the three nations with the highest per capita GDP. Leaving Nigeria aside for the moment, it is worth noting the trend that the two most significant decreases in fertility have seen impressive per capita GDP growth. Something similar can be said for Zambia who, despite falling slightly behind, is certainly on track to overtake the SSA average. Furthermore, we see that the DRC has only slightly increased their GDP per capita, and this was the only nation on our dataset that increased their fertility since 1960. Nigeria appears to be the outlier to the group as it had only modestly decreased its fertility rates while having strong gains in GDP per capita. The question remains thus, if Nigeria continues on that track, will their population growth outpace their own capabilities or will we see a subsequent decline in fertility rates, and improved child mortality?

This discussion brings us back to the notion that in the case of population growth, we must measure where it will be used effectively against where it will be poor for the economy. Yes, it is important to note that Africa’s population is growing greatly, and in many cases, it will be a great asset to the continent, but as investors and fund managers, we must also analyze broad social and macroeconomic data to determine which economies will bear the best fruit for private investment. While it is good to hope for a continental demographic dividend, it will likely be regional at best. To determine which nations will reap the benefits most, we must look to the aforementioned data as well as broader macroeconomic indicators, such as GDP, unemployment, youth employment, and value added per worker. While many nations have decreased their fertility, Kenya and Ghana have done so more considerably then most. These nations, among others, may be best fitted to harness the bulge generation of this century so long as they can grow their labor demand and productivity per worker.  The intersection of technology infrastructure and investment to the continent, coupled with this population trend could prove the differentiator to success.  Additionally, the question remains as to whether Nigeria will be an exception to this trend. Their reliance on a strong natural resource foundation could allow their population to rapidly grow while still maintaining steady GDP per capita growth. They will need to grow other industries to employ the forthcoming population that will reach 500 million.

Post-Script: Food for Thought

While East Asia is the famed case for the demographic dividend, we are now seeing an East Asia that is in population crisis. China, South Korea, and Japan are all in their own population crises. This brings about the question of the longevity of their re-population plans that brought about their demographic dividend. Is this a problem that Africa is now susceptible to, or is the projected growth too strong to even think about a future population struggle? How might African nations learn from what these Asian nations had done – and are doing now?

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