Charles Roberston

Lower fertility rates will boost economic growth, according to a demographic model developed by Renaissance Capital. 

GDP in emerging markets is expected to rise by 52% between 2020 and 2030, twice as much as in developed markets, according to a demographic model constructed by emerging and frontier markets-focused investment bank Renaissance Capital which challenges mainstream forecasts by the likes of the IMF. 

The report takes into account the demographic dividend that can be found in lower fertility rates. As the number of adults per child, or pensioner rises, the so-called dependency ratio, savings go up and investment gets cheaper, which boosts GDP growth rates. 

The Philippines, India, Egypt, Indonesia and Pakistan are expected to lead the way with a rise in their GDP of between 75% and 98% after adjusting for fundamentals such as education, electricity and investment in the next 10 years. Additionally, the model predicts that China’s annual growth rate of 5.2% will underperform the IMF forecast of 5.7% over 2020-2024 while Russia has the potential to achieve a 3% annual growth in the period, outperforming the IMF forecast of 2%. 

“China was outperforming the demographic model significantly...but it's just got much more expensive, as a country to do business with. In 2009, the Chinese per capita GDP was 40% of Russia’s, today is 90% of Russia’s, in 2021, per capita GDP in China will be higher than in Russia. [But] Russian education seems to be better on average, more educated people as professional proportion in Russia than in China. China will struggle to outperform the model to the same extent,” says Charles Robertson, chief economist of Renaissance Capital.

Africa’s growth can be expected to increase as the fertility rate diminishes over the next decade, although the situation differs from country to country. “Nigeria and Angola will have a small banking system for the next 30 years, which means interest rates are going to be very high. By contrast, Kenya is about to shift from three to four kids down to two to three kids in the next 10 years. Then local banking systems are going to get much bigger, interest rates will come down. Kenya then will be able to invest more, so growth accelerates,” says Mr Roberston.

Vietnam is estimated to achieve an annual GDP growth of 7.5%, outperforming the IMF’s 6.5% forecast over the next five years. The country has good demographics with large workforce, and it enjoys good education, high investment rate and high electricity. “Vietnam should outperform the model in the similar way that China did in the 1980s and 1990s...Some foreign investment projects are already successful in Vietnam, and they will continue to be,” says Mr Roberston. 

Developed markets will add 25% to their current GDP in the next 10 years while the model estimates 1.5% per capita growth in ageing developed markets such as Finland and France over the next decade. 

This article is sourced from fDi Magazine
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