Harnessing demographic change for economic growth in Africa

May 04, 2016

The impact of demographic change on economic growth in Kenya and South Africa is the focus of two articles published in the 2014 Policy in Focus magazine. The two studies were conducted by the National Transfer Accounts (NTA) network, which IDRC has funded since 2007 to promote demographic and economic analysis of the effect of age on economic flows.

The case studies build on a paper published in the leading journal Sciencein October 2014 and conducted with IDRC's backing, "Is Low Fertility Really a Problem? Population Aging, Dependency, and Consumption.” The paper found that modest population declines can improve standards of living. 

Demographic transition and human capital in Kenya

The case study on Kenya by Moses Muriithi, Reuben Mutegi, and Germano Mwabu states that Kenya has one clear period of demographic dividend, starting around 1980 and lasting until 2050, the authors found. A decline in fertility and mortality rates has resulted in higher life expectancy. The potential exists for Kenya to take advantage of this demographic transition. With growth in life expectancy, they add, an incentive to save money has been created, because people expect to live beyond the income generation stage of life. 

Realising the benefits

But the authors note that Kenya needs to pursue policies that enhance the human capital of the population. Public health and education consumption profiles show that the government is already pursuing policies to increase the prospects of future higher demographic dividends by investing in improving child mortality rates, reproductive health, discouraging child marriage and delaying first pregnancy, and providing quality education, especially secondary education for girls, which is critical to increase the age of marriage and to allow women to acquire essential labour market skills.

The South African generational economy

In "The South African Generational Economy," author Morné J. Oosthuizen states, “Of the roughly 70 years of positive first demographic dividend in South Africa, less than half remain.”

Addressing poor labour market outcomes for young people in South Africa is crucial for successfully harnessing the first demographic dividend. Policies that raise mean labour income among youth—by raising employment or mean hourly wages, for example—would narrow the gap between the labour income profile of South Africa compared with other countries. However, doing so neither raises the level of the first demographic dividend nor extends its duration. 

Squandered opportunity

Oosthuizen believes that much of the period of positive first demographic dividend has been squandered, and, with just three decades remaining, the key constraint is time. While addressing the unemployment situation, particularly among youth may not significantly boost the first demographic dividend, it is central to achieving the second dividend. In this context, a shift toward more labour-intensive patterns of economic growth should be a priority, as should be improvements in the education and health systems and encouraging individuals to save for retirement.

The Policy in Focus (1.7MB) report is published by the International Policy Centre for Inclusive Growth of the United Nations Development Programme

Read more on IDRC’s national transfer accounts research

Read the full article: Is Low Fertility Really a Problem? Population Aging, Dependency, and Consumption in Science magazine