Africas Demographic Dividend - An Elusive Window of Opportunity? - PDF document

Africa’s Demographic Dividend - An Elusive Window of Opportunity? Latif Dramani 1 and Cheikh Mbacké 2 Introduction Agenda 2063 is the shared vision for “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the international arena” (Africa Union, 2015). This vision for the continent, places a big bet on the ability of African countries to accelerate economic growth by harnessing the demographic dividend. The continent’s failure to harness a demographic dividend is highlighted as one of the eight major risk factors for not achieving the 2063 vision (p. 102). The demographic dividend is the acceleration of economic growth that may result from the demographic transition and the related changes in age structure. When fertility declines and the number of workers grows faster than the population depending on them, household and public resources are freed up for investment in areas that can impact positively on economic growth. This is the first demographic dividend which is the focus of this paper. The challenge for African countries is that the window of opportunity for the first dividend, which is the time period when age structure changes are favorable to economic growth, is time bound and short-lived. And depending on the definition used, the African hope might amount to wishful thinking just simply because, for many countries, the window of opportunity might not materialize before 2063 or could be too short to provide the hoped-for benefit. It is therefore easy to understand the confusion among African experts who are in charge of developing their country’s roadmaps for harnessing the demographic dividend. The high skepticism of many scientists as to the ability of African countries to reap a meaningful dividend adds to the confusion. See for example Cleland and Machiyama (2017) and Garenne (2017). This paper estimates the date of start of the first dividend phase for a number of Middle and Western African countries using the three common definitions of the window of opportunity. It then provides estimates of the Economic Support Ratio and the magnitude of the first dividend in 2016, and the duration of the first dividend phase. The implications of our results are finally discussed and some recommendations made. Defining the Demographic Window of Opportunity The UN Population Division has defined the window of opportunity for the first demographic dividend as the period when the proportion of children and youth under 15 years falls below 30% and the proportion of people 65 years and older is still below 15%” (Hakkert, 2007, p.5). The author went further to postulate that “much of Africa will not enter the demographic window until 2045 or later”. Using the same definition and the 2010 revision of the UN projections, Peter Kasprowicz and Elisabeth Rhyne (2013) find that the window was open for only four sub-Saharan countries: Cape Verde, Gabon, Mauritius and South Africa. The earlier definition evolved into the total demographic dependency ratio which is the ratio of the young (below 15) and elderly (65 and above) to the working age population (15-64). Different 1 Centre de Recherche en Economie et Finance Appliquées de Thiès, Université de Thiès 2 Independent Consultant Page 1 of 11

variants of this indicator have been utilized to gauge the impact of age structure on the economy. See for example Guengant (2014), who changes the lower age threshold to 20 and postulates that the demographic window of opportunity is open when this revised dependency ratio falls below 100, or one dependent per working age person. Recognizing that these age thresholds do not capture well variations in actual labor force participation and real dependency across countries, the World Bank (2016) introduces a new typology based on the Total Fertility Rate (TFR). It labels as pre-dividend countries those “whose current fertility rates are four births per woman or higher …and who have yet to experience most of the decline in the child population share that makes the first demographic dividend possible” (p.268). This typology that is based on an arbitrary cutoff point of four births per woman has become an important feature of the World Development Indicators. We translate it to mean that the window of opportunity for the first dividend is open when the TFR drops below 4 births per woman. The typology includes three additional groups: early dividend, late-dividend and post-dividend. The third definition differs from the first two in that it takes into account the interactions between changes in age structure and the lifecycle of production and consumption. It reflects the fact that all working age persons are not working and that many people outside the “working ages” are working. It more realistically defines economic dependency as the inability to produce enough to cover one’s own consumption. The key indicator here is the Economic Support Ratio (ESR) or the number of effective workers divided by the number of effective consumers. It is a summary measure incorporating both the population age structure and age patterns of production and consumption (Mason and Lee, 2011). The first demographic dividend is a positive increase of this support ratio and the window of opportunity is considered open when the rate of increase of the ESR becomes positive. In other words, when the number of effective producers starts growing faster than the number of effective consumers. During the pre-dividend phase, the ESR growth is negative reflecting the fact that changes in population age structure constitute a drag on economic growth. Data and Methods This analysis uses the medium variant of the UN projections (World Population Prospects, the 2015 Revision 3 ). Determination of the start date of the first demographic dividend phase (or opening of window of opportunity) is straightforward for the first two definitions. The relevant dates are easily identified (by interpolation) using the UN projections (see columns 1 and 2 in Table 1). The calculation of the ESR requires large amounts of data beyond the UN demographic projections. These include National Accounts, household surveys providing data on labor force participation, income, consumption, transfers, household composition and allowing an estimation of economic flows across the different age groups. The National Transfer Accounts (NTA) Network (http://www.ntaccounts.org) refined and broadened the approach developed by Lee and Mason and implemented it in a large number of countries including 6 pioneer African countries (Ghana, Kenya, Mozambique, Nigeria, Senegal, and South Africa). Starting in 2015, the Centre de Recherche en Economie et Finance Appliquées de Thiès (CREFAT 4 , University of Thiès, Senegal), in collaboration with UNFPA’s regional office for Western and Central Africa, launched a training and technical assistance program to support country efforts to 3 The 2017 revision is used to provide estimates for the UN and world Bank definitions. This led to slight delays from estimates based on the 2015 revision that do not affect the main conclusions. NTA profiles will be updated as new survey data becomes available. 4 The CREFAT team constitutes the NTA Network’s node in Francophone and Lusophone West Africa. Page 2 of 11