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So much for the nation’s ‘demographic dividend’

Oct 01 2017 06:00
Dewald Van Rensburg

Johannesburg - South Africa can – at best – hope to “salvage a portion” of its so-called demographic dividend, Stats SA warned this week after releasing a disheartening new study.

This dividend relies on a lot of assumptions and preconditions, and few of them apply to South Africa, the study shows.

The first problem is that, unlike most of Africa, South Africa is already almost done with what is called the demographic transition.

Almost all societies undergo this at some point – where both birth and death rates fall and the working-age population suddenly balloons as a proportion of the total.

In South Africa, the white population already “peaked” through this transition and the black population is rapidly reaching the point where the number of working-age people starts to fall again as a proportion of the total.

This transition has not had the theoretical economic effect it could have had.

Under the right conditions, the transition can lead to a dividend that has two main features.

If these working-age people find jobs, the dependency ratio will fall because the number of non-working people compared with working people falls.

This includes children and old people.

Over time, this leads to the lifting of what South Africans call the “black tax”, where the first generation of professionals in a family have to financially help the children and other members of the extended family.

That frees up money for other things, which creates demand in the economy.

If all these working people also have proper jobs, they will be able to save or contribute to pension and provident funds.

This, theoretically, also increases the country’s capital and leads to increased investment – the second part of the “dividend”.

The demographic dividend has been raised as a major explanation for the economic “miracle” of east Asian economies, starting with Japan and South Korea.

However, the sudden bulge in working-age people in those countries was far more extreme than it is in South Africa or the rest of Africa.

The conditions to turn the transition into a dividend are, however, also lacking, said Stats SA.

In South Africa, the transition has not been accompanied by growing savings or investment, the study shows.

The opportunity for this effect to still apply in South Africa “seems elusive”, said Stats SA.

The blame lies with corruption, a lack of jobs, poor education and a lack of healthcare, said the study.

At this point, South Africa serves as a cautionary tale for the rest of the continent, where the demographic transition is lagging by a generation or two, concluded the study.

“Let the continent learn this from the South African experience – do all that is possible and, as soon as possible, put in place supporting socioeconomic conditions,” it said.

Earlier this year, the World Economic Forum made a similar point in its Africa Competitiveness Report.

Taken as a whole, the continent is the only place on Earth where the demographic transition is still in full swing, with the working-age population growing faster than the overall population.

This will continue to be the case for another 50 years, said the report.

That is, however, meaningless when you look at smaller regional or national levels.

Unlike the rest of the continent, southern Africa is already seeing an ageing of the population out of the traditional upper limit of working life – 65.

The transition eventually leads to a situation where the old start growing as a proportion of the population, which requires countries to have well-funded retirement systems in place.

The extreme case is Japan, where there are twice as many people older than 65 than there are children under the age of 15.

The extreme case of a country that is only beginning the transition is Niger, where the population of those younger than 15 is almost exactly as large as the old and the working-age populations combined.


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