Surf the Demographic Wave

• Author: Vimal Thakoor and John Wakeman-Linn

Surf the Demographic Wave Finance & Development, March 2016, Vol. 53, No. 1

Vimal Thakoor and John Wakeman-Linn

Sub-Saharan Africa could reap significant benefits from its growing population—if the transition is well managed

Sub-Saharan Africa’s most formidable economic asset could soon be its people. As the region’s demographics change, it can enjoy significant growth if policies are tailored to tap into this potential.

Declines in infant mortality and longer life expectancy are contributing to an increase both in the overall population and, more important, in the share of the population that is of working age. This changing population structure—referred to as a demographic transition—has historically offered countries an opportunity for higher growth and prosperity. For sub-Saharan Africa, the opportunity is even bigger because the working-age population is rising when much of the rest of the world’s workforce is set to decline.

The transition in numbersThe demographic developments are significant from every angle. Put simply, the region will be the world’s key demographic player this century. While the rest of the world is aging, sub-Saharan Africa will become the main source of growth for the global labor force. The region’s population of slightly more than 800 million in 2010 is projected to more than quadruple by 2100, to 3.7 billion (according to the United Nations’ medium-fertility scenario). Its share of the global population will increase from less than 12 percent to about 35 percent. More striking is the fact that Africa will account for nearly 100 percent of the projected 2 billion increase in the global labor force over that period, raising its share of the global workforce from about 10 percent to 37 percent by 2100 (see Chart 1).

Beyond the simple increase in the number and share of working-age population, the policies accompanying the demographic transition in sub-Saharan Africa can contribute to a dividend. If policies support productive jobs for these new workers, the increase in the workforce will lead to higher growth and rising income per person—voilà: the demographic dividend.

In Africa, the transition could produce a significant dividend through four additional channels (Galor and Weil, 2000; Bloom and others, 2009). First, the decline in fertility rates allows for greater female labor force participation, which increases the employable share of the working-age population. In addition, given that working-age adults tend to save more than other groups, overall saving increases, which allows for more investment financing and gives a further boost to growth. Moreover, evidence suggests that when people have fewer children and live longer, there is an increase in health care and education spending, which contributes to a healthier, more educated, and hence more productive labor force. Finally, an increase in the population could lead to greater domestic demand and spur both local and foreign investment.

Higher growthProperly harnessed, the demographic dividend for sub-Saharan African countries can be significant. The size of this dividend, and when it materializes, will depend on the ability of economies to absorb the new...