Philippines and the demographic dividend (2)

Second of two parts

In my discussions with corporate CEOS in year 2000-03, I ventured the guess that after East Asia, China and India, the next Asian countries that would benefit from the demographic dividend and experience good economic growth could well be the Malay states of Malaysia, Indonesia and the Philippines.

These countries are now developing rapidly – with Malaysia first in the line, followed by Indonesia, and now the Philippines, which surprisingly has become the fastest growing economy in Asean.

A bright star in Asia
The most positive reading of Philippine prospects is the analysis cum forecast of international banking giant HSBC, which issued it at the recent HSBC Premier Forum in Makati.

Its glowing review is anchored mainly on favorable Philippine demographics, which it projects will translate into dynamic economic growth for several decades, if the country capitalizes on its demographic transition and dividend.

Speaking at the forum, HSBC economist Trinh Nguyen declared: “We believe the Philippines is destined for a bright future ahead.” Characterizing the transition as a “demographic sweet spot,” Nguyen said the Philippine population is gradually changing from one that has high fertility and high mortality rates to one of low fertility and low mortality.

As a result, she said, the demographic profile of the country will shift from having a lot of dependents to having more workers and fewer dependents.

Nguyen noted that the past two years have already shown positive progress in the Philippine economy, adding that the country’s trend rate of economic growth (the average sustainable growth rate over an extended number of years without inflationary pressures) has increased from 5 percent to 5.5 percent.

The Philippine economy grew by 7.2 percent in 2013, compared with 6.6 percent in 2012 and 3.7 percent in 2011. To sustain this growth, however, the HSBC economist urged Philippine policymakers and officials to maximize the benefits of the demographic transition by being mindful of a growing consumer market.

“If the demographic transition is capitalized, the Philippines will be one of the brightest stars in Asia,” Nguyen pointed out.

“What the Philippines has is rising demand. By 2050, the country’s population is projected to reach 150 million,” she added.

As a result of this transition, the majority of the population will become consumers, making possible the attraction of consumption-oriented firms into the country which are important to maintaining economic growth.

Nguyen noted that early signs of interest on the supply-side are already apparent.

“We are seeing [the entry of] FDIs into the Philippines as more consumption-oriented firms are trying to look into the country,” she said.

HSBC predicted that the Philippines will leapfrog 27 places to become the world’s 16th largest economy by 2050, due to its demographic advantages.

End of dividend for other Asian nations
Significaantly, Nguyen disclosed her ana-lysis at almost the same time that the Financial Times published an op-ed piece that confidently reported that many Asian countries are bracing for the end of their “demographic dividends.”

In a commentary entitled “The end of Asia’s demographic dividend,” FT’s Asia editor David Pilling cited another HSBC economist Frederic Neumann as his main source. Neumann, he said, has predicted a contraction in the work forces of China, Hong Kong, South Korea, Taiwan, and Singapore.

Pilling wrote: “At least these economies, with the exception of China, are already fairly prosperous. But some less well-off countries will soon run out of steam. Thailand’s demographics will turn in 10 years. Even Vietnam, whose workforce is growing apace, will see a sharp deceleration before too long.”

“If these are the hares—the countries that came out of the demographic traps first—Asia does also have some tortoises. Those that can look forward to years of favorable demographics include the Philippines, Malaysia, Indonesia and everybody’s demographic darling, India. The latter will add the equivalent of Europe’s workforce over the next 15 years,” Pilling said.

But Pilling warned that countries with favorable demographics cannot just sit back and relax. And he made a pointed example of Philippine handling of its demographic assets:

“The Philippines shows how easily one can squander one’s demographic birthright. Its natural resource is its people but because of a lack of good jobs at home, about 10 per cent of Filipinos work abroad, remitting cash on which their relatives – and the Philippine economy as a whole – rely,” he said.

This underlines how urgent and important it is for Filipino leaders and technocrats to understand the full import of the demographic window of opportunity, how the dividend operates in the economy and in society, and what policies will be most effective in capitalizing and enhancing the country’s enjoyment of the dividend.

How the demographic dividend helps
IN a policy paper prepared for the Futures Group in Washington DC, “Understanding the demographic dividend,” John Ross provided an excellent introduction to the demographic dividend, and key insights on how it operates to benefit countries and economies.

The demographic dividend is delivered through several mechanisms.

1. Labor Supply. The generations of children born during periods of high fertility finally leave the dependent years and can become workers. But good policies, preferably in place before the demographic transition, are required to educate and train them so they are not just unemployed.

2. Women’s empowerment. Women now have fewer children than before and are released to take jobs outside of the home; also they tend to be better educated than older cohorts, and are therefore more productive in the labor force.

3. Job creation. This assumes wise government policies to create more jobs and seize upon the “dividends” of the changed age distribution. If they fail to do this, countries may struggle with the social unrest of millions of unemployed citizens.

4. Savings. Working-age adults tend to earn more and can save more money than the very young. The shift away from a very young age distribution favors greater personal and national savings.

5. Savings for industrial investments. Personal savings grow and serve as a partial resource for industrial investments that fuel economic growth.

6. Human Capital. Having fewer children enhances the health of women. Their participation in the labor force, in turn, enhances their social status and personal independence. They tend to have more energy to contribute both to their families and to society.

8. Family income. Income can be focused more on better food for infants, including girls, who are often given less to eat. Incomes can go toward prolonged education for girls, and for teenagers of both sexes to improve their life prospects.

Thus there are many interactions that increase benefits from the demographic dividend,

In one estimate, as much as one third of growth in the “East Asia Miracles” came from demographic dividends.

Beginning in 1950, East Asian countries moved quickly through falling fertility rates that resulted in a change in the percentage of their populations in the working age group. Their dividend opportunity rose quickly during the next fifty years. It is peaking just now and will fade steadily as their populations age. Their window of opportunity is beginning to close.

Neumann of HSBC says China’s workforce will contract in 2017, as will that of Hong Kong. The labor force of South Korea and Taiwan will start to shrink in 2016, while Singapore’s will do so in 2018.

Policies to harness the dividend
1. Promoting health
Evidence suggests that better health facilitates improved economic production, and it points to the importance of policies to promote health during the demographic dividend.

Some of these are:
• Insuring that infants receive good medical care.

• Protecting women’s reproductive health (and enhancing their health knowledge, since they play the central role in the health of their families)

• Stressing the health of children and teenagers, to improve educational performance.

• Focusing especially on low-income populations, with strong public sector programs. Poor health is an important cause of losses in household income.

2. Reducing unwanted pregnancies

This is important because
• About one fourth of births in the developing world outside China are unwanted or ill-timed,

• Governments should do all they can to extend services for family planning, with the public sector targeting services and resources to the poor while, at the same time, releasing the energies of the private sector to meet the needs of those who can afford to pay for family planning and other health services.

3. Education of children and youth
Next to health, the education of children and the youth is the most important policy imperative. Without an effective educational system, and the provision of free basic education, the window could be lost, and the dividend will not be fully realized

Education is directly related to employment and the enjoyment of fulfilling jobs and careers.

The dividend is wasted if people of working age do not find jobs.

Don’t call it a sweet spot
Because the period of the dividend is quite prolonged (stretching as much as two to three decades in some cases), some policymakers have called it “a demographic sweet spot.”

This is misguided and lazy. It encourages inaction. And it can delay the adoption of the policy imperatives.

One of those who have popularized “sweet spot” in Philippine discourse is BSP Governor Amando Tetangco, who has used it to drum up interest in the country among select foreign audiences. He has expressed optimism about the prospects of higher growth for the Philippine economy because of the advantages of a young population that will provide both abundant labor supply and a large domestic market for goods and services.

This neglects the crucial point that economic and social policy need to be focused and vitalized by the demographic dividend.

In population dynamics as in other realms of life, nothing comes for free. The demographic dividend provides us at best an opportunity, not a sure benefit. We have no time to waste to capitalize on our window of opportunity

Demographers and economists aver that Eastern Europe and Russia went through their demographic dividends without experiencing the corresponding win-win situation in which favorable growth conditions coincide with advances in terms of institutional development and political stability.

This must not happen to us.

But it could, if we make the colossal mistake of giving the Nowhere Man, Thief Executive and Self-taught President another six-year term.

yenmakabenta@yahoo.com

source:  Manila Times' Column of Yen Makabenta