I mentioned last month in TWL #299 that the pink tide is receding in Latin America and that the continent’s political leadership was shifting to the right. On Sunday, the right-wing candidate (“far-right” according to people who only read The Guardian) José Antonio Kastwon the presidency of Chile, ending the rule of socialist Gabriel Boric. When he was elected, Boric was hailed as a new page for Chile and for the continent, but his actions in office were less impactful than anticipated.
Kast is an unapologetic conservative on social issues. He is a staunch opponent of abortion with no exceptions allowed for rape, incest, risks to the mother or viability of the fetus. He also opposes same-sex marriage, adoption by same-sex couples and “gender identity ideology”. Unlike his Argentinian counterpart Javier Milei who is single and childless, Kast has nine children from the same mother, lawyer María Pía Adriasola, to whom he has been married for 34 years.
A good question from my perspective is whether this rightward shift is merely the result of frustration about the economy or whether it signals a deep change of attitude toward social issues. When it comes to annual births for example, they have been declining in Chile since 1991, but they declined even faster starting in the mid 2010s.
As to Argentina, annual births have fallen off a cliff by a full third since 2015 (chart), mainly due to 1) a program initiated in 2017 to combat teenage pregnancy, and 2) the legalization of abortion in 2020.
The total fertility rate (TFR) has been falling for several decades in Argentina, Chile, and Latin America/the Caribbean, much as it has in the rest of the world. The ultimate social test of the rightward shift in politics is in the TFR and in annual births. If they stabilize or start to edge upward, we will know that the continent has turned a page, not only in politics and economics, but also in social attitudes. But because social notions are slow-moving and difficult to change, my guess is that we will not see meaningful reversals in annual births.
The majority of Latin American and Caribbean countries forbid or restrict abortions. Abortion was legalized or decriminalized in Cuba (1965), Uruguay (2012), Argentina (2020), Colombia (2022) and Mexico (2023). Other countries such as Chile, Brazil, Paraguay, Bolivia etc. allow abortions under very limited circumstances. But El Salvador, Honduras, Nicaragua, the Dominican Republic, Haiti and Jamaica have total or near-total bans.
The country has some, but not all, the ingredients needed for a demographic dividend.
A few days ago, President Trump posted the following in defense of Nigerian Christians:
They’re killing record numbers of Christians in Nigeria. They’re killing the Christians and killing them in very large numbers. We’re not going to allow that to happen… If we attack, it will be fast, vicious, and sweet, just like the terrorist thugs attack our CHERISHED Christians!
While it is true that Christians have been targeted by Jihadis in Nigeria, Muslims have also been targeted in large numbers. Groups like Boko Haram, ISWAP (Islamic State West Africa Province) and others oppose all forms of secularism, westernization, democracy and modernity. They seek to “purify” Nigeria by eliminating Christianity and non-Islamic practices, and by installing an Islamic regime. Boko is from the English word book, and Haram means forbidden in Arabic. So, Boko Haram means “western education is forbidden”, in particular as it applies to girls.
As shown on the map, Nigeria is both Christian and Muslim over a land area that is the size of California, Nevada and Utah combined. Approximately 46% of the population are Christian, including catholics and protestants, who tend to live in southern and coastal provinces. The other 54% are mostly Sunni Muslims who tend to live in the center and north, including in the provinces that are closest to Niger and Chad, two Muslim countries.
Trump’s implied idea that the US can be the protector of Christians in other countries is unprecedented for a US president. It is unlikely to sit comfortably with the other priorities of US foreign policy. It is also unlikely that Congress would approve military interventions or punitive missions of this kind. Christians are persecuted or face severe restrictions in a large number of countries, including most Muslim countries, North Korea and China. Here is a map of Islamist groups in Africa as of 2022, from the Italian Institute for International Political Studies (ISPI). It would be impossible to subdue all of them by force of arms.
That said, it is good that the President is paying some attention to Africa, because Africa will be the continent with the highest population growth for decades to come. Here is a chart showing Nigeria’s total population and its population aged 15 to 64. Nigeria’s population is the largest in Africa and it will surpass that of the US by 2040. Most critical is the fact that its working-age population (aged 15-64) will double by 2075.
The total fertility rate (TFR) of Nigeria is today 4.3 children per woman. This chart derived from the UN’s medium variant assumes that the TFR will fall to 2.1 by 2075. Should it instead remain at a higher level, the population growth will be even faster than is shown here.
If the TFR declines as envisioned by the UN, there will be in theory a historic opportunity for Nigeria to realize a demographic dividend and to improve its economic conditions. A demographic dividend occurs when the number of dependents to workers, the dependency ratio (DR), declines in a given country. The DRs of Nigeria and of sub-Saharan Africa are shown in the chart below. The UN medium variant expects them to fall from the high 70s (a ratio of 0.7) to about 0.5. I have argued elsewhere that China’s boom in 1990-2010 was greatly assisted by the fact that its dependency ratio fell by half. See How China Realized a Demographic Dividend. But I have also argued that many African countries will not be ready when the window of opportunity for a demographic dividend opens up. See Demographic Dividend: Which Countries are Next?
In Demographics, The Global Emergency, I identified the emergency as demographics that were too weak in rich countries and too strong in poor countries. I speculated that both rich and poor could solve their problems by working together.
The opportunity, the solution to the global emergency, is to help these younger countries improve their economies by providing them with capital and helping them strengthen their institutions. To the symbiotic solution, developed nations bring technology, capital and institutional expertise. Emerging nations bring strong demographics and a growing labor force. Working together would over time:
create large new demand markets for Western products at a time when domestic demand is weakening.
provide food, shelter, health care and jobs to growing populations in sub-Saharan Africa and other countries.
strengthen institutions, facilitate capital formation and investments, and increase transparency in governance in emerging markets.
mitigate disorganized migration, and lower the risk of instability.
This was written in 2015. The world has moved in another direction in the past ten years, with more confrontation than cooperation.
Things are happening in Japan. The Nikkei 225 index made a new all-time high today (chart). The country has a new prime minister, Sanae Takaichi, who also happens to be the first female prime minister and a conservative. She is described by some as Japan’s Donald Trump, and has stated that she will prioritize closer relations with the United States.
I spent a summer in Tokyo in 1989 and was enrolled in business and management classes at Sophia (Jochi) University. At the time, the 1980s Japanese bubble was in its final stages. It peaked at the end of that year and deflated in the early 1990s. There was at the time of my visit, and for years after, a lot of anxiety in the United States about Japan being the rising power that would supplant the US on the world stage. The Japanese were increasingly dominant not only in auto manufacturing but also in new technologies such as computers, semiconductors and robots. Instead, Japan entered a lost decade in the 1990s (which arguably became two lost decades in the 2000s), while the US economy and stock market raced higher.
Today the rising power threatening US supremacy is China. Now as then, there is a lot of anxiety in the United States about China supplanting the US on the world stage. There are some important differences however. First, relative to the US economy, China is much larger now than Japan was in 1990. Second, the emergence of several other countries from poverty means that China can trade with the rest of the world to a much larger extent than Japan did in the 1990s. Third and perhaps most important from a US perspective, Japan was and remains a strategic ally of the United States, whereas China is at best a competitor and adversary, and at worst a future enemy in a kinetic war.
It is possible that China’s rise will stall or decline in future decades, much as Japan’s stalled in the 1990s, but we cannot assume that it will. Chinese policymakers are shrewd and have studied the lessons of Japan and also of the Soviet Union to avoid the same loss of prestige and hegemony. We should assume until proven otherwise that China’s power and economy will continue to grow and that they will increasingly challenge US interests.
The revival of Japan’s stock market, economy and governance is therefore a welcome development from the point of view of the United States. Japan and China have been enemies in the past and eye each other today with wary suspicion. Further, Japan has close relations with Taiwan and will be compelled to defend Taiwan if China tries to forcibly take over the island. We can see the contours of deterrence forming in Northeast and Southeast Asia. The US and its main regional allies, Japan, the Philippines and South Korea, are all preparing for an eventual conflict. It is possible that, in the event of a shooting war, Vietnam and other countries would join the US side.
As of today, Japan’s armed forces are not very large but they are large enough to make Chinese strategists incorporate them in their calculus of a Taiwan invasion. Takaichi has vowed to increase defense spending, and will likely show a greater disposition to stand up to China, two shifts in policy that may bolster deterrence and help avoid a shooting war. It is worth noting that China has not congratulated Takaichi on her appointment as prime minister.
Meanwhile, the Japanese economy has several challenges to deal with. One is the government’s high level of indebtedness at 230% of GDP, the highest in the OECD. Another is the country’s fading demographics. Japan is getting older and its population is shrinking. This first chart below shows the median age in Japan, China and the US. Japan’s current median age is 49.8 years, vs 40.1 for China and 38.5 for the US. The median age is rising in all three countries, and fastest in China. In 2050, the median age will be 52.8 years in Japan, 52.1 in China and 41.9 in the US. The total Japanese population peaked in 2010 at 128 million. Since then, it has declined to 123 million and is expected to drop to 105 million by the year 2050.
Naturally, the combination of aging and a shrinking population will have a greater impact on the size of the working-age population. This is shown in the chart below. The population aged 15 to 64 peaked in 1995 at 87.6 million and has fallen to 72.3 million in 2025. It is expected to continue falling to 53.9 million in 2050. This is a decline of nearly 40% since the year 2000. Under a traditional economy, this precipitous fall would cause great concern. But under a new AI-driven economy that requires fewer workers, it is possible that Japan will avoid the employment difficulties that other economies will encounter.
Also critical for the economy is the rise of the dependency ratio, the ratio of dependents (children and the elderly) to workers. The dependency ratio will rise in Japan, China and the US (chart below), but Japan’s shows the most dramatic profile and most extreme climb between now and 2050. I have written elsewhere that China owed a large part of its economic boom to a halving of its dependency ratio between 1975 and 2010, but this trend has now been thrown in reverse. The dependency ratio in China is rising and has created headwinds for the Chinese economy.
Note in the chart below how the dependency ratio bottomed close to an economic peak in all three cases: in Japan around 1990, in the US around 2008 and in China around 2010. This is at the very least an interesting coincidence.
When we consider the three pillars of wealth creation per the populyst model, Innovation & Productivity, Demographics & Health and Governance & Society, Japan seems well positioned in all three. The country’s demographics have been a major concern but they may in fact yield unexpected advantages in an AI world.
I finally selected and compiled my posts and articles in a new book, Demographics, The Global Emergency, which I am pleased to introduce here and now.
The articles deal mainly with the populyst three pillars of prosperity and good governance: Demographics & Health, Innovation & Productivity, Governance & Society.
Many were first published on this site. Others first appeared at other media.
Except for a brief introductory “Perspective from AI”, all of the posts and essays in the book were written the old-fashioned way, without AI assistance. Indeed, nearly all were written before ChatGPT and other LLMs even existed. Here is the Table of Contents. Thanks very much for your interest.
According to the UN, the global number of children aged under 5 has already peaked and is likely to fall for the rest of the century. But the number in sub-Saharan Africa will continue to grow until 2070.
How many children aged under 5 are there in the world? And is that number growing or falling? According to the UN’s “medium variant” estimate, it rose until 2017 when it reached 690.4 million, and has been falling ever since. The late Hans Rosling called this ‘Peak Child’.
The UN has several demographic scenarios for the future. The most probable is what it calls the “medium variant”. There are also, among many more, a “high variant” and a “low variant” derived from assumptions of higher and lower fertility. Here, in the first chart, is the global number of children aged under 5, with each of the three variants. According to the most probable scenario (the medium variant), that number will more or less flatline above 650 million until 2060 after which it will fade down gradually to 560 million in 2100. The less probable high and low variants are also shown, with the first racing to nearly 1.1 billion and the second falling to 250 million by 2100.
It is important to underscore that all three variants assume a continuing decline in fertility (the number of children per woman) around the world, in particular in sub-Saharan Africa where it remains elevated. Here is the same chart for sub-Saharan Africa. Under all three variants, the number of children aged under 5 will continue to grow until at least 2050 (low variant), 2070 (medium) or beyond 2100 (high). The numbers themselves are quite large, 185 million today, and 250 million in 2070 per the medium variant.
Sub-Saharan Africa is the most demographically dynamic region of the world. Europe is the least dynamic. Here is the chart for Europe. The number of children aged under 5 peaked in 1962. Note the big dip in the 1990s after the fall of the Soviet Union. European fertility has been well below replacement for a long time, which means that both the overall population and the working-age population will shrink. This retrenchment is not all due to Eastern Europe. The rest of Europe is also in demographic decline. The numbers are relatively small, 35 million children under 5 today and 25 million by 2100 per the medium variant.
Now here is something to make you pause. If we take the last two charts and combine them in a ratio of sub-Saharan to European children aged under 5, we see that this ratio (the number of sub-Saharan children under 5 for every European) rose from less than 1 to 1 in 1950 to 5.3 to 1 in 2023. Under the medium variants for both regions, it is expected to rise to 7.6 by 2050 and 9 by 2075. The consequences of this change will be significant. We are seeing them already with increased migration numbers from south to north.
If you are wondering about North America (includes the US and Canada but not Mexico), here is the chart. The number will remain essentially flat between 20 and 22 million. However, this does not account sufficiently for illegal immigration. It is likely that the number of children aged under 5 will rise to above 25 million in some future years. All the same, North America numbers are small compared to the boom that is taking place in sub-Saharan Africa and parts of Asia.
In a recent post, we described China’s unprecedented success at realizing a demographic dividend starting in the 1990s until around 2010. We discussed the confluence of factors that made this dividend possible. In this post, we look at present conditions and try to discern what is in store for the future. We use our usual approach and look at the three main pillars of wealth creation: Demographics & Health, Innovation & Productivity, Society & Governance.
Demographics & Health
The first thing that is evident is that demographics is no longer a positive vector of economic growth.
The tailwinds created by a falling dependency ratio have died down and are now expected to turn into headwinds (see chart in our first post). The dependency ratio fell between 1970 and 2010 and was a key driver in the country’s GDP acceleration in that it opened a window of opportunity to realize a demographic dividend. China was able to realize that dividend because 1) it had liberalized its economy and opened up to trading with the world, and 2) it had improved its levels of education and infrastructure. As things stand today, the dividend has been fully realized and is behind us. There is instead a risk of a reverse demographic dividend, in which deteriorating demographics create a drag on growth, if China is unable to implement counteracting measures.
This risk is illustrated in the first chart below which shows the Chinese population by age groups. The population aged 15 to 64, aka the working-age population, soared between 1965 and 2015 and is now set to decline, slowly for the next decade but more rapidly thereafter. Meanwhile the population aged 65 and over will more than double between now and 2055. Finally, the youngest group aged 0-14 will taper off for decades to come.
Using the same data, the next chart shows the difference between the number of workers (those aged 15 to 64) and the number of dependents (those aged less than 15 and more than 64). The coming decline is as dramatic as the rise was in past decades. In 2015, there were 636 million more workers than dependents. But by 2055, this figure will fall to 189 million, or about the same as in 1980. Yet during this period, 1980-2055, the total Chinese population will have grown from 1 billion to 1.37 billion. (See in this article how the working-age population of other countries will have evolved between 1960 and 2050).
In addition to the longer term rise in the dependency ratio, China is seeing more recently a decline in its birth rate. China’s total fertility rate (TFR) fell to 1.09 children per woman in 2022, a new low in a recent downtrend that started after 2017. The next chart shows the evolution of the TFR since 1950. Note that it had fallen from over 6.0 to 2.75 before China enacted its one-child policy in 1980. Between 1991 and 2019, the TFR hovered between 1.5 and 2.0 but it fell below 1.5 in 2020 and fell again in 2021 and 2022.
Although a widely used aphorism, “demographics is destiny” is not strictly true in the modern era. Long gone are the days when troop size could on its own determine the outcome of a war, or when deploying manpower on a massive scale could result in a decisive economic advantage. Brute force just isn’t what it used to be. Today, thanks to advanced technology, small groups can inflict enormous damage in war, and a handful of software programmers can create billions in new wealth.
That said, demographics remains an important part of destiny in combination with other non-demographic factors.
Some of these factors can mitigate, or even completely counteract, a deteriorating demographic picture. Others can multiply the positive effects of demographics. This distinction—between demographics as a leading determinant of national stature vs. demographics as merely one of several components —can be illustrated by the following two opinions.
The first is a view promoted among others by Fareed Zakaria in his book The Post-American World (2008). Here is Zakaria in a 2008 Newsweek column The Rise of the Restrepeating the theme of his book:
It is an accident of history that for the last several centuries, the richest countries in the world have all been very small in terms of population. Denmark has 5.5 million people, the Netherlands has 16.6 million. The United States is the biggest of the bunch and has dominated the advanced industrial world. But the real giants—China, India, Brazil—have been sleeping, unable or unwilling to join the world of functioning economies. Now they are on the move and naturally, given their size, they will have a large footprint on the map of the future.
The second is from Winston Churchill’s speech Fifty Years Hence. It is from 1931 but remains as pertinent as ever:
When we look back beyond a hundred years over the long trails of history, we see immediately why the age we live in differs from all other ages in human annals. Mankind has sometimes traveled forwards and sometimes backwards, or has stood still even for hundreds of years. It remained stationary in India and in China for thousands of years. What is it that has produced this new prodigious speed of man? Science is the cause. Her once feeble vanguards, often trampled down, often perishing in isolation, have now become a vast organized united class-conscious army marching forward upon all the fronts towards objectives none may measure or define. It is a proud, ambitious army which cares nothing for all the laws that men have made; nothing for their most time-honoured customs, or most dearly cherished beliefs, or deepest instincts. It is this power called Science which has laid hold of us, conscripted us into its regiments and batteries, set us to work upon its highways and in its arsenals; rewarded us for our services, healed us when we were wounded, trained us when we were young, pensioned us when we were worn out. None of the generations of men before the last two or three were ever gripped for good or ill and handled like this.
Zakaria was not wrong about the growth of China, India, Brazil and others (he was after all writing in 2008 when that growth was already evident) but he gave demographics more weight than it deserves. Zakaria saw the overwhelming success of the less populous West as an “accident of history” while “the real giants – China, India, Brazil – have been sleeping, unable or unwilling to join the world of functioning economies.”
By contrast, Churchill saw the West’s advance as no accident and as the logical result of scientific progress. Note in the excerpt Churchill’s mention of India and China, to emphasize that demographics had been overtaken by science.
Sub-Saharan Africa is nearing a historic opportunity, but most of its nations are not ready.
Published on Africa Day 2023.
The population of India will have surpassed that of China by the end of this year, with each country counting 1.43 to 1.45 billion people. This milestone has led several observers to wonder whether the Indian economy can achieve a demographic dividend in the same way that China did after 1990. There is however widespread misunderstanding around the question of what constitutes a demographic dividend. This recent statement from a leading Indian daily is typical but inaccurate:
“A high population, especially in a younger age cohort, is generally seen as an asset rather than a liability for the economic fortunes of a country. The simple reason for this is that more people also means more working hands.”
“More people” or a “youth bulge” could in theory mean “more working hands” but only if there is a sufficient number of jobs being created. The fact that tens of millions of new young cohorts will come of age every year and will need to take jobs to make a living does not automatically mean that those jobs will be there for the taking. A benign economic outcome cannot be taken for granted merely because of a shift in demographics. If for example investment is weak or if literacy is low, having more people may result instead in greater poverty and other deteriorating conditions. In addition if there is a too-large “younger age cohort”, there may be new headwinds slowing the economy in cases where the number of dependents (the young and elderly) overwhelms the number of workers. All of this is to say that while the sheer total number of citizens is important, it is less important than the age distribution of the population and other non-demographic factors.
In an earlier post we recalled the recovery of the energy sector in 2022. Here we look ahead to prospects for the oil market in 2023. In particular:
Will we see more of the same, upside for energy stocks?
Or will the energy sector subside again? Or mostly flatline?
In previous times, we could offer some answers to these questions by focusing on market supply and demand for oil and gas products. Today, these market forces are made more complicated by factors that are not solely economic, but also political and geopolitical.
Let us consider the key variables and some scenarios.
Key Factors to Watch in 2023
Inventories
Inventories of crude oil and of some oil products now stand near historic lows in the US. This decline was exacerbated by the Biden administration’s sale of oil from the Strategic Petroleum Reserve (SPR) at a rate of about one million barrels per day. These sales have depleted the SPR from a total of over 600 million barrels in March to less than 400 million today, the lowest level since the early 1980s when the SPR was being filled.
The energy sector outperformed in the past year, and not only because of Russia-Ukraine.
“By the fall of __, it was clear that a nation’s prosperity, even its very survival, depended on securing a safe, abundant supply of cheap oil.”
When Albert Marrin penned this sentence in his book Black Gold: The Story of Oil in Our Lives, he was looking back nearly a century and referring to the fall of 1918. But we can agree now, looking at the wreckage suffered by the European economy and at severe disruptions elsewhere, that it applies just as well to the fall of 2022. The six months since the start of the Ukraine war have shown like no other recent period that the global economy in the 21st Century is still very much predicated, as it was in the 20th Century, on the story of oil (and natural gas), of nations searching for it, competing for it, trading it or withholding it.
This realization is not quite what we expected.
On the contrary, rich economies had been for over a decade moving slowly but methodically to reduce their dependence on fossil fuels. As a result of climate change concerns, investors were pouring money into renewables and curtailing fresh outlays to oil, gas and coal projects. Natural gas was previously seen as the cleaner source of energy but it was now deemed as only marginally better than oil. There was a spreading consensus in some quarters that fossil fuels were on their way out, sooner or later but preferably sooner.
University endowments and other large institutions were scrubbing their portfolios free of fossil fuel holdings and were doing so with fanfare and as proof (in their view) of good responsible citizenship and of adherence to ESG standards. Their timing was good because, starting in late 2014, a surge in shale oil production in the United States depressed the price of oil and with it the price of energy stocks. From late 2014 to early 2020, the mere avoidance or diminution of fossil fuel holdings allowed many endowments and funds to deliver significant outperformance vs. the major equity indices. Their returns were further boosted by their generous allocations to the technology sector where stocks rose smartly year after year.
Consider that from its peak in June 2014 to the end of 2019, the XLE energy ETF declined by 40% while, during the same period, the XLK technology ETF rose by 142% and the S&P 500 by 92%. It is easy to see how many “clean” or “green” funds outperformed the S&P 500 in 2014-19, in particular if they overweighted the technology sector.
