Demographic Dividend: Which Countries Are Next?

SAMI J. KARAM

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.”

The Financial Times similarly published “Can India Unlock the Potential of its Youth?” in which it discussed India’s prospects of deriving a demographic dividend from its youth bulge.

“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.

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On Oil and Energy into 2023

SAMI J. KARAM

This post, the second in a series on the energy sector, was first published at Exante Data’s Money: Inside and Out.

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

  1. 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. 

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The Great Energy Recovery of 2022

SAMI J. KARAM

This post, the first in a series on the energy sector, was first published at Exante Data’s Money: Inside and Out.

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.

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The Wednesday Briefs – Evaluation Update 1

Editors

In our August 2021 evaluation of The Wednesday Briefs under the headline Are The Wednesday Briefs Worth Reading?, we concluded that The Wednesday Briefs made a large number of accurate predictions. Separating the survey by topic, we included excerpts from previous issues that had proved prescient. We encourage you to read or re-read the first evaluation. We include those excerpts below again.

We also accepted that not everything had been perfect. For example, we were too optimistic about the pandemic. We thought and hoped that the numbers of cases and deaths would be far lower than they turned out to be, and that the pandemic would fade faster than it did. We had little precedent to go on and hoped for the best.

The other place where we stumbled or thought that we had stumbled, in the issues preceding that August 2021 evaluation, was on the question of inflation. Here we quote from our post back then: “We called it right but overworried a bit about inflation”. As we all know now, we had not in fact overworried about inflation, but were unfortunately correct to worry. It just took longer for inflation to show up in the official numbers.

Net net therefore, our main miss before August 2021 was about the pandemic. Not a negligible miss, but again one with little precedent in our collective experience.

Let us now examine the record since August 2021, using the same template of topics (POLITICS, MARKETS, ECONOMY) that we used in the first post and substituting “GEOPOLITICS” for “PANDEMIC”. The first is heating up while the second is subsiding.

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2022 French Elections with Axel Gyldén, 16 April 2022

Editors

Between the two rounds of the French Presidential election (last Sunday and next Sunday), Sami J. Karam speaks to Axel Gyldén, veteran reporter at France’s leading weekly L’Express. Topics include analysis of the first round results, President Emmanuel Macron’s popularity, Marine Le Pen’s probability of winning and what such a victory would mean for France and for Europe.

TO HEAR THE PODCAST, CLICK HERE OR ON THE TIMELINE BELOW:

Twitter Punished

Editors

The following opinion first appeared in The Wednesday Briefs 110 – 6 April 2022. Access to The Wednesday Briefs is free but requires a password. Subscribe to populyst for access.

Tesla does not advertise in the media. That is true if you ignore the free advertising that Elon Musk gets by tweeting daily on Twitter. Musk in addition to everything else is a cult leader not only of the Tesla cult but also of the cult of Musk. In fact, the cult of Musk is the primary reason why Tesla is valued more highly than all other automakers combined. Musk sells electric vehicles and space rockets, but he sells first and foremost the public persona of Elon Musk. His purchase of 9.2% of Twitter therefore can be seen as an integral extension of his efforts.

Twitter has become vital to Musk, as vital as it had become to President Trump. Both Musk and Trump have (or had, in Trump’s case) tens of millions of followers and were able to reach them every day at a cost of exactly zero. We noted in the past the absurdity of this “free lunch” anomaly and have long argued that Twitter should invoice certain categories of users, not only in order to generate revenues but also in order to enforce a code of conduct.

We included this graph in The Wednesday Briefs 073 and 046. The x-axis refers to a user’s frequency of tweeting. And the-y axis to whether Twitter is indispensable to him. In our view, Twitter should charge users who fall in the green box, as well as some of the more prominent bloggers (the chart is from 2017 when there were few prominent bloggers; that bubble should extend to the right).

However, Twitter has remained free to all users, bypassing normal market forces and their necessary disciplining effects. Now as tends to occur with all free services, it has been ambushed by reality on two fronts: rogue users and low revenues.

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With Eduardo Mufarej, Founder of Renova, 17 March 2022

Editors

What makes an effective politician? Politicians come from all walks of life but the vast majority of them do not have any formal training in political science or in government or in the tasks and tools of being a politician. Renova, an innovative non-partisan non-profit organization in Brazil, seeks to change that and to also improve governance, by training aspiring political candidates. In this podcast, Sami J. Karam speaks to founder and chairman Eduardo Mufarej about Renova’s mission, its training curriculum and its prospects.

TO HEAR THE PODCAST, CLICK HERE OR ON THE TIMELINE BELOW:

Demographics of Russia, Belarus and Ukraine

SAMI J. KARAM

In his article of last summer “On the Historical Unity of Russians and Ukrainians”, Vladimir Putin wrote the following:

“But the fact is that the situation in Ukraine today is completely different because it involves a forced change of identity. And the most despicable thing is that the Russians in Ukraine are being forced not only to deny their roots, generations of their ancestors but also to believe that Russia is their enemy. It would not be an exaggeration to say that the path of forced assimilation, the formation of an ethnically pure Ukrainian state, aggressive towards Russia, is comparable in its consequences to the use of weapons of mass destruction against us. As a result of such a harsh and artificial division of Russians and Ukrainians, the Russian people in all may decrease by hundreds of thousands or even millions.”

The last sentence addressed the demographics of Russia, in particular the size of its population. For a long while, Putin has been mindful of Russia’s weak demographics. In the past, he has sought to stimulate Russia’s birth rate and has rewarded couples who have more children. According to UN estimates, the Russian population is not growing and its median age is rising. Because Putin views Ukrainians as the same people as Russians, a shift of the Ukrainian identity away from Russia and towards the West would mathematically reduce the total number of Russians. In other words, if you are Russian one day, you can be counted within the total Russian population. But if you no longer identify as Russian because of “forced assimilation”, it is possible that you may no longer be counted within that total.

So let’s take a quick look at the demographics of Russia, Ukraine and also Belarus since it too is viewed by Putin as part of the greater Russian people. As shown in the two tables below compiled from UN Population data, the population of Russia rose from 102.8 million in 1950 to 147.5 million in 1990, or a respectable average of 0.9% per year. But then it went flat after the breakup of the Soviet Union due to the deep economic problems that then affected Russia and other former Soviet Republics. According to the UN’s medium variant projection, Russia’s population will decline to 135 million in 2050. Meanwhile, the median age has nearly doubled since 1950 because couples are having fewer children, a phenomenon seen in many countries/regions including the United States and Europe.

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How to Tax a Billionaire (or Not)

SAMI J. KARAM

Our institutions created centibillionaires and are now trying to contain them.

In Ayn Rand’s novel Atlas Shrugged, a group of high-achieving industrialists have had enough with being exploited (in their view) by “parasitic” collectivists and “second-handers”. They withdraw to a perfect community Galt’s Gulch aka Atlantis where they can live in peace and prosperity with each other, far away from the do-nothing (in their view) populace and according to their own laws and beliefs.

Because Rand mercifully never wrote a sequel (the original has more words than either War and Peace or Les Misérables), it is not clear whether these supermen and women lived happily ever after or whether, after enjoying the initial high of sticking it to humanity, their infinite egos led them to devour each other to oblivion and Galt’s Gulch disappeared Roanoke-like with no explanation left for posterity. That is, no explanation other than the obvious which is that a healthy society requires a fuller range of social strata and cultures, not only a super-stratum and a monoculture, in order to survive and to prosper.

No escape to Galt’s Gulch is currently offered to today’s billionaires who have so far opted to remain in the real world though they contend daily with insults and attacks from many quarters. It is necessary to say “so far” because some have been toying with otherworldly escapes, be they monetary via cryptocurrencies or interplanetary via emigration to planet Mars. Cryptos would free them from the gravity of central banks. And space from the gravity of Earth. After all, in our culture, “to leave it all behind” is nearly synonymous with high quality living. And to disrupt, to reject the dominant paradigm, are seen as ways to create new wealth.

Bernie vs. Billionaires

While still among us on earth however, even the ultra rich deserve… empathy. Or at least some recognition for their achievements. Their defining characteristic, shorn of all social and economic artifice, remains their humanity, not their wealth. Yet it is assumed by the angry-egalitarian political complex that it is fine to insult and harass a billionaire, as if their humanity was inversely proportional to their wealth. Starting with Bernie Sanders for example, some members of Congress have stated plainly that “billionaires should not exist”.

Because there are among the people mob inciters who amplify their message through social media, this slogan could be interpreted as incendiary, or as unsafely ambiguous. Does ‘billionaires should not exist’ mean that we should tax them until they are no longer billionaires? That would entail taking away 99% of some billionaires’ wealth. Or does it mean that we should limit their growth plans when their wealth hits the $999 million mark? Or force them to give away their wealth to charity? Or something else?

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The Wednesday Briefs – An Evaluation

Editors

Perfection is unattainable, but the track record has been solid and consistent.

The Wednesday Briefs are not primarily about forecasting but about providing unique commentary and insight on current affairs. But this commentary and this insight have sometimes come hand in hand with making forecasts.

Described by a regular reader as a “weekly gift and a treat”, the Wednesday Briefs are thought-provoking and enjoyable to many. But are they worth reading as a forecasting source? Below are excerpts from the various Briefs over the past seventeen months. We were too optimistic about the pandemic’s longevity but mostly right about other things.

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