Will Many Developing Countries Get Old Before They Get Rich?

In the next 20 years , much of the developing world is going to experience aging, with profound implications for the future of those countries and for the future of the world. For much of the last 60 years, the entire focus of global development has been on population growth as a result of more births than deaths in a society. Aging—where there are more deaths than births in a society—will bring a new set of challenges to dozens of countries that will require us to develop new approaches, new policies, and new tools. This issue will rise on the global agenda in the next five years—and beyond. Yes, the world’s population is going to grow. Nigeria, Pakistan, Afghanistan, and a handful of other countries are going to experience dramatic population growth. This population explosion in some parts of the world is one of the major challenges of our time. Aging in other developing countries is arguably going to be as important, but it gets far less attention.

In most of Latin America and growing parts of Eastern Europe and Central Asia, fertility rates have dropped significantly below replacement levels. And once a country drops below childbirth replacement levels, it almost never rises back to or above such levels again. Over time, the population of aging societies shrinks.

Consider countries in Asia. Of the 48 countries the Asian Development Bank (ADB) lends to, 11 countries currently have fertility rates below the replacement level of 2.1 births per woman (Armenia, Azerbaijan, Bangladesh, Bhutan, Georgia, Malaysia, the Maldives, Nepal, China, Thailand, and Vietnam). In 10 years, if the current trends continue, nearly half of the ADB’s borrowing countries will have fertility rates below replacement levels. In 20 years, almost all will be below replacement levels.

Seven Likely Impacts of Aging

What are the implications of aging for developing countries? First, global migration patterns will change. Countries with aging populations will have fewer people who are inclined to migrate. For example, countries that have historically migrated for economic reasons, such as the Philippines, will likely have far fewer young people to seek their fortunes abroad in the decades ahead.

Second, aging will slow urbanization. In aging societies, urbanization—movement from rural areas to urban areas—will continue but more slowly. At a certain point, there will be an actual contraction in the footprint of cities in aging societies, as is happening in Japan today. The same can be expected for cities in China in 20 years. Towns and cities will incorporate new technology and designs that are friendly to older citizens, which will further impact density and the use of land.

Third, new forms of social safety nets will be needed in developing countries. Anti-poverty safety net programs exist in many developing countries. However, as life expectancy increases, societies become more urban, and the workforce changes, there will be radical shifts in the social contract among generations. Pressure will likely build to raise the retirement age. Governments and the private sector are going to be asked to respond to this challenge.

Fourth, and relatedly, a “care economy” will emerge in developing countries to respond to the changed social contract. There will be more demand for nursing homes, specialized housing, specialized medical care, pharmaceuticals, retirement insurance, and technologies that make it easier to care for and enable a high quality of life for older citizens. In those countries that do not have enough labor, there will be increased demand for migrants to meet the demands of the care economy, as seen in Taiwan. Alternatively, the care economy may also increase demands for new forms of automation, something already underway in Japan.

Fifth, aging will affect investment patterns and capital flows. Younger people are more willing to invest in stock exchanges and venture capital. Older people want fixed income and are more risk-averse. This risk aversion will impact the amount of risk capital in a society, thereby reducing the capital available for entrepreneurs. It may also increase the demand for very long-term investment products, including infrastructure or real estate. The global infrastructure deficit could be financed by the retirees of the developing world. New financial products will need to develop—especially life insurance and other savings products—to supplement the existing public programs for retirement.

Sixth, aging societies could be less prone to war. Without young populations to recruit and replace soldiers, countries with aging populations must spend more per soldier and be more cautious about military engagements. If a country has a large population of youth, the country will have more people who are of “fighting age,” and these younger populations can be more easily radicalized than adults if job opportunities are unavailable.

Seventh, what happens if a country gets old before it gets rich? This is the dilemma of China and maybe several dozen other developing countries. At some point, aging creates limits on the amount of growth and possible productivity one can contribute to a society. This is the challenge Japan faces now, and in two decades, we will see this more broadly in Asia and elsewhere. This is the biggest challenge: if a country ages before it gets rich, it could condemn a country to a certain level of wealth and development.

Contending with Aging

Most developing countries and certainly most aid agencies have not recognized how aging may quickly change large parts of the developing world. Yes, there absolutely is a youth bulge coming to Africa and South Asia, but dozens of developing countries in other regions will experience aging on a huge scale, and they are not equipped to confront this challenge.

Japan, Taiwan, and South Korea are all experiencing aging and should lead the world in confronting this challenge. The new president of the Asian Development Bank, Masatsugu Asakawa, has made aging one of his three priorities. The ADB is well-placed to lead and influence the regional and even the global conversation. Aging cannot be stopped, but we can shape the future and prepare for it.

Article originally published on csis.org on March 31, 2020.

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