Kenya is among the economies that are poised to reap the highest dividends from a rapidly growing population in the next 35 years, London-based Economist magazine says in its latest assessment of long-term growth prospects for countries worldwide.
The Economist Intelligence Unit (EIU), the research arm of the magazine, says Kenya’s labour force will nearly triple to 48 million by 2050 from the current 18 million, offering the economy a unique potential to speed up growth.
The EIU says a large base of economically active people should enable Kenya to sustain an average annual gross domestic product (GDP) growth rate of nearly 4.7 per cent over the 35 years.
The army of young workers should contribute approximately 1.7 per cent of the GDP growth, the EIU says, with the balance coming from capital and factors like technological advancements (referred to as total factor productivity).
“For countries with favourable demographics, our forecasts assume that growth-friendly policies are pursued and are successful in providing jobs for a growing workforce to ensure longer-term growth,” says the report titled Long-term macroeconomic forecasts.
Kenya’s demographic dividend is third in Africa behind Nigeria (1.9 per cent of a 4.9 per cent GDP growth) and Angola (two per cent of a 4.3 per cent GDP growth).
The workforce in the two countries is expected to increase from nine million to 28 million in Angola and 56 million to 161 million in Nigeria, giving them an edge in terms of the absolute labour force by 2050.
Globally, Nigeria tops the demographic dividend list followed by Pakistan with 119 million (an increase from the current 60 million), Philippines with 78 million (from the current 40 million) and Kenya with 48 million.
“These economies will primarily benefit from favourable demographics in the forecast period, with higher birth rates supporting a healthy supply of workers,” EIU analysts say.
“The contribution to growth from changes to the labour force for these economies will be positive and represent a larger driver of growth than capital and TFP.”
The report flies in the face of previous ones that have sought to highlight a bulging population as an impediment to economic advancement in Kenya and the continent.
In Kenya, for instance, it has been argued that a large population piles pressure on the limited economic resources in a country where nearly 50 per cent of the population is living below the poverty line.
Concern over the population’s effect on the economy, which is shared by many economists, stems from the fact that Kenya’s economic growth increases by about one per cent yearly while her population grows at a rate of three per cent annually.
To be in a healthy position economic growth needs to outpace population growth, allowing the government to plan and put structures in place for investing in human capital.
It is for this reason that the Ministry of Health has spent billions of shillings in tax and donor funds to promote family planning through a string of campaigns in the past five years, efforts that have so far registered little success.
Jacqueline Mugo, the Federation of Kenya Employers executive director, says a growing population can be beneficial to an economy but warns that Kenya has an “oversupply of labour” and that family planning efforts need to be supported.
“The issue with the Kenyan labour force is not in their numbers, but the inadequate skill that people possess,” Ms Mugo told the Business Daily in a telephone interview.
“The government is stretched to some extent as it is unable to keep up with the population growth. In some sectors such as education, the interventions have not yielded much fruit especially in rural areas due to underfunding.”
But some economists, including those who authored the EIU report, support high population growth, saying it could positively impact GDP as more people would get employed.
Wolfgang Fengler, a lead economist with the World Bank, shares this view. Through a blog post on the World Bank website, he argues that one key indicator of rich and high-income countries is urbanization, which is partly driven by population growth.
“Population growth increases density and, together with rural-urban migration, creates higher urban agglomeration,” said Mr Fengler.
“This is critical to achieving sustained growth because large urban centres allow for innovation and increase economies of scale.” Mr Fengler states that Kenya’s growing population has benefited companies, giving them access to a large customer base “at the bottom of the pyramid” represented by lower- and middle-income groups.
Some of the factors the EIU analysts used to develop their projections include the level of an educated workforce, the economy’s openness to trade and the quality of institutions, including the legal framework and bureaucracy.
Fiscal policies such as the degree of government regulation and movements in the population of working age relative to the overall population as well as the income gap between a country and the United States are also included.
The analysts, however, reckon that for their 35-year forecasts to ring true, governments need to implement policies that positively impact the growth factors, something Mr Fengler also emphasises.
“For countries with favourable demographics, our forecasts assume that growth-friendly policies are pursued and are successful in providing jobs for a growing workforce and ensuring longer-term growth,” the EIU report states.
“Failure to achieve this will lead to a growing number of potential workers unable to find employment, resulting in a source of political instability and a missed opportunity of seizing an advantage offered by favourable demographics.”