Power of population in economic growth

Farai Gwaka
The rise of the BRICS nations has once again rekindled the debate on how population growth impacts on economic development, as these emerging economic superpowers all have a common feature of a large population base.
According to the 2013 Population Reference Bureau report, all BRICS nations are within the top 10 most populous countries in the world with China and India leading the pack at 1 357 million and 1 277 million respectively, while Brazil and Russia were ranked 5th and 9th in global population rankings at populations of 196 million and 143 million, respectively.

After rebasing its Gross Domestic Product (GDP) calculations, Africa’s emerging superpower, Nigeria at a population of 173,6 million is now the largest economy on the continent at a rebased-GDP of $510 billion as at 2013, with South Africa being relegated to second place at a GDP of $370,3 billion as at 2013.

Given the strong linkages between population growth and economic development, it is clear why proponents of population growth within Zimbabwe believe that it is a key ingredient in the country’s overall economic development.

The issue of population and development is concerned broadly with how populations and economies impinge on each other and with the consequences that ensue.
Under the mercantilist doctrine that prevailed in early modern Europe, a larger population was valued as a source of a nation’s wealth.

However, Malthusianism punctured that belief and from Malthus onward, both popular and official opinion has tended to see population growth as a threat to development.

Malthusians believed that increases in production could only too easily be dissipated through additions to population rather than investing in capital accumulation.
Malthusian views lay behind India’s concerns about its population growth both prior to and after independence.

They were the basis of China’s sudden conversion in the 1970s to a policy of radical birth control.
They attained wide prominence in the West in the same decade through the Limits to Growth thesis propounded by environmentalists.

Malthusian thinking has, however, had a discreditable history in economics as resource-dependence has been steadily reduced as technology has advanced and human capital has grown.

Non-renewable resources have found vastly expanded supplies in some cases and ready substitutes in others, banishing fears of an era of diminishing returns and rendering.

Therefore with reference to the BRICS nations, population growth has actually propelled these emerging economies to unprecedented heights, although only a few decades ago these nations were only attractive for their natural resources or as a source of cheap labour and low-cost manufacturing.

Rapid population growth, sustained economic development and a growing middle class are making many companies look at emerging markets in a whole new way.
Emerging markets already attract almost 50 percent of foreign direct investment (FDI) global inflows and account for 25 percent of FDI outflows.

By 2020, the BRICs are expected to account for nearly 50 percent of all global GDP growth.
Between now and 2050, the world’s population is expected to grow by 2,3 billion people, eventually reaching 9,1 billion with the combined purchasing power of the global middle classes being estimated to more than double by 2030 to US$56 trillion.

Over 80 percent of this demand is expected to come from Asia as most of the world’s new middle class will live in the emerging world.
This surge of urbanisation will stimulate business but put huge strains on infrastructure.

Physical infrastructure, such as water supply, sanitation and electricity systems, and soft infrastructure, such as recruitment agencies and intermediaries to deal with customer credit checks, will need to be built or upgraded to cope with the growing urban middle class.

Addressing such concerns in Asia alone will require an estimated $7,5 trillion in investments by 2020.
The rise of the BRICs nations attests to the power of population in economic growth but a growing or high population alone cannot turnaround the fortunes of the Zimbabwean economy.

A surge in population in Zimbabwe can only be beneficial if the country invests significantly in supporting infrastructure, so as to sustain or increase the productivity of each unit of labour.

Therefore it is not the quantum of people that matters in an economy, but it is what they are contributing to the economy.
Furthermore, labour has to be combined with other factors of production such as capital, entrepreneurship and land to be transmuted into economic development.

Zimbabwe’s population since independence has grown by close to 80 percent from 7,36 million in 1980 to 13 million as at 2013.
Although the population has almost doubled, the country’s key infrastructure has grown at a much slower pace, whilst the overall economy has actually shrank from $916,24 per capita in 1980 to around $770 per capita as at 2013.

This is why countries with a rich middle class regardless of population size will always thrive because it is the middle class that pay the taxes, and drive consumption, investment, and savings.

Until recently, South Africa at a population of 53 million was the largest economy on the continent, but despite Nigeria now being the largest economy in absolute GDP terms, on a per capita income basis, South African’s remain richer than Nigerians, at per capita income of $6,987 against Nigerians at a per capita income of $2,938.

Therefore despite South Africans being less than a third of Nigeria’s population, their buying power or income per capita is more than double that of Nigerians, which clearly reflects the strength of the South African middle class and also its overall economy.

With that in perspective, Zimbabwe’s middle class has been getting poorer and poorer over the years because of economic stagnation, which has equally weakened the country’s consumption, savings, and ultimately government’s revenue.

Although, Zimbabwe has the highest literacy rate on the continent, which is a remarkable achievement, it has become apparent that Government focused too much on the labour component of the factors of production at the expense of land, capital, and entrepreneurship.

Zimbabwe is therefore like a car stuck in gear one (labour), that is still trying to change into gear two (land), with gear three (capital) and four (entrepreneurship) still out of reach.

Zimbabwe produces over 10 000 university graduates each year, which is very significant, but because of high unemployment and underemployment in the country, most of the country’s skilled labour is exported to other regional and international countries where they contribute to the prosperity of those nations, as they are unable to contribute to their own country’s prosperity because they are no jobs.

Zimbabwe has therefore become a cheap source of skilled labour in the global labour market, because of the perennial under-performance of the other key factors of production in the country.

Population growth and urbanisation go together, and economic development is closely correlated with urbanisation.
Rich countries are urban countries. No country has ever reached high income levels with low urbanisation.

Population growth increases density and, together with rural-urban migration, creates higher urban agglomeration.
This is critical for achieving sustained growth because large urban centres allow for innovation and increase economies of scale.

Companies can produce goods in larger numbers and more cheaply, serving a larger number of low-income customers.
Zimbabwean companies have benefited to a reasonable extent from the increasing population density in urban centres through targeting the large numbers of lower and lower-middle income groups.

The problem in Zimbabwe is that our Government is always caught napping when such important demographic transitions occur, and since the land reform in the early 2000s, there has been a massive rural to urban migration in the country, which has not been concurrently supported by investment in infrastructure to support the increased urban population.

For example, Greater Harare is currently estimated to have a population of about 4,2 million people, but the city still relies on the Morton Jaffray Waterworks whose last expansion was commissioned in 1976 when Harare’s population was just 615 000 (a seventh of Harare’s current population).

The same problem applies to housing, power, roads and other key infrastructure.
Labour markets have become global and demographic changes across most advanced and emerging economies have meant that their populations are aging, and therefore the demand for young skilled labour has significantly increased.

Furthermore, apart from skills shortages, there is now serious competition amongst global superpowers for innovators – that is – those with ideas or the brainpower to take their nations forward.

The United States has been leading this race for a while, but other superpowers such as Germany, France, and Australia have also joined the race after realising the power of skilled immigrants and have also been offering attractive incentives to lure skilled migrant workers.

According to a study led by former New York City Mayor Michael Bloomberg, in the United States, more than 40 percent of the Fortune 500 firms were started by immigrants or children of immigrants, including seven of the 10 most valuable brands in the world.

Therefore, clearly advanced economies have realised the importance of attracting skilled labour from the global market as it has become a serious competitive advantage in the race to economic advancement and prosperity.

Closer to home, South Africa has benefited tremendously from both skilled and unskilled labour from Zimbabwe.
From farm labourers to doctors and engineers, South Africa has absorbed a significant chunk of Zimbabwe’s unemployed and underemployed labour force, a strategic move that has boosted that country’s economy and also ensured it country remains the regional economic powerhouse.

Zimbabwe needs to move away from the current short-sighted policy mind frame through the implementation of far-sighted inter-generational policies that can stand the test of time.

The size of a country’s population or labour force in isolation of other factors of production will never solve a nation’s economic problems.
Zimbabwe’s economic problems are closely linked to serious under-performances in the land, capital, and entrepreneurship factors of production.

The land reform programme after more than a decade remains unresolved, whilst the capital has remained elusive in both the pre- and post-dollarisation era.
The concept of entrepreneurship, despite having a very skilled labour force is still at its infancy in this country and more needs to be done from a policy perspective to nurture country’s budding entrepreneurs.

The country needs new companies in new industries to take the nation forward, and this can only be achieved through the promotion of local entrepreneurship, supported by the other three factors of production. – Zimnat Asset Management.