At a lunch last month for some of the world’s high-powered movers and shakers, Indonesian Trade Minister Mari Pangestu suddenly interrupted Gita Wirjawan, chairman of the Indonesia Investment Coordinating Board, who was beginning his ‘Why Invest in Indonesia’ spiel. “Excuse me, I’m sorry, I forgot to say something,” said the trade minister. “I forgot to tell you about our demographic dividend.”
More than half of Indonesia’s 240 million people are younger than 29, she explained, and that means a lot of free-spending consumers interested in fashion, entertainment, smart phones, cars, homes, computers and the Internet – Indonesians are apparently now the biggest users of Facebook in Asia and the world’s fourth largest after the U.S., U.K., and Turkey. Investing in Indonesia, whose sovereign credit rating is now just one notch below investment-grade, means investing in the future.
I was reminded of that lunch with the release on June 29 of Merrill Lynch
’s demographic chartbook for the Asia Pacific. In “Youth Shall Set You Free,” the investment bank looked at the region from the demographic angle – and the trends are eye-opening for Asia’s companies and their CFOs, who are key players in corporate strategic planning.
As it happens, Indonesia emerges as a winner along with India and the Philippines in the Merrill Lynch analysis. China and Thailand “will get old before they get rich,” the report warns, while in Japan, “there will be less than two people in the working age [group] to support an elder . . . after 2025.” Populations in Australia, Hong Kong, Korea, Singapore and Taiwan are growing old fast, but they are expected to remain among the wealthiest in the world.
This does not mean that everyone should rush to Indonesia and shun Hong Kong and Singapore. A company should be able to survive and thrive in any business environment so long as it is in the right industry and its business model, finances, product mix, marketing and other systems and processes are designed and calibrated for that particular environment. But that happy congruence can be accomplished only with careful planning – and planning requires a reasonably accurate view of the shape of things to come.
Merrill Lynch examined data from the United Nations, World Bank, IMF, World Health Organisation, U.S. Census Bureau, Bloomberg, DataStream and a variety of other sources to put together a picture of demographic trends in the next two decades. It then ranked countries according to the following measures:
- mid-young ratio (age 40-to-49 group divided by age 20-to-29 group)
- prime savers to the rest of the population ratio (age 40-to-64 divided by total population)
- elderly dependency ratio (older than 64 divided by 15-to-64)
- child dependency ratio (below 15 divided by 15-to-64)
- per capita GDP growth in purchasing power parity (PPP) dollars
- net migration rate (number of immigrants minus number of emigrants divided by per thousand persons of total population)
- labour force education (literacy rate; percent of workers with tertiary education)
India (population: 1.1 billion) scores positively on four of these seven measures: prime savers ratio (28% of total population are aged 40 to 64), elderly dependency ratio (65% and older group less than 10% of those aged 15 to 64), child dependency ratio (Indians younger than 15 are less than half of those aged 15 to 64) and per capita GDP (4,804 PPP dollars in 2015 from 400 PPP dollars in 1980). However, India scores especially low on net migration (more Indians leave their country than foreigners settling there) and labour force education (only half of women are literate).
Indonesia (population: 240 million) gets positive scores on three of the seven measures: prime savers ratio (33% of the population are aged 40 to 64), elderly dependency ratio (65 and older group is only 10% of the 15-to-64 group) and child dependency ratio (children under 15 are less than 40% of the 15-to-64 group). But tThe country scores low on net emigration (more Indonesians leave the country than foreigners settling there) and education (only 7% of the labour force have a tertiary education).
The Philippines (population: 92 million) also does well, demographically speaking. It scores positively on three of the seven measures: prime savers, elderly dependency ratio and child dependency ratio. Unlike India and Indonesia, the Philippines does not do too badly on labour force education – 28% of its workers have a tertiary education (Korea: 35%). But like India and Indonesia, more of its citizens are leaving the country compared with the number of foreigners settling there.
Arguably, net migration is not as big an issue in these three populous countries as it is in much smaller markets such as Australia (population: 21.4 million), Hong Kong (7 million) and Singapore (4.8 million). These three economies score positively on net migration – more emigrants are settling in their territory compared with the number of citizens leaving for other pastures.
The net migration trend may be paying off for Hong Kong on another measure: the city performs strongly in terms of its mid-young ratio (the number of Hong Kong residents aged 40 to 49 is 137% larger than those aged 20 to 29). “The stock markets and financial assets are arguably most influenced by [middle aged] people,” says Merrill Lynch. “It’s not surprising that the correlation between the mid-young ratio and the aggregate value of stocks traded is quite high for most Asian countries.”
That’s good news for a financial centre like Hong Kong, but perhaps not so much for Singapore, another Asian financial hub. Despite positive net migration numbers, Singapore scores negatively on the mid-young ratio, prime savers ratio, elderly dependency ratio and child dependency ratio. All these imply that a higher proportion of household wealth in Singapore may be spent on care for the elderly and the young, rather than invested in the stock and bond markets or on consumption of goods and services.
China, the world’s most populous country with 1.3 billion people, performs strongly on per capita GDP growth. But the structure of its population, formed in part by its one-child population policy, is such that the elderly dependency ratio will rise be around 25% by 2030 (from about 10% today) and to nearly 40% by 2050. Merrill Lynch plotted China’s elderly dependency ratio trends against its gross GDP per capita in PPP dollars. The conclusion: China will grow old before it gets rich. Despite the stellar GDP growth rates of the past two decades, the country’s per capital GDP will be about 40,000 PPP dollars in 2030 (far smaller than 140,000 or so in the U.S.), even as the proportion of Chinese 65 years and older will rise to four for every ten citizens aged 15 to 64.
Thailand will be in the same boat, according to the Merrill Lynch analysis. It will still be poor in 2030 with about the same GDP per capita and elderly dependency ratio as China. India, Indonesia, Malaysia and the Philippines will remain relatively poor in 2030 too, but their populations will be younger; their elderly dependency ratios will be lower than 25%. As for Australia, Hong Kong, Japan, Korea, Singapore and Taiwan, they will remain rich, but they will also be old – their elderly dependency ratios are likely to approach or exceed 40% in 2030.
Implications for Business
All these population and wealth markers are useful inputs for long-term corporate planning. In rich markets that skew older like Australia, Hong Kong, Japan, Korea, Singapore and Taiwan, health care, financial services, travel and luxury goods should find steady demand. Product design, marketing and customer fulfilment will probably need to follow more traditional models. Staff costs, rents and other operational expenses will likely be high and so companies may need to look at things like automation, outsourcing, cloud computing and the like.
In societies that skew young and are still in the process of accumulating wealth like India, Indonesia, Malaysia and the Philippines, flexible price points, mass consumption goods, trend-setting fashion and electronic gadgets, smaller cars and motorcycles are likely the way to go. Labour costs would be comparatively lower so they may be good export production sites and outsourcing bases. Many consumers will probably be open to self-customised products, Internet auctions, e-commerce and other non-traditional distribution and marketing processes.
“We see investment opportunities for the education sector in countries that have potentials for further investments in education and improvements in the labor force education profiles,” says the Merrill Lynch report. “Those countries could include China, India and Philippines.” The investment bank also notes that “healthcare expenditures in Japan, China, Indonesia, Korea and Singapore are low with respect to their elderly dependency ratios and life expectancies,” indicating opportunities for new players going forward.
These are very broad strokes, of course. There will be segments within each old/rich and young/poor markets that will require companies to come up with unique approaches. Government tax and other policies and programs, regional and global trade initiatives, international regulations and many other external factors will come into play. Much also depends on every company’s internal dynamics, philosophies, culture and financial situation. But, knowing the general population trends, companies in Asia can at least glimpse the outlines of the future – and plan for it today.
About the Author
Cesar Bacani is senior consulting editor at CFO Innovation.