Key points
Global population growth creates dramatic challenges and opportunities. Key for investors: demographics’ impact on economic growth, consumption patterns, infrastructure needs and the use of finite resources.
Countries are not guaranteed a demographic dividend. Policy, we believe, will be a differentiator. We created a set of scores to help screen for economies with solid national and corporate policies.
Timely investment is needed to cope with the stress growing populations put on the planet. Investment opportunities exist in green infrastructure, agriculture technologies, alternative sources of protein and reforestation.
By the end of this century, the global population is set to reach 10.6 billion, creating dramatic challenges and opportunities. “Younger” economies with a rising proportion of working-age people (15–64) stand to gain a demographic dividend – faster economic growth – than economies with a large proportion of older adults. In sub-Saharan Africa, the Middle East and parts of Asia, the working-age populations are growing the fastest.
Of primary importance for investors are these demographics’ impact on economic growth, consumption patterns, infrastructure needs and the harvest and use of finite resources.
Economic success based on demographics alone is far from guaranteed. Which young economies seem prepared to harness a demographic dividend?
We believe sound policy will be the differentiator. Countries with strong national and corporate governance frameworks, sustainable infrastructure and integration into global supply chains will be the likely winners.
Absent these, important risks arise. Economies that fail to properly invest in their fast-growing working-age labor forces, build out sufficient infrastructure (in time) and ensure the sustainable use of their natural resources could face disastrous consequences.
We have created sets of scores that aggregate indicators of key policy. Together, our four scores offer a multifaceted approach that can help investors decide where they might best take advantage of population growth.
To be sure, income inequality is a challenge. Still, investment opportunities to serve young consumers should be abundant in high-scoring younger economies. Rising numbers of young households in these economies are set to boost consumption growth for clothing, educational services and transportation.
But population growth also means more intensive use of energy, water, food, ecosystems and infrastructure. To alleviate the inevitable stress on the planet, adequate and timely investment is needed in sustainable solutions. Exciting investment opportunities can be found in solutions to the challenges – in rethinking infrastructure, energy and food consumption habits; in more sustainable land use, agriculture and forestry. The themes include green infrastructure, sustainable agriculture technologies, alternative sources of protein and reforestation.
Our scores:
Top-Down score: Measures key sovereign policies and institutions (rule of law, economic freedom, education and others). High scores may indicate appealing government bonds and currencies. India, Vietnam, Malaysia, South Africa, Saudi Arabia and the United Arab Emirates (UAE) show promise.
Bottom-Up score: Captures corporate governance. High scores may indicate appealing equity and credit investments. Malaysia and South Africa score well here.
Migration-Productivity score: Reflects how well an economy is capitalizing on migration trends. High-scoring Canada, UK, U.S., Germany and France can potentially deliver better growth results than their demographics alone suggest.
Energy Transition Momentum score: Captures the potential trajectory of green energy in different economies. Kenya, Vietnam and the UAE stand out.
Ultimately, private capital should complement public initiatives to unlock younger economies’ potential demographic dividend in the most sustainable way.. In a world of higher rates, sound policy will be the key to attract scarcer funding, creating winners and losers for investors along the way.
