Global Economic Update

The news over the past few weeks has been overwhelming. Three major pillars of our financial and political establishment – Anglo American, Pick and Pay, and the African National Congress – were shaken to the core. The struggles of these eminent institutions were not surprising. Cracks in their operations appeared decades ago, but to paraphrase Ernest Hemingway on going bankrupt, their troubles were gradual and then sudden. They will all restructure and survive, and may even prosper, but recovery will be painful and costly.

As interesting as these stories are, I was drawn to the recent reports about slowing population growth in the world’s major regions, and the implications these changes will have on the global economy. Improved living standards and advances in medicine are resulting in people living longer, yet the concern isn’t that populations are getting older, but that birth rates in a number of developed countries are falling below the mortality or replacement rate.

There are many explanations proffered for the decline in fertility rates. Feeding, housing, and educating children are major costs for parents, and for a working couple, childcare is an added expense. Furthermore, skilled women, fearing that starting a family could stall their career paths, often delay that decision for years.

The danger of these population imbalances is that the labour force begins to shrink, while the additional burden of providing higher pension and healthcare costs for the aged puts pressure on a country’s finances, dragging down economic growth. The counter arguments are that technological advancement - from artificial Intelligence to robotics – immigration and the increased participation of women in the workforce should help mitigate these risks.     

Food Company Nestle is not leaving anything to chance and is prioritising operations for the changing demographics. Nestle are developing products for the middle-aged and elderly that will preserve muscle mass, maintain a target weight, and control blood and sugar levels.

There is another side to the equation. As the rich world grapples with the challenges of a maturing population, Africa could provide the antidote. According to the United Nations, Sub-Saharan Africa’s population will nearly double to 2.5bn people by 2050. While Nestle closed an infant formula factory that served the Chinese market because of the falling birth rate, the opportunities to cater for the health, educational, infrastructural, and social needs of Sub-Sahara Africa are immense.

We’ve seen this movie before. Analysts forget that the sub-continent is made up of 48 countries, each with its own set of trade barriers and business rules. High levels of corruption, civil wars, unreliable energy supply, inadequate infrastructure, poor healthcare systems, and insufficient investment in education have impacted productivity and economic development in many of these nations.

30 years ago, South Africa was considered the gateway to Africa, a moral compass and beacon of hope for the awakening of the sub-continent. The train never left the station. Our failures have been well documented, but the recent elections provide a feint opportunity for the ruling powers to press the reset button and try again. Still, historical differences, stubbornness, and inherent prejudice can easily waylay what appears to be a sensible track forward.

About the Author

David Shapiro
Chief Global Equity Strategist, Sasfin Wealth

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