Demographics fuelling Asia’s shifting balance of power Voice of Asia, Third Edition, September 2017
Demography—the fundamental driver of all economies—is shifting the balance of power in Asia. India's young economy is on the rise, Japan's big budget deficits are being worsened by ageing, and both China and Australia are getting older at a speed that will re-fashion their business landscape.
Two centuries ago Napoléon Bonaparte noted, "China is a sleeping giant . . . when she wakes, she will move the world."
He was right. But now two other sleeping giants are stirring.
Ageing Tigers, hidden dragons
India is the first awakening giant. Its rise as an economic superpower is about to be felt in earnest. Our first article in this issue—Ageing Tigers, hidden dragons—shows that India will account for more than half of the increase in Asia’s workforce in the coming decade.
The consequences for businesses are vast: An Indian summer is coming, and it will last half a century. And while India’s rise might have the largest impact on the world, it isn’t the only economy set to surge, with Indonesia and the Philippines on track to enjoy similar trends. Both of these nations have a relatively young population, mainly because they still have birth rates in excess of the global average. This makes demographics a tailwind rather than a headwind for their growth across at least the next 20 years.
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It’s time to wake up and see the opportunities
The second awakening giant is the accelerating pace of retirements across much of Asia. Hong Kong is set to be hit harder than anywhere else in Asia as its workforce ages fast, but the likes of China, Vietnam, and Australia will all see their economies witness slower growth due to their ageing population—with Thailand and New Zealand not far behind.
The world is beginning to wake up to the emerging challenge of ageing markets. Yet in many cases businesses simplistically assume that the glory days of market growth have passed. It may well be challenging, but that demographic destination isn’t absolute. Indeed, it isn’t entirely new. Japan, which led Asia’s first wave of demographically powered economic growth, is already grappling with a rapidly ageing population.
The second article in this edition—Asia’s growth on the cusp of change, driven by demographics—asks how businesses on the right side of those changes can maximise the potential benefits. Our analysis shows that even for those nations on the wrong side of demographics, ageing will produce some very large winners at the industry level.
That last point isn’t well understood. Ageing may be a challenge to some economies, but it will also present some incredible business opportunities within those same nations. Ageing populations will generate a ”growth cluster” of vibrant businesses at the heart of the collision of megatrends such as rising life expectancies, increasing relative health care costs, and tightening public sector health budgets.
The scale is simply staggering, and so are the associated business opportunities.
Our analysis shows that those in Asia aged over 65 will be the largest and fastest growing market in the world; they are set to grow in number from 365 million in 2017 to more than 520 million in 2027.
There are already more over-65s in Asia than there are people in the United States. The number of over-65s in Asia will exceed one billion just after the middle of this century. In fact, by 2042—in just a quarter of a century—there will be more over-65s in Asia than the populations of the Eurozone and North America combined.
Yes, you read that right: More people aged over 65 in Asia than the total combined populations of North America and the Eurozone, and in just 25 years from now.
This will provide a target-rich environment of business opportunities, and these opportunities will be concentrated in nations at the forefront of ageing in Asia.
Country insights illuminated
When it comes to demographics, it’s also important to take a closer country-specific look to uncover shared trends and collective insights across the Asia-Pacific landscape.
In article three of this edition—Demographics in the spotlight, by country—we asked our national experts to look into three key questions to bring their own voice to the topic of demographics. The questions focus on opportunities for industries, the effect on disenfranchised communities and the role of digital technology in driving changes across the workforce.
In turn, that connects this edition of Voice of Asia (which concentrates on people power) with the last edition, which focused on digital developments across Asia Pacific. While the last edition assessed the effectiveness of workers, this one concentrates on worker numbers.
This edition of Voice of Asia also highlights just how much of an issue the ageing of the global population is for this region. By 2027, Asia is likely to see 160 million people added to the ranks of its over-65s. Yet that same figure for the Eurozone and North America combined is expected to be “just” 33 million extra.
That’s not, by the way, to underplay the effect of ageing in the Western world, but to put it in context—Asia is enormous, and it is set to age faster than the West, which means business opportunities and policy challenges of ageing now loom largest in Asia.
So what can countries do right now to get ahead of this?
It isn’t clear whether Asia will rise to these challenges as fast or as fully as it might.
For Asia’s ageing Tigers, their growth now lies on the wrong side of demographic destiny, and will now rest on other growth drivers, including productivity-enhancing reforms, an openness to migrants, and a drive towards greater participation among women.
Unlocking people power among female workers: No matter which side of this decade’s demographic divide a nation stands on, it can boost its markets best if it can make the most of its potential people power. That’s true, for example, of Japan, Malaysia, and India, where participation rates of women in the workforce are lesser than those of men.
Welcoming migrants: It makes sense for nations most at risk of a demographic-driven growth slowdown to be among those most open to immigration. Yet, 2017 is a year in which opposition to immigration is garnering votes all over the globe. Migration can help ward off ageing at the national level, but the critical issue is whether policy—and property prices—will allow this immigration to happen on a sufficient scale.
To be clear, bigger isn’t better. But accepting young, high-skilled migrants has the potential to boost all three of the building blocks of economic potential at the same time: population, participation and productivity.
So a key test of Asia’s political systems looms: Those nations that are able to politically sustain solid levels of net immigration, especially of higher skilled workers, will grow faster than those that can’t achieve that—and the same will be true of nations that welcome women workers as much as they welcome men.
What can businesses do right now to embrace the coming demographic opportunities?
Risk and return usually move in opposite directions—the better the returns on offer, the greater the risks.
But demographics is a different story. In a world of uncertainty, the most reliable forecasts of the future are those focused on how many people there will be in different parts of the globe.
It has long been established that older customers spend differently than younger ones, on everything from recreation to health care. This says that some of the best bets businesses can now make involve embracing the customer trends Asia’s sleeping demographic giants will send their way, repositioning their business models to take advantage of the “growth clusters” emerging across a range of sectors.