Why Demographics is the Most Important Contributing Factor to Growth
The World Bank estimates that total world population is about 7.43B at the end of 2016. By 2050, the world will have about 9.71B people. That is an annualized 0.79% natural growth rate. Productivity, the other main factor of growth, has been running about 0.5% for the OECD (mostly the developed countries) the past decade down from 1.8% over the past 50 years. If you add those two factors together, you get a natural rate of world global growth in the 1.3% range. Not bad, but far less than half of the past 50 years. WHY?
Simply, when you first build a road you get a huge economic benefit for years to follow. When you have to spend money to fix the road, you do not see any benefit other than the job it creates for the day it’s being fixed.
In the emerging world, the growth rates are driven by population and productivity. Sub-Saharan Africa will likely have massive growth rates for decades to come. Do you invest in the developed world countries that will service that growth or in the domestic companies? The answer is probably both. I’d love to see a global ETF driven off demographic trends. I’m working to get one created. But until then, here are a handful of ETFs worth watching and buying on pullbacks. Broadly buying the biggest most diversified ETFs for emerging (EEM) and frontier markets (FRN) will help get diversified access, but the biggest parts of emerging markets – China and India – have very different outlooks from a demographic perspective.
The following table highlights some of the key trends to watch out for:
|Region||2016 (Billions)||2050||Ann. Growth Rate|
|Sub-Saharan Africa (SSA)||1.028||2.21||2.28%|
|Middle East & North Africa (MENA)||0.432||0.648||1.2%|
All the African ETFs tend to be far too overweight South Africa, which I’m not as excited about. NGE.N (Nigeria) is one to watch for sure. AFK.N, might be the best to watch in the region, though it is still 33% in South Africa. India (INDA.N, SCIF.N, ZID.T) are the best to watch for that region.
My long-term strategy here is to buy into corrections. These regions are higher risk areas and despite the longer-term bullish growth outlook, they are higher risk investments.