Why Invest In Africa? The Demographic Dividend

African countries have made remarkable progress toward reducing infant and child mortality.

Since 1997, an additional 15,013,767 African children will survive to see their fifth birthday.

What are the implications of this huge success for African economies?

Last month we looked at the 15,013,767 reasons to be optimistic about Africa’s future.

Each of these reasons was a baby that will survive beyond its fifth birthday thanks to the remarkable progress African countries have made in reducing infant and child mortality.

Such a huge number of lives saved is indisputably cause for celebration. It means 15,013,767 mothers were spared the heartache of losing a child, and 15,013,767 children will go on to build futures of their own.

But what are the implications of this huge success for African economies?

Abundance vs. Scarcity

We live in a world of limits, and Africa, with its deficient infrastructure, butts up against them frequently. Resources are finite. Energy provision is inadequate. Food security is not always assured. Jobs can be few and far between.

Photo by BDinPhoenix

This raises the question whether 15,013,767 more healthy babies heralds an era of abundance or one of scarcity. After all, that’s 15,013,767 more people to feed, educate, and employ in a continent that already struggles to do all three.

Thankfully, and perhaps counter-intuitively, population studies show that reductions in infant and child mortality also tend to reduce the fertility rate. In other words, healthier babies means fewer babies.

This is starting to play out in Africa right now.

Falling Birth Rates

For decades, the average African mother had six children. But now, women are increasingly confident that their babies will survive to adulthood, and are therefore opting to give birth to fewer children.

Check out the table below. It shows the average number of children per woman in 1997 and 2012 for the countries that we regularly discuss on this blog.

[table id=87 /]

Source: UN

As you can see, almost all of the countries listed have reduced their fertility rates in excess of 10%. And Namibia almost halved it! Others, like Mauritius and South Africa, now have fertility rates below or near the developed world’s replacement rate — 2.1.

Africa’s Demographic Dividend

With this data, it’s not difficult to see the implications of such a shift for African economies. Fifteen years ago, the average Ghanaian household supported five children. Now it supports four. Even if incomes remained constant, that means Ghanaians can now invest 25% more into the health and education of their children than they did back in 1997.

And they are.

Consider this, according to UNESCO, a child born in sub-Saharan Africa in 1995 could expect to attend school for 6.6 years. An African child born today can expect 9.2 years. Life expectancy has improved, too, increasing from 49.2 years to 54.4 years over the same period.

Moreover, with few dependents households increasingly have the option to save and invest. They open bank accounts, start businesses, and even buy stocks. The success of companies like Kenya’s Equity Bank (EQBNK:KN), Botswana’s Letshego (LETSHEGO:BG), and South Africa’s Capitec Bank (CPI:SJ) are testament to this dynamic.

The final spin-off relates to increased demand for goods and services. Quite simply, households with less children tend to spend more, which stimulates GDP growth and creates jobs. Look no further than the rapid growth of South Africa’s Shoprite (SHP:SJ), Ghana’s Unilever (UNIL:GN), and Nigeria’s Dangote Group (DANGSUGA:NL) for proof of an emerging African consumer class.

All three of the above factors combine to form a virtuous cycle that looks set to propel African growth into the distant future. Birth rates decline which leads to a lower number of dependents per family, which leads to increased investment in human and physical capital, which leads to increased health and wealth and a further drop in birth rates.

This is why 15,013,767 more babies surviving to their fifth birthday looks set to transform a continent. They have triggered a demographic dividend, perhaps cementing Africa’s claim to the 21st century.

[Disclosure: I own shares of Letshego Holdings.]

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