Emerging Focus: Ageing population in emerging market economies

Like advanced economies, many emerging market economies will face an ageing population. By 2020, the absolute number of people aged over 65 in emerging market economies is likely to be almost double of that in 2000.

Nonetheless, these economies still hold an advantage over advanced economies owing to the high proportion of the young, which will help support growth in aggregate demand in the long term.

Population aged over 65 years in 2020
% of total population

Source: Euromonitor International from national statistics/UNNote: (1) Data for 2020 are forecasts. (2) Emerging market economies covers 25 key economies which include Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, Saudi Arabia, South Africa, Thailand, Turkey, the UAE, Ukraine, and Vietnam.

 

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Key points

  • Emerging market economies (EMEs) are still young, yet factors such as lower fertility and birth rates, and longer life expectancies will cause the population aged over 65 to grow at an alarming pace in the long term. Euromonitor International forecasts that there will be 415 million people aged over 65 in EMEs by 2020, comprising of 57.1% of the world’s population aged over 65 years. This is up from 299 million in 2010;
  • China and India have the largest absolute number of elderly in the world with 130 million and 58.2 million people aged over 65 in 2010 respectively. This is mainly due to the sheer size of the population. China alone accounted for 43.4% of the world population aged over 65 in EMEs in 2010;
  • However, emerging Eastern European countries have the largest old-age dependency ratio (the percentage of persons older than 65 per persons aged 15 – 64) within EMEs in 2010 averaging 20.8% as a consequence of deteriorating healthcare systems and unhealthy lifestyles. They were followed by Argentina (16.4%), Chile (13.5%) and China (13.1%). The UAE had the lowest old-age dependency ratio amongst EMEs in 2010 at 1.3%, followed by Saudi Arabia (4.5%), Philippines (6.9%), Malaysia (7.2%) and India (7.6%);
  • Ageing presents challenges such as a shrinking labour force, reduced savings leading to depressed investment and growth, upgrading of health care requirements and increasing pension spending. At the same time, the healthcare industry and other companies can benefit from this demographic change by marketing products and services for the elderly;
  • The absolute number of the working population in EMEs gives them an advantage over advanced economies. This young population presents tremendous opportunities for consumer markets and will support growth in the longer term. In 2010, the population aged 15-64 in China and India stood at 986 million and 761 million, higher than the combined total of G7 economies at 487 million.

Demographic discrepancies

Emerging Eastern Europe and China are likely to age faster than other EMEs:

  • Emerging Eastern Europe, together with China, has the oldest population within EMEs with a median age of 38.6 years and 38.8 years respectively in 2010, which is expected to rise to 41.3 years and 42.0 years respectively by 2020. China’s one-child policy introduced in 1978 combined with a strong preference for male heirs has led to a gender imbalance, causing the population to age. The ageing trend in emerging Eastern Europe is a consequence of demographic transition – from high mortality and fertility rates to that of high mortality rates and low fertility rates. Unhealthy lifestyles and poor healthcare are causing their populations to shrink particularly amongst males. Ukraine and Romania will face the largest declines in total population amongst EMEs between 2010 and 2020;
  • Although China and India have the largest absolute number of elderly in the world in 2010, their population aged over 65 constituted only 9.7% and 4.9% of their total population compared to Hungary’s elderly accounting for 16.5% of the population. Hungary’s ageing results from declining birth rates as women delay family planning for careers. The country’s birth rate stood at 9.7 per 1,000 inhabitants in 2010 compared to 11.8 per 1,000 in China and 22.5 per 1,000 in India;
  • EMEs in Latin America have not escaped ageing; however, the demographic shift is not as rapid as China or emerging Eastern Europe. The average median age of the population in 2010 was 28.1 years, younger than emerging Eastern Europe or China. Within the region, the proportion of people aged over 65 to the total population was the highest in Argentina (10.5%) and Chile (9.2%);
  • Ageing is not a concern for the UAE and Saudi Arabia and they rank the lowest in terms of absolute numbers of elderly and old-age dependency within EMEs, and they continue to have high birth rates. The fertility rate in Saudi Arabia was the highest in EMEs at 3.0 children born per female in 2010 compared to 1.3 children born per female in Poland and Ukraine. The lack of education amongst women and use of modern contraceptives has led to higher fertility rates in Saudi Arabia.
Birth rates in selected emerging market economies: 2000, 2010 and 2020
per ‘000 inhabitants

Source: National statistical offices/UN/Euromonitor InternationalNote: (1) Data for 2020 refer to forecasts.

 

Challenges in the long term

  • An ageing population and declining birth rates add pressure on labour markets. Economic output will be reduced because the labour force will shrink as a larger number of people retire and this will increase the dependence on the existing workforce. By 2020, Hungary will have the highest old-age dependency ratio in EMEs of 30.1%, up from 24.0% in 2010. Other countries with an old-age dependency ratio over 20.0% in 2020 include Poland, Romania, Russia and Ukraine;
  • A shrinking workforce implies that there will be a smaller working-age population paying taxes resulting in lower government revenues and lesser potential for public spending. Pension spending will have to rise in order to accommodate for more elderly;
  • The elderly will have higher health care requirements and healthcare systems in most EMEs need to be upgraded. In India, for example, the private healthcare sector is estimated to account for more than 80.0% of total healthcare spending and public spending remains limited. A majority of the population has limited or no care;
  • In the long term, consumer spending patterns will shift with expenditure on health and medical services increasing. In China, for example, consumer expenditure on health and medical services as a percentage of total consumer expenditure will rise to 13.0% by 2020 compared to 9.1% in 2010.
Population aged over 65 and old-age dependency ratio in selected economies: 2000 and 2020
Million / %

Source: Euromonitor International from national statisticsNote: (1) Data for 2020 refer to forecasts. (2) Old-age dependency ratio is the percentage of persons older than 65 per persons aged 15 – 64.

Opportunities and advantages against the advanced world

  • The sheer size of their populations gives EMEs an advantage over advanced economies. Between 2010 and 2010, the workforce in G7 economies will shrink by 1.0% in absolute terms while in EMEs it is expected to expand by 8.5% in absolute terms according to Euromonitor International forecasts;
  • These populous countries present tremendous opportunities for marketers especially with the rising number of youth. Higher disposable incomes will result in rising consumer spending. While aggregate consumer spending in G7 economies is expected to rise by an annual average growth rate of 1.8% (in fixed US$ constant terms) between 2010 and 2020, in EMEs it will rise by 6.3% (in fixed US$ terms constant terms);
  • The BRIC (Brazil, Russia, India and China) countries will account for over 60.0% of the increase in aggregate consumer spending within EMEs between 2010 and 2020. Of this, China’s alone will account for more than a quarter of the total increase in consumer spending between 2010 and 2020;
  • Many EMEs like Argentina, Chile, India, Venezuela and Vietnam will benefit from a ‘demographic dividend’ which helps to increase demand due to more people who consume goods and services and the higher propensity to spend by persons in the working age segment;
  • With the growing number of elderly in EMEs, consumer goods companies can benefit from this demographic change by focussing on products and services for older consumers. In addition, there is potential for the healthcare industry to grow.

Prospects

While EMEs are considered to be relatively ‘young’ countries compared to advanced economies, the population aged over 65 is expected to grow rapidly:

  • EMEs will have a total of 415 million people aged over 65 by 2020 compared to 299 million people in 2010 with the average old-age dependency ratio rising to 14.6% by 2020 from 11.4% in 2010;
  • By 2030, China will have the largest absolute number of elderly (aged over 65) in the world totalling 222 million from 130 million in 2010 and will account for 15.9% of the total population, up from 9.7% in 2010. The Chinese government aims to put a comprehensive reform on healthcare and pensions in place by 2020;
  • The UAE will have one of the lowest number of people aged over 65 by 2030 in EMEs (283,632) and will account for only 4.3% of the total population, up from 1.0% in 2010;
  • EMEs are in need of aggressive reforms in healthcare and pension systems. While some governments like in China, Russia and Brazil have expressed concerns over their ageing populations, no concrete measures have been taken yet. However, the provision of basic medical insurance announced in 2009 by China, will help Chinese consumers. Nonetheless, governments will have to follow measures adopted in advanced economies like building strong pension systems, encouraging later retirement and boosting birth rates in the long term.